More players, more sophistication

The business traveller to India is confronted with a situation not unlike that seen in other parts of Asia. Rather run-down neighbourhoods that are fast encroaching on the city centres in Mumbai, Delhi, Chennai and Bangalore; dilapidated roads and public infrastructure and inexplicable blackouts that strike with clockwork regularity every hour, in even the most upscale of buildings.

But even in the midst of the pollution and poverty the average business-person will see a few things in India that one is unlikely to encounter elsewhere in the region. Take the drive from Mumbai’s Chhatrapati Shivaji International Airport to the city’s central business district hub at Nariman Point, or journey down one of Delhi’s national highways from Indira Gandhi Airport to Connaught Place. You will encounter plenty of billboards featuring celebrities, sport stars and business leaders hocking everything from soda to cement – perhaps not so out of the ordinary.

Somewhat less common is that scattered among them are posters advertising capital raisings, IPOs, and bond and share issuances. One such issuance, L&T, just raised US$600m through a dual QIP/CB issue and another – Welspun – increased its CB by US$150m. This is a strong signifier that both the corporate sector and the middle class’s thirst for capital, and the ‘India story’ — that narrative started by traders along the Silk Road some thousand years ago – is quickly reaching its final stanza.
Billions of dollars have already been spent by both public and private investors over the last two years (estimated between US$4–US$5.1trn), yet this is set to be exceeded by a government elected on a mandate to improve vital infrastructure. Targeted spending of US$10trn over five years, a corporate sector with the means available to construct it and a fast-emerging class of wealth generators with the eagerness and risk appetite to invest all assist.

Infrastructure is only part of the story, albeit a big part. Outbound investment remains on the radar of cash-rich Indian corporates like Tata, ICICI and Reliance, as well as a whole host of smaller ones. FDI guidelines have been relaxed to encourage foreign investment and the innovation seen on the nation’s capital markets has played a hand in leading an unmistakable recovery over the past three months.

Just as the vital signs for the Indian economy are good, so too are those of the nation’s law firms, who have themselves long hedged their own domestic and international growth against the rising stocks of India’s economy. Never have so many law firms – and so many from different segments of the market – been involved.

It’s now not only names like Amarchand & Mangaldas, AZB and J Sagar & Associates that one is likely to encounter on the opposite side of the boardroom table. Mid-tier and boutique law firms are claiming headlines of their own for their counsel on the largest, most innovative and complex of Indian and international transactions – and often without the assistance of international law firms. The legal services market continues to stride towards a level of sophistication that many outside India contend (rightly or wrongly) is beyond expectations.

Never before have India’s law firms been claiming so many headlines, with roles on some of the country’s most significant transactions over the past 12 months. Deals such as Nomura’s acquisition of Lehman’s Asian assets, the proposed MTN Bharti Airtel merger, and Adani Power’s IPO come to mind, landing firms spots atop legal advisory leaderboards in each quarter this year.

In private equity, M&A and project finance, Indian law firms all figured prominently. One key to understanding this rise – and why many believe Indian law firms will continue to assert their growing clout in the years ahead – is recognising that Indian law firms serve not only local clients but international ones as well.

A 60:40 split between serving international and domestic clients is most common, according to ALB’s research, something that may appear a little odd when compared with the heavy domestic-oriented client portfolios of local law firms seen elsewhere in Asia. This split is something that Abhishek Saxena, co-founding partner of Phoenix Legal, attributes to how the Indian economy has developed since it was liberalised some two decades ago. “The real watershed moment for Indian business, and Indian law firms, was the opening up of the economy in the 1990s,” he says. “Indian law firms really grew up alongside this as international investors started to pour in. The influx of FDI that has been occurring since then accounts for why most Indian law firms will have close to the same amount of international clients as local clients.”

How has the unmistakable drop-off in India-related international investment affected this balance? Vendana Shroff, a partner with Amarchand & Mangaldas, says that while the financial crisis has brought about a slow-down in certain areas – capital markets and large scale M&A are two examples – the impact this has had on overall workflow has been minimal. “The GFC god has been kind to us,” Shroff says. “There were a few bleak days, just as there is in good times, but what you would expect to see in a downturn [happened]: capital markets work dropped off, M&A went from big deals to smaller ones … but we haven’t been forced into any strategic adjustments, whether in terms of staffing or direction, by the crisis.”

Not everyone shares Shroff’s optimistic assessment. One firm that hasn’t been as lucky is FoxMandal Little. The drop-off in work from its international company-dominated client portfolio has created a number of headaches for the firm, most notoriously the difficulty in paying salaries of its staff earlier this year. According to Som Mandal, a partner at the firm, the result is the “challenging” process of refocusing the firm’s client base. “The financial crisis has hit some of our international clients hard and some of that has been passed onto us,” he says. “What we are doing now is revisiting Indian clients and trying to build up this segment to let them know we have the resources, through our network of offices in India and our presence in London, to assist them both at home and abroad.”

Likewise, a number of other Indian firms who have not been as candid about their GFC-related troubles will be banking on a flurry of outbound activity from Indian companies to reverse their fortunes. But when, and if, this will occur is still anyone’s guess. “There have been outbound deals, but there hasn’t been a flood –  it’s been much quieter than in previous years,” says Abhijit Joshi, a co-founding partner of AZB & Partners. “At the moment Indian companies are struggling to raise the capital needed for acquisitions abroad and most are in a stage of consolidation,” he says, singling out the IT sector as possibly the only exception to this trend. “We do foresee an increase in outbound activity but exactly when this will happen is still uncertain … there are too many pieces of the puzzle that need to fall into place first.”
Capital markets

One vital piece of this puzzle seems to have already fallen into place: over the last three months alone, the country’s companies have raised over US$6bn on the nation’s capital markets (and more than US$16bn through other measures). There is the promise of more to come as the country fully shakes off the effects of the financial crisis. “The listings and capital market activity that is taking place at the moment is promising,” Joshi says. “Products like QIPs and IDR, when they eventually hit the market, are opening up new segments to investors and companies… it is indicative of the sophistication and innovation happening there.” The qualified institutional placements, for example, are private placements of equity shares or securities, convertible into equity shares by a listed company to qualified institutional buyers under provisions outlined in the SEBI regulations.

In order to make a QIP, members of the issuer are required to approve the placement by way of a special resolution highlighting that the securities offered in a QIP are of the same class as the securities of the issuer. These need to be listed for one year before service of notice of the shareholder’s resolution.

The innovation, says Rabindra Jhunjhunwala, a partner with Khaitan & Co, has to do with the short timeframe required to get a QIP off the ground. “The processes can all be completed within a couple of months,” he says. “There is next to no involvement of SEBI with the process, except for filings which are done post-listing.”

It helps that the pool of investors being targeted are seasoned as well. “The investors – qualified institutional buyers – are extremely savvy,” says Jhunjhunwala. “More often than not, they will be sitting on some cash and will be looking for the right opportunity to quickly deploy it.” Amarchand & Mangaldas has been the busiest law firm on the QIP front over the last six months, having landed lead roles on Cipla’s US$145m QIP, Unitech’s US$325m offering and HDIL’s US$600m placement, among others.

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