beyondbrics

Religare Enterprises, the Indian financial services group, sees the global market turmoil as a potential opportunity for its fast-growing international investment bank, Religare Capital Markets.

While it’s not easy expanding a business in the teeth of the global storm, rivals may be suffering even bigger difficulties, for example big banks with heavy costs and financing needs. That’s the view of Martin Newson chief executive of Religare Capital Markets (RCML) who says: “The markets could be more helpful for us. But actually bad markets should be worse for other banks.”

Newson says that the group’s backers ( the shareholders headed by billionaire brothers, Malvinder Singh and Shivinder Mohan Singh)  are continuing to support the investment bank in its transformation from an India-focused operation into an international emerging markets business.

The Singh brothers don’t lack resources:  in 2008 they raised $2bn from the sale of their stake in India’s biggest generic drugs maker, Ranbaxy Laboratories, to Japan’s Daichi Sankyo.

As well as the high-profile investment bank, Religare Enterprises (Religare:NSI) runs a range of other financial services business in domestic Indian retail broking, insurance (with Aegon), wealth management (with Macquarie),  lending and  asset management.

The asset management business has bought into two US companies, acquiring 55 per cent of Landmark Partners for up to US$171.5m, and a majority stake in Northgate Capital, a global private equity and venture capital company.

RCML has been even more active, boosting its staff from 190 to 320, through recruitment and acquisitions. Last year bought 50 per cent stake in a Sri Lankan brokerage, Bartleet Mallory Stock Brokers; the US and UK units of South Africa’s Barnard Jacobs Mellet for $7.3m;  and Aviate Global (Asia), an equities business with offices in Hong Kong, Singapore and Melbourne, Australia, for an undisclosed sum.  RCML also formed a strategic alliance with Garanti Securities in Turkey.

Despite the market upheavals, the investment bank followed all this with another acquisition this year – a 74 per cent stake in local broker Noah Financial Innovation, a research-based broker in South Africa.

Newson doesn’t rule out further acquisitions but makes clear the emphasis now is on consolidation – bringing together and driving forward the existing businesses and staff. “We will be like this for some time while we get things coming together with our acquisitions and our hiring.”

So, while the Religare group won approval in the spring for a  Rs8bn ( $160m) rights issue, the money has yet to be raised and even when it is, it won’t be destined for RCM.

The shareholders see RCML as still in its investment phase, with profits to come later. The investment bank lost Rs3.28bn in the year to the end of March and, says Newson, is not planned to go into the black until the 2013-14 financial year.

Last year’s loss was enough to drag Religare Enterprises into the red -  it lost Rs2.07bn pre-tax last year, compared to a Rs1.97bn profit the previous year. Consolidated revenues were 78 per cent higher at Rs29.9bn.

The investment bank focuses only on emerging markets, concentrating on India, the rest of Asia and Africa. About half investment bank revenues now come from outside India.  In corporate advisory, the target companies are medium-sized; the issue pipeline consists of planned equity fund-raisings ranging from $50m to $250m.

Russia-based Renaissance Capital and BTG Pactual of Brazil have shown that it is more than possible to build successful investment banks based in emerging markets. Nor are the Singhs the only Indian entrepreneurs with international ambitions in finance.

They all have a long way to go to the bulge bracket. But EM-based investment banks are on the move.