In May, FinanceAsia named the winners of its annual Country Awards for Achievement. Last month, winners were given ther awards at our annual awards dinner in Hong Kong. Today, we continue presenting the rationale for our decisions with a look at the Indian market.
Best Bank: HDFC
HDFC Bank, India’s largest lender by market capitalisation, delivered a strong set of earnings in 2016, helped by a shift in the bank’s loan portfolio toward retail and personal businesses as other Indian bank assets and profits came under pressure.
Having seen India dodge the worst of the financial crisis a decade ago, many local investments were made on overly optimistic assumptions. As a result, state-owned lenders, which account for three-quarters of the country’s banking assets, fuelled an investment boom that has now left them too exposed to struggling capital-intensive sectors such as steel, mining and power.
HDFC stood out from its peers over the review period, including those in the private sector, because of its ability to avoid such trouble.
The gross NPA ratio at HDFC Bank was barely changed at 1.05% at the end of 2016 from 0.97% a year earlier, underscoring its conservative lending standards that allow it to keep bad debt under control and boost profitability by keep credit credits low. In contrast, the gross NPA ratio at ICICI Bank, India’s largest private sector bank, rose to 7.9% from 4.7% over the same period, and at State Bank of India, the country’s largest lender, it stood at 7.23% in December.
At 17.9%, HDFC Bank delivered the second-highest return on equity (ROE) by an Indian bank over the last three years, compared with just 6.3% at State Bank of India. HDFC is the second largest retail lender after State Bank of India.
The mortgage lender also distinguished itself in the capital market by issuing the first masala bond by an Indian corporate, paving the way for more Indian issuers to sell this type of offshore bond – denominated in rupees and settled in US dollars.
Consensus estimates indicate HDFC’s ROE could reach 19.3% in the fiscal year ending March 2019 amid hopes for higher revenue and profit in rural areas as the private lender expands its mortgage portfolio. Indian mortgages may be less prone to the effects of an adverse credit cycle as household indebtedness in India is relatively low. Also, the Reserve Bank of India lowered the risk weighting for certain mortgages in October 2015, allowing banks to allocate less capital to boost demand for low-cost housing.
With a core tier 1 ratio of 12.8% as of the end of March 2017, compared with State Bank of India’s 10.35%, HDFC is seen as having more financial leeway to expand its lending.
Best Investment Bank/Best DCM House: Axis Capital, Axis Bank
Axis Bank/Axis Capital is FinanceAsia’s top Indian investment bank this year thanks to solid performance across debt and equity capital markets and M&A advisory.
In the period under review the bank was No 1 in the onshore debt capital market league table, underwriting a whopping $12 billion worth of domestic bonds, according to Dealogic. With a 24% market share, it held a comfortable lead over its closest competitor, Trust Investment Advisor, which had a 16.4% share.
Jumbo deals include the $139 million-worth of rupee-denominated perpetual bonds issued by Syndicate Bank, the largest onshore hybrid sale during the review period, and Uttar Pradesh Power’s multi-tranche $1 billion transaction in February 2017, the second-largest investment-grade bond sale after HDFC Bank’s self-led $1 billion offering.
Away from the domestic market, the lender was the only Indian bookrunner on HDFC Bank’s $448 million masala bond, joining Credit Suisse and Nomura as leads on the inaugural Indian corporate sale of offshore rupee-denominated bonds.
Axis Bank subsequently also helped NTPC and Indiabull Housing Finance to issue masala bonds, collectively raising $500 million for the two companies.
Axis Bank, in addition, helped a range of corporates with their equity capital-raising plans, including IPOs by Endurance Technology, RBL Bank, and Avenue Supermarts, with a total value approaching $640 million.
What’s more, Axis Capital advised on Vodafone India’s merger with local partner Idea Cellular, the largest M&A transaction during our review period. Axis Capital, together with Goldman, advised billionaire Kumar Mangalam Birla’s holding companies, which control Idea Cellular.
Axis Capital, the investment bank arm of Axis Bank, was formed through the integration of Enam Securities with the Mumbai-based Axis Bank in 2012.
Best ECM House: ICICI Securities
ICICI Securities, the brokerage arm of India’s largest private sector lender, was the country’s domestic ECM powerhouse during the award period due to its strong retail franchise and strong relationships with key institutions such as insurance companies and pension funds.
ICICI Securities ranked second among all bookrunners in the ECM league table, trailing only Citi, according to Dealogic. ICICI underwrote $1 billion of business across 19 deals, the only Indian bank to hit this mark during the review period, with a 9.65% market share.
The Indian securities firm was involved in several high-profile domestic listings and follow-on deals, including ICICI Prudential Life’s $900 million listing, India’s largest IPO in six years. ICICI Securities was the only domestic bank to win a slot as joint global coordinator, joining Bank of America Merrill Lynch.
In other ECM offerings, ICICI focused on helping companies in the bloated sectors of power, iron and steel to raise fresh funding. That included indebted automaker Motherson Sumi Systems qualified institutional placement in October 2016, raising $300 million from the sale of new shares for the automaker. According to its latest annual results, net debt in March 2016 was up 36% year on year.
In May 2016, the broker partnered with Citi in Castrol India’s $310 million block trade, helping a group of unnamed investors buy a stake of approximately 1% in the oil company, a local unit controlled by UK-based BP.
Best Broker: Edelweiss Finance
Global optimism over India may be helping the country’s stock markets, but the ability to identify key trends and provide bespoke research offers investors a higher level of confidence to make their investment decisions.
Edelweiss Finance bags this year’s best Indian broker award thanks to its research-led gains in market share.
Founded in 1995, Edelweiss has differentiated itself by focusing on a wider spectrum of stock ideas and themes, some of which are not covered adequately even by the larger global brokerages. As one chief investment officer at an Indian life insurance company put it: “Edelweiss has played an important role in our investment decision by providing high-quality research ideas, good corporate access and excellent sales and trading support.”
As a result, during our review period, the company captured a 5% market share in domestic institutional stock brokering, up from 4% a year earlier.
Its research teams cover 650 domestic and international clients, offering research reports on more than 250 companies across different sectors, or 80% of the market cap in India.
It has overseas offices in New York, London, Singapore and Hong Kong, for which it can provide more bespoke research and services to India- or emerging-markets-focused fund managers.
According to Dealogic, Edelweiss ranked third in the domestic ECM bookrunner league table, after ICICI Securities and Kotak Securities, which have strong backing from their respective banking parents.
Best International Bank, Best International Investment Bank: Citi
Competition for the award intensified this year but Citi continues to stand out for its balanced business across equities, M&A, and debt. The US bank also bags the best foreign bank award thanks to its strong cross-border relationships, helping Indian corporates manage their currency risk and providing individual clients with mobile solutions.
On the equities front, the US bank clinched top spot in the domestic ECM league table. Of the three largest ECM transactions during our review period, Citi was involved in two of them: ICICI Prudential Life’ $900 million listing and ING’s $549 million sell-down of Kotak Mahindra Bank.
In M&A, the US bank played a key role in LafargeHolcim’s all-cash sale of an Indian building-materials business to India’s Nirma for an enterprise value of about $1.4 billion, helping the world’s largest cement company to trim its assets and help pay down debt. Citi led the advisory role for LafargeHolcim and coordinated the overall transaction, shortlisting a handful of domestic and international bidders within a very tight schedule.
In April 2016, Citi acted as sole financial advisor to Blackstone’s purchase of a majority stake in Indian IT outsourcing firm Mphasis for $825 million, giving the private equity firm access to the country’s banking, financial services and insurance sectors.
In terms of debt sales, Citi helped several key state-owned companies tap offshore investors for funding. Citi was a bookrunner for NTPC when the India’s largest power producer raised €500 million from a 10-year bond, its first euro-denominated offering.
It also proved its strong relationships with Delhi International Airport, helping the airport operator to become the first Indian infrastructure company to print a 144A bond in October 2016. Citi was a left lead bookrunner in the $522.6 million sale for Delhi Airport, which is a repeat client for the bank.
Apart from the deal-making franchise, the bank has a strong consumer franchise in India. It saw spending on Citi brand credit cards expand by 29% year-on-year to December 2016, as local consumers started to embrace the use of cashless payment via mobile wallet and online banking. It has partnered with Paytm, an Alibaba-backed online payment firm, and Samsung Pay by offering money recharge via Citi’s credit and debit cards.
On the corporate lending side, the bank’s gross NPL ratio stood at 1.4% last year, up slightly from 1.3% in 2015, according to Citi. But that’s still well below the 7%–8% figures reported by domestic Indian banks.
