Edited Excerpts:
We have seen delirium in the primary market this year. Are you gearing up for an encore next year?
Yes – with IPOs presently enjoying a “structural mega window”, rather than “temporal short windows”, we expect an encore next year. High quality companies and new businesses across a range of sectors have been tapping capital markets and that has enabled investors to diversify away from current opportunities to new ones. Over the last few years, Indian entrepreneurs have been largely funded by private capital. This capital is now finding its way into the public markets, and the pipeline of private ownership remains large enough to last for 2022 and beyond.
Why is it that we are seeing so few fresh issues from companies for capex or debt reduction but a significantly higher proportion of exits from existing investors?
Despite record flows and record levels in the markets, the capex cycle in the country has remained muted. Hence, unlike in earlier cycles, most of the IPOs of the last couple of years have been secondary dominated and are expected to remain so. Until capex heavy industries find their mojo back, take expansion risks and undertake larger capex funding beyond retained earnings.
10 times, 20 times oversubscription has become the norm this IPO season. Apart from demand, what are the factors driving this? Are investment bankers leaving more on the table in terms of value for potential investors?
One golden rule to understand is that the quality of an IPO or its aftermarket performance is not as strongly correlated to the number of times of oversubscription, as is generally understood. A deal is considered “good” when it turns out to be a win-win for all stakeholders, existing and new. This requires the subtle art of balancing the objectives of both the issuers and the investors. A higher oversubscription invariably emerges from the SFP (self-fulfilling prophecy) of investor expectations and striving to meet objectives. As an investor, if I need X dollars of stock, and I expect the IPO to eventually be 10-times oversubscribed, more often than not, my demand will also ratchet up to 10-times the amount I need, so that I can ultimately meet my objective of receiving the X dollars of stock; therefore you often see a certain amount of oversubscription during a bull market phase.
How much of a role has the regulator played in aiding this IPO boom and do you feel there is scope to further ease rules going forth?
Regulators have played a conducive and supportive role by ensuring effective compliance, controls, risk management and stakeholder management. Rather than an “easing”, it is more of an evolving process, wherein the environment is seeing dynamic change and regulators have kept pace with that evolution by implementing regulatory changes, and this is positive for the ecosystem as a whole.
Sebi is mooting provisions that will allow SPACs to be issued in India. In your view, is the Indian market ready for a product like that given the IPO horrors of the 90s and what sort of safeguarding would investors require?
The SPAC product has been around for a long time in global capital markets. If a product can work elsewhere globally, there is no reason that it should not be able to work in India, provided a proper framework with adequate safeguards is in place. Many private business models can be similar to unlisted SPACs with blind pools, and these have been around in India for a while and gaining strength. The traditional SPAC route allows public market investors to participate in a product that otherwise is more accessible to private investors. Hence, structured and regulated well, India could be ready for SPACs. We have seen similar concerns in the past in India with respect to innovative products such as InVITS and REITs when they were introduced in the market for the first time. However, regulators have done a good job in terms of establishing robust frameworks governing these, and banks, issuers and investors have accordingly come together to create a thriving ecosystem around such new instruments.
What is the mood among foreign investors with respect to Indian IPOs currently and is there excitement for the tech/startup IPOs that are hitting the Street?
India is a beneficiary of “two mega windfalls” at the same time: ample global liquidity and the shifting of that liquidity away from China into other large and high growth countries such as India that are attracting positive investor sentiment. New entrepreneurs and new business models from India, including disruptors that come from both traditional and tech sectors, are on the radar of foreign investors. So far, tech has driven more disruptions and new models, hence more capital has been allocated to the sector. However, high quality businesses in traditional sectors that look to the public markets should be equally well received. Capital is not as much in short supply today, as high quality businesses and entrepreneurs are.
What are Credit Suisse’s ambitions in India on the investment banking side? Is the bank looking for expansion of the team here?
Credit Suisse has significantly scaled up its operations and presence in India to support our growth ambitions, including actively hiring senior bankers in recent years. With our unique client-first model and relationship mindset, Credit Suisse has made good gains in market share in India across the board in ECM, DCM and M&A in 2021 year to date. We remain optimistic about the long-term opportunities of India investment banking, and will continue to execute on our strategy for growth by investing selectively in new talent as well as nurturing future leaders from within the firm.
