Equity, debt market deals to revive soon, right polices can tackle economic downturn: BofA

"Right now, many companies are waiting to declare their results, after which they will look to raise funds through equity or bonds and shore up their capital structure," Raj Balakrishnan, Bank of America's investment banking head in India, told PTI in an interview over telephone.

New Delhi: Many Indian companies are waiting to tap equity and debt markets after announcing their financial results to shore up liquidity and strengthen their capital base, a top investment banker said while expecting that right 'fiscal and monetary policies' would be able to tackle the economic downturn.

The banker also said M&A dialogues are continuing despite the COVID-19 crisis as deals that made sense earlier and were strategic in nature, continue to remain so.

"Right now, many companies are waiting to declare their results, after which they will look to raise funds through equity or bonds and shore up their capital structure," Raj Balakrishnan, Bank of America's investment banking head in India, told PTI in an interview over telephone.

There have been quite a few deals in recent weeks and experts are hopeful that activities should pick further momentum by May-end after most companies are through with their fourth quarter and full year results for 2019-20.

BofA itself has managed a number of equity and debt market deals, including USD 1.4 billion dollar IPO of SBI Cards, USD 300 million dollar block deal in HDFC Life for Standard Life Aberdeen, share sales in Avenue Supermarts and a US debt placement worth USD 310 million for Adani Transmission.

Globally, it has helped Malaysian oil giant Petronas and US-based Carnival Cruises raise billions of dollars of funds, among other big deals.

"There is obviously a health issue right now, but it is impacting balance sheets of individuals and companies alike. So obviously, there will be a follow-on effect of that. But governments and central banks are stepping in (to tackle the situation)," Balakrishnan said.

In India, the Finance Ministry and the Reserve Bank have announced several measures to help Indian economy, including a welfare package for the poor and an effective rate cut of 100 basis points to boost demand.

"It is my belief that governments would need to temporarily give up on their fiscal responsibility targets. The reason we have these targets in good times is to have the financial firepower to deal with a contingency like this one.

"So, you have to use that financial firepower you have built. For example, the RBI through FY2019-20 added USD 40 billion to their forex reserves. Now why do you build reserves? You build them for times of need and if this is not that time of need, I do not know what that would be," the veteran banker said.

Balakrishnan said India's balance of payment situation is thankfully healthy due to forex reserves and lower oil prices.

"I am cautiously optimistic that the economic downturn can be dealt with as long as we follow the right fiscal and monetary policies," he said.

Giving a global perspective on the lockdown and its impact on investment banking business, Balakrishnan said most of the world is under lockdown and China is the only place where people have started coming back to office, but they went into lockdown in January itself and they are getting back after more than three months.

"We (in India) have been under lockdown for only one month," he said.

Balakrishnan said soon after markets were hit by the coronavirus pandemic, most companies across the world went out and drew down their credit lines and improved their liquidity positions.

Also, bond markets had almost shut down for a while, after strong activity through January and February, but they rallied quickly around the middle of March and a very strong period for global investment grade bonds has been witnessed through the second half of March and April.

"Highly rated companies with investment grade ratings, went out and tapped the bond market and raised liquidity. So after drawing on revolving credit lines, bond market fund raising happened," he said.

Deal activity also began soon in the US, spread further to Europe and then to other places. Last week, Bank of America helped Petronas espite the stress in oil prices successfully raise USD 6 billion from the bond market. This indicates that for a quality issuer, even for a hard hit sector, a large bond offering even now, he said.

Balakrishnan said the leveraged finance market, which was substantially dislocated, has revived too with few small deals in the last few weeks.

He said companies have also started raising equity and equity-linked transactions. One major transaction Bank of America did in this space recently is for a US-based cruise company Carnival Cruises.

In India, Balakrishnan said, Bank of America has had an excellent run in the last four months.

"In March, we successfully reopened the Indian equity capital markets by pricing a USD 300 million block trade in HDFC Life for Standard Life Aberdeen on a sole basis. Also we helped SBI Cards raise USD 1.4 billion via an IPO, which was the largest in the last ten years. In February, we helped D-Mart raise over USD 1 billion through a QIP and an OFS route," he said.

Besides, M&A dialogues are continuing as companies evaluate assets and deals on the basis of their strategic importance.

"Deals which made strategic sense before COVID-19 will do so even after after COVID-19 too," he said.

Asked whether market correction was a good opportunity for people looking to raise funds and also for investors when they return to the market after mid-May, Balakrishnan said it will depend on how long the impact will last and vary from sector to sector.

"If the impact is going to be for 3-6 months, which is what most people believe right now, then it does look like prices are attractive and it is a good time to make investments. But if the impact lasts longer, it might not be such a good time to make investments," he said.

"I think investors will make their decisions on company by company basis. Also, when a company goes out, investors will expect a clear articulation of their medium and long-term strategy. I believe investors will have comfort with management teams which have a clear strategy and adequate liquidity to deal with contingencies," Balakrishnan noted.

(PTI Report)