When BMO Nesbitt Burns Inc. pressed ahead with plans to open an investment banking office in Mumbai last year, the timing could not have been worse.
Lehman Brothers had just collapsed and the global financial system was engulfed in a full-blown crisis. Investment banks around the world were retrenching while BMO was branching out into the notoriously challenging Indian market.
One year later, however, BMO executives believe the poor timing, was in fact, a blessing.
“Many of our competitors in Canada and around the world were staggered at our launch in India 12 months ago. The Indians applauded it. They saw an investor that was taking a long-term view and saw the structural strengths of India to take advantage of,” says Michael Rayfield, vice-chairman of investment and corporate banking at the firm.
“We had people wrapping their arms around us. When others were exiting the market, here we were coming in.”
India's roaring economic growth, budding corporate sector and rapidly rising list of billionaires had already attracted a rush of Wall Street and European brokerage firms to Mumbai. But it can also be a confusing and exceedingly challenging market to penetrate. So as the first Canadian investment bank in India, BMO's brass did plenty of homework before setting up shop.
They came up with a plan to demonstrate an enduring commitment to the South Asian nation, which had enjoyed gross domestic product increases of more than 9 per cent for three successive years until 2008, when growth slipped to 6.7 per cent. BMO struck a partnership agreement with Ernst & Young's India unit, which had already established a presence in the country.
As well, they chose to limit the number of business sectors that they would try to break into. While India “needs everything,” Mr. Rayfield says, BMO decided to focus on the industries it knows best, including mining, oil and gas, as well as food and agriculture.
“Our biggest challenge has been trying to curb that enthusiasm … a knee-jerk reaction, getting out of this sector and into that sector, would be frowned upon and would actually be a pall over your entire strategy. We decided we had to know what we were doing before we went in,” he says.
The foray into India is part of the investment bank's strategy to seek out new growth opportunities to offset slowing business in other markets. While the United States and Europe are still struggling with an economic recovery, India's economy is expanding fast and attracting plenty of foreign capital for its companies. India's bellwether stock index, the Sensex, has surged by nearly 100 per cent since March, and while many Western governments are still trying to stimulate growth, India's central bank is now worried about inflation.
From its Mumbai office, with support from its global network of investment bankers, BMO hopes to advise Indian companies on mergers and acquisitions abroad, stock market listings in Canada, the U.S. and Europe, as well as provide financing.
It is a massive opportunity. Over all, fees from investment banking in India, including equity issues, bond deals and M&A, total $782.4-million (U.S.) so far this year, according to data from Thomson Reuters. In 2008, India investment banking fees were $1.1-billion, down from a record $1.2-billion in 2007.
BMO hasn't won much of that yet. In fact, it's done just one deal in India so far – a small private IT transaction – however, the bank has won a number of mandates from Indian clients and expects to complete more transactions soon.
It also hopes to win business from Canadian companies looking for acquisition opportunities in India or seeking to tap the Indian market, which boasts a rapidly growing middle class of about 250 million people.
“We can bring them partners, we can bring them ideas, we can help them in government relations. So all of a sudden, things that prevented Canadian companies from having an interest in India, are all now in the realm of possibilities,” says Mr. Rayfield, who was born and raised in India.
The bank has enjoyed success with a similar approach to China, where it opened up a Beijing office in 2006. BMO has since advised on mining deals involving Chinese companies valued at more than $1.5-billion (U.S.).
The needs of India's mining sector are similar but not the same as China's, says Egizio Bianchini, the global head of mining for BMO Nesbitt Burns.
While China's state-backed companies have been aggressively snapping up mining assets for the past couple of years, many Indian firms are taking a slower approach. India has plenty of its own natural resources, including iron ore, coal and zinc, and very little of India's land mass has been geologically explored. However, developing new mines has proven exceedingly difficult in India because of a crushing bureaucratic process.
“I've come to the conclusion that it is going to be very difficult for India to exploit its resources … they're going to have to rely on the outside world,” Mr. Bianchini said.
To mark the one-year anniversary of the new office, Bank of Montreal chief executive officer Bill Downe was in Mumbai this week, meeting with many of the corporate executives and Indian government officials that the bank has developed relationships with.
Enhancing those relationships will be key, Mr. Rayfield says. Despite having just one deal under its belt, he expects the Mumbai office will become a vital part of the firm as India and other Asian economies continue to outstrip growth in Europe and North America.
“Deals are not the measure when you are opening an office. We're looking for India to be producing profits for us over the next 25, 30, 50 years,” he says. “The first 12 months is not about deals.”
