New to the Citi

LAST APRIL, BHARAT FORGE needed to raise $140 million (Rs 629.9 crore) as working capital. One of the most popular routes for companies to raise capital is to issue equity shares, or debentures that can later be converted to equity to qualified institutional buyers. The Securities and Exchange Board of India (Sebi) allows companies to issue such shares to domestic institutions; there is no need for companies to notify the market regulator. These QIPs or qualified institutional placements are popular with buyers, since companies generally offer hefty discounts on the asking price.

However, Bharat Forge was looking for an alternative to QIPs, since the market was volatile. Sebi allows companies to offer discounts, but sets a minimum price based on a two-week average share price. When prices are not stable, offering discounts makes little sense.

The other option the company considered was issuing foreign currency convertible bonds (FCCBs). Buyers of these bonds have the option of converting them to equity after a specified period, or sell the bonds back to the company at a specified price. Bharat Forge was not happy to go this route either; four years earlier, it had issued FCCBs to raise $80 million. Those bonds are to mature in April 2013, at which time the company will have to pay Rs 690 per bond. The market price of Bharat Forge on March 11, 2011, was Rs 315; the price will need to more than double in two years. With domestic and global markets getting more volatile, the company might have to rely on other sources of funds when the FCCBs come up for conversion.

The solution came from Citibank (partnered by Axis Bank and Kotak Mahindra Bank). The triple-barrelled structure that the banks proposed was a combination of QIPs with convertible bonds and warrants. This was hardly an innovation; companies have become used to issuing warrants to sweeten expensive equity and debt deals. In the case of Bharat Forge, the company offered warrants at a subsidised rate to make up for the low discount on the QIPs. “We wanted to have a structure that would enable investors to enter equity without bothering about floor and market prices,” says Vikas Khattar, managing director and head, equity and equity-linked capital markets origination India, Citigroup Global Markets.

In a market that was still recovering, the deal was welcomed and Bharat Forge’s issue was oversubscribed 11 times. “We were very happy with the execution,” says Amit Kalyani, executive director, Bharat Forge.

The Bharat Forge deal is indicative of the changes within Citi. The bank now stresses on customer interaction and offers solutions, not just products. “There can be a situation where a client comes and says that he wants to raise $250 million. But as we come to know his needs and his plans over the next three years, we really wonder whether he would be better off, say, with a dollar bond,” says Rajiv Nayar, managing director, debt capital markets team, Citi India.

That’s a change from even a couple of years ago. Glenmark Pharmaceuticals, a mid-sized company known for its R&D activity, has been part of this change. In 2007, the company needed $100 million for capital expenditure and business expansion. Citi, the company’s corporate banker, helped Glenmark raise this amount through a long-term foreign currency loan. By 2009, however, Citi began getting more proactive. Where it once merely facilitated the process of getting a large loan, it now began advising the company on better ways of raising funds, such as a QIP for $85 million. Last year, Citi’s corporate banking team along with the global transaction services and global markets teams helped the pharma company manage its international treasury operations in Europe and C.I.S. countries by structuring an international trade finance loan and a structured finance loan.

“The idea is to cross-sell our capabilities across the platform, not only within global banking but across all verticals, thereby taking a more holistic approach,” says Ravi Kapoor, managing director and head of global banking, Citi India.

It’s as if Citi’s iconic umbrella is back. The bank is integrating its departments and divisions to present a single face that will be able to cross-sell products by tailoring them to clients’ needs, vis-à-vis various people from the same organisation trying to sell different products. “My job was to ensure that the ‘One Citi’ concept within Citi was completely linked. In large organisations, different parts are doing different things. It is important to ensure the links work together, so that we present one face to our clients,” says Pramit Jhaveri, Citi India’s country officer.

So where does the difference in thinking show? Shankar Raman, a 15-year finance veteran and executive vice president at Larsen & Toubro, says Citi’s relationship managers spend a fair bit of time with clients. “They have been able to understand what the company’s priorities are and have come up with relevant suggestions and ideas at various points of time. They aren’t a boutique bank, and are able to spare the bandwidth and resources,” says Raman.

“Investment banking is a high-end relationship business. It is about catching the client’s mind. It is a partnership, not a vendor type of relationship,” says Rahul Shukla, an investment banker who is now Citi India’s managing director and head of corporate banking.

This kind of relationship helped Citi show L&T how it could raise $600 million through a combination offering of QIPs and convertible bonds. The firm had been raising money through QIPs and convertibles separately for a while. Initially, it had tried to do a plain QIP, which didn’t cut ice because the floor price offered to investors was too low, says a person involved in the deal who didn’t want to be named. Raman says the bank stepped in with a team that understood market conditions in various segments. “The novelty was to mix it up. Possibly, they understood the conditions at the time and felt a combination would be better than just a QIP or a convertible. The deal was done well, so their assessment was right,” he says.

This kind of relationship building has propelled Citi to the top of two of the three tables prepared by Dealogic, an independent provider of international banking and trading data, which ranks Indian banks on the total volume of corporate finance deals.

However, Citi isn’t resting on its laurels. Shukla’s job entails going through the entire gamut of Citi’s corporate banking clients and providing feedback to his colleagues in corporate finance and global markets. He goes through the financial details of the firms and alerts his counterparts having identified their financial needs. “If there is a client with a mature business, who has not made an initial public offer, we ask ourselves whether there is a need for pre-IPO wealth management? Can we convince him to do an IPO? After the IPO, can we help him manage the proceeds?” asks Shukla.

Citi’s plans seem to be bringing in the money too. U.S.-based investors and global funds, that have stayed away from investing their core money in India till now, have started looking at opportunities. Citi’s sales team in India certainly has its job cut out.

In 2010, Coal India came out with a Rs 15,000 crore IPO where Citi was the lead left—the term for a bank whose name comes at the beginning of the list of banks involved in the process. The offer attracted a lot of investors, including one based in South America.

“We have clients on both sides and we need to make sure that companies are pleased with the profile of the instrument we offer while investors are happy with the issuance,” says Pankaj Vaish, managing director and head of markets, Citi India.

Whether Citi’s new approach continues to succeed remains to be seen. According to Dealogic’s tables, Standard Chartered is the top banker for equity-linked deals in 2010 with $375 million from three transactions. Citi, which was third in the rankings last year, second in 2008, and first in 2007, doesn’t feature among the top 10. Time for another huddle under the umbrella?