For global banks, India could soon be worth it

BENGALURU, Nov 7 (Reuters Breakingviews) – Global banks’ CEOs have descended on Hong Kong for a financial leaders summit hosted by the city’s monetary authority but investment bankers based in the hub are increasingly spending time elsewhere as their revenue from China shrinks. The hot new business class ticket within Asia is in fact, Hong Kong to Mumbai.

Before the pandemic, more than half of the Asian top line of U.S. bulge bracket banks typically came from Greater China which includes the mainland, Hong Kong, Macau and Taiwan. Fast forward and deals linked to the world’s second largest economy are in short supply for global advisors thanks to geopolitical tensions between Beijing and Washington, as well as China’s slowing economy.

The top 10 foreign names including Goldman Sachs (GS.N), Morgan Stanley (MS.N) and UBS (UBSG.S) generated just $244 million in investment banking revenue from offshore China activity this year. Annualised, that’s 40% less than in 2022 and nearly 80% less than pre-pandemic, Dealogic data shows. With Hong Kong’s benchmark Hang Seng Index (.HSI) 40% lower than at the start of 2020, company owners are unsurprisingly reluctant to sell shares at depressed valuations. Revenues onshore for the cohort traditionally have been less rewarding.

The mood in the world’s only other country of one-billion-plus people is cheerier. India’s benchmark Nifty 50 Index (.NSEI) is trading near a record high as domestic investors direct their savings to equities and the IPO market is buzzing. Some 172 companies have gone public in the South Asian nation this year as of Oct. 24 and IPO proceeds from the market in 2022 exceeded those from offshore China deals, according to LSEG data.

Of course, India only looks so attractive because China-related activity elsewhere is weak and it is a long way from compensating for the shortfalls. Its $3.4 trillion economy is one-fifth the size of China’s, and its $3.9 trillion stock market is about one-third the size.

Deals are small, and fees in the South Asian nation are typically poor. Banks pocketed less than 0.1% on state-backed Life Insurance Corporation’s (LIFI.NS) $2.7 billion deal in 2022. Private companies do pay better. Morgan Stanley, Goldman Sachs, JPMorgan (JPM.N) and Citigroup (C.N) were among those sharing 1.8% of Alibaba-backed Paytm’s (PAYT.NS) $2.5 billion offering in 2021. That’s less than half of what dealmakers are used to making on IPOs greater than $1 billion in the United States.

Yet multiple blockbuster offerings are in the works and those ought to be less complicated to complete than many China-related mandates. Mukesh Ambani is preparing to list the retail business of his Reliance Industries (RELI.NS) and Prosus-owned Swiggy, one half of India’s food delivery duopoly, is expected to go public in 2024 too. Bhavish Aggarwal’s two-wheel electric-vehicle maker Ola is trying to fast track its IPO. If those companies offer 10% of themselves to investors, the three deals alone could generate over $11 billion, about 60% of the record proceeds logged in 2021.

What’s more, lucrative sponsor-related activity looks set to pick up particularly as investors are reluctant to see their funds deployed in China. KKR put its India head, Gaurav Trehan, in charge of its Asia private equity business in June. Blackstone (BX.N) already has its regional private equity head Amit Dixit based in Mumbai. Its listing of shopping malls through Nexus Select REIT in May earned JPMorgan, Bank of America (BAC.N) and others 2.5% of the $390 million deal. Overall, IPO fees in India have risen from 1% of proceeds in 2017 closer to 2% in recent years, LSEG data shows.

Hong Kong bankers are not going to relocate to India any time soon but while they wait out a slow and uncertain recovery in China activity, the trip to India looks increasingly worthwhile.

Follow @PranavKiranBV on X

CONTEXT NEWS

The Global Financial Leaders’ Investment Summit, a flagship event hosted by the Hong Kong Monetary Authority, began on Nov. 6 with participants including Goldman Sachs Chief Executive David Solomon, Morgan Stanley boss James Gorman, Citigroup’s Jane Fraser, as well as HSBC’s Noel Quinn and Standard Chartered’s Bill Winters.

Proceeds from initial public offerings in India amounted to $3.8 billion across 172 deals as of Oct. 24, according to LSEG data. In 2022, proceeds from Indian listings exceeded that of offshore China listings.

Offshore China revenue generated by the top 10 foreign investment banks slumped to $244 million in 2023 through to the end of October, Dealogic data shows, compared to $483 mln in 2022 and $1.8 bln in 2021.

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

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