India IPO volume down, regulator inaction blamed

Author: | Published: 31 May 2012
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India's capital markets are suffering from a lack of decision-making among politicians and regulators.

Speaking at Asialaw’s Southeast Asia Summit 3i’s Asia head Anil Ahuja said over the last 18 months India had become a case study for how not to run a country.

“From the Commonwealth games fiasco to fights among army chiefs– it’s a long list of one bullet in the head every quarter,” he said. “Add to that the issues we faced with political indecision and we’ve now reached a point where we’ve missed the golden opportunity presented from being the darling of global markets.”

BMR Advisors’ tax director Sumeet Hemkar said slow decision-making had caused India’s regulators to take much longer to approve transactions. “They are also not spelling out the rules of the game which is making it a more challenging environment to try to do business in,” he said.

Ahuja said if regulations could be introduced that an intelligent person could read and understand it would change the whole country.

Hemkar said deals were currently being discussed down to the wire in terms of issues that could arise in the future. “All of these uncertainties are creating a time lag and roadblocks,” he said

Luthra & Luthra’s Mohit said it was a market in which there was no hurry to close because elections were one or two years away. “People are delaying,” he said. “And every time you delay a deal, you actually get the deal at a better price because of economic issues internationally.”

Ahuja said people now questioned why they should invest in India. “They talk about risk premium and it’s an important issue.”

The country had seen a big drop off in international capital markets deal activity since 2010. Immediate economic concerns with India, coupled with general corporate governance issues and uncertainty around recent tax decisions has prompted a cooling of investor appetite. Companies want to go public but not many are getting deals down.

Hemkar said that the Government’s recent tax decisions  including changes to the legislation retrospectively have changed the rules of the game. “At a practical level, Investors need to recognise the Government’s philosophy of moving to substance over form and also that tax cost is not something that can be done away with by clever deal structuring in this era,” he said.

Saraf said India was paying the price for being a big democracy.

“Democracy brings a lot of good things,” he said. “But the numbers are what matter in electoral reform. Because of the numbers, and the economic issues, reform has stalled.”

“Indian people have not benefited from economic liberalization as readily as they have in China,” he said. “The trickle down in democracy takes a lot of time.”

Even so, he stressed the right statement were being made. “The country is headed in the right direction; I don’t think it has lost its way,” he said. “We will still grow at 7% and 8 % but it will be a consistent growth strategy.”

Every sector promises growth, he said.

Hemkar said owing to the global economic downturn, investment options outside of India are limited and this continues to prompt investors to look domestically (within India) for good deals. “I am seeing a lot of strategic interest in the country and strategic investors are not short-term players,” he said. “They have a long-term view on the country and a positive outlook on what India could offer in terms of return on any investment.”

Davis Polk & Wardwell’s partner Kirtee Kapoor said the fundamentals of the country were strong.

But there remains too much confusion and haziness when it comes to doing deals, hampering people’s ability to look forward. “Nobody wants to make decision without a clear view, then it becomes a leap of faith,” he said. “The market can be wrong longer than you can be solvent.”

He remained hopeful, however. “In India they say all will be fine in the end, and if it is not fine yet it is not the end yet,” he said.