Foreign interest in stressed assets but framework needed: Moelis

There is plenty of interest from foreign investors in Indian stressed assets but strong framework, more clarity and haircuts are needed, said Manisha Girotra, Chief Executive Officer of Moelis India.Speaking to CNBC-TV18, Girotra said the opportunity was huge and the quality of underlying assets are high especially in the steel, power and infrastructure sectors. She said the creation of the National Company Law Tribunal (NCLT) and the Insolvency and Bankruptcy Code were positive steps in this regard and had already shown successes, while more comfort needs to be given to banks.She said that India urgently needs capital and restructuring of stressed assets should be undertaken through any means possible.Girotra said she expects to see positive momentum in both capital markets and mergers and acquisitions this year.On consolidation in sectors, Girotra said it was much needed in telecom where equal competition is needed, but not in private banking which are already large enough. She said, however, that more consolidation is needed in the public sector banking space.Girotra was bullish on the long-term prospects of the IT sector, saying that companies need to reposition themselves and be nimble given the changing environment, but they have shown the ability to adjust in the past.On the occasion of International Women's Day, Girotra said the situation was much improved today compared to 25 years ago when it was difficult to accept women in a serious banking role. She said that with the options of working from home and taking extended leave, the working environment has become far more flexible.Below is the verbatim transcript of Manisha Girotra's interview to Latha Venkatesh, Sonia Shenoy and Anuj Singhal on CNBC-TV18.Anuj: What is the deal momentum looking like right now because we have seen over the last few days, a lot of qualified institutional placements (QIPs), a lot of initial public offerings (IPOs), the biggest of them in fact has opened today? How is the deal momentum from here looking like?A: Fairly strong deal momentum both in the merger and acquisitions (M&A) market as well as the capital markets. What you saw in the last quarter was a bit of nervousness around the capital markets especially because of what was happening on the demonetisation front etc. A lot of those worries are behind us, globally growth is looking robust, world is feeling more positive about the Trump and US, so I think general upliftment in the market and India's reported gross domestic product (GDP) numbers, general activity around India, consumption sector doing very well, all of these things have picked up momentum and brought a lot of interest back into India. So I think rest of the year you should see a very positive momentum in both M&A and capital markets.Latha: Stressed assets, that is where there is plenty of pickings and yet the most problems, do you think that you will be able to get foreign companies like a Brookfields or the KKRs and the others interested in picking up stressed assets? We have not seeing them doing much so far?A: there is a lot of interest. The issue with all foreign investors is they need a clear framework and the insolvency in bankruptcy code, the NCLT, it is early days and once we are able to see some successes through that, you will see investors come in because the opportunity is huge in this sector.Some of the underlying assets are extremely high quality but investors coming in will need clarity, need haircuts, there maybe a bit of a spread and we will have to come to terms with those new realities. So if India can offer that -- which to me looks like there is no option, we need capital, whatever be the way of restructuring whether it is Strategic Debt Restructuring (SDR), Scheme for Sustainable Structuring of Stressed Assets (S4A), Assets restructuring companies (ARCs), all of the structures that we are talking about, what we need is capital. So these Brookfields, KKRs of the world, many others have deep pockets. So if you have to attract them, you have to give them clarity of framework and take the steady haircuts so if you are able to provide that, there will be lots more capital coming in.Sonia: You are awarded the 50 most powerful women in business in 2014 by Forbes including a whole host of others. I just wanted to ask you on the occasion of Women's Day how easy is it in today's day and age for a woman to manage work, family and children? Basically is it easy to have it all?A: Is it easy to have it all? Probably not. Is it great to have it all? Probably yes. So it is very difficult. 25 years ago when I started, it was far more difficult because it was difficult to accept women in a serious banking role but I think now all of the sectors that have opened up especially your sector, which has lot of successful women like yourself Latha Venkatesh etc, I think a lot of role models have been created and it has become easier for the women organisations are more aware on diversity issues, gender issues, so yes, definitely easier. Easier on the front of just women achieving in the corporate area but at the personal level, it still remains very challenging. It is hard to manage and juggle all balls but extremely gratifying. I wouldn’t have it any other way.Sonia: We were speaking to a banker earlier from State Bank of India (SBI), Anshula Kant and she said that within that space, the public sector undertaking (PSU) banking space, we have now opened up to a lot of progressive policies and work ethics for women to make it easier for women to come back into the work force once they get married, once they have kids etc. Investment banking is such a tough space, has there been any progress there with respect to work ethics?A: Yes, I think there has been quite a bit of progress, things like virtual work places, working out of home was a complete no-no when I started, things like bringing your baby to work, having facilities for them, all of this was unheard of and unprecedented. You had to be so much in the mould of a traditional male investment banker that women had to follow that path too but today you can pretty much be different and work that way and investments banks are working to retain female talent. So things like flexible hours, the first six months of maternity, paternity leaves, all of these things have come in. So investment banks too have made a significant amount of progress in trying to retain women at work.Anuj: The space where we are seeing some M&A now is telecom. I asked you this because in your previous stint, you had worked on one of the biggest ones, Vodafone's acquisition of Hutchison Essar, what have you made of the newsflow surrounding Vodafone-Idea merger, Bharti acquiring companies, do you think this space could go through a lot of consolidation?A: I think what is happening without naming any specific deal is that the consolidation was very much needed, we had too many players too fragmented with too little capital available to them. So what was needed is if the market is too strong, the larger players are very strong, so what you need is an equal competition amongst the larger players and that is what is happening you are seeing consolidation, Telenor you mentioned, Reliance Communications-Aircel happened last year. So I think the consolidation is much needed, much welcome, it will give us three-four robust players and that is very good for the sector. That is where we were 10 years ago when we started and this was known as the golden sector of the economy and all of used to talk about telecom being one of the most successful stories of India. So that is a good outcome on the consolidation that is happening.Latha: Private banks and non-banking financial companies (NBFCs), private banks and microfinance institutions (MFIs), do you see this space yielding some mergers in this year?A: The segment which needs the most consolidation in India is more the state-owned banks. SBI and subsidiaries and what is happening, we need a lot more consolidation in that space, we need a lot more representation in financial services. Private banking -- is there a merger likely to happen, I am not convinced of the rationale there. Other private sector banks are already very large, very well penetrated, probably niche M&A in this sector makes more sense. So I am not convinced that that is something that makes immediate logic.Latha: The other thing is stressed assets. Do you think it will happen in steel or in power, where do you think the Brookfields and the KKR are more likely to come in and any deal this year you think?A: Steel, power, infrastructure are all segments that these players operate in. They are keen to work on each one of these sectors. They are looking at opportunities in each of these sectors, a lot of it depends on what is it that the banks are offering, what is it that the promoter is willing to do? So it is not sector, what is the good deal opportunity, what looks good, does it have a sensible haircut, sensible framework given to them, they will invest. All these sectors we are having conversations around and I am sure you will see positive outcomes on all sectors this year.Sonia: What are the impediments currently to foreign capital coming into stressed assets and do you think the rules need to be changed in anyway?A: I think the impediments are basically clarity of framework and we touched upon it earlier, whatever the way of doing it is what the foreign buyer wants to see as clarity. So if we are able to put through some successful examples through the insolvency and bankruptcy code, people will get more comfortable and capital will come in but we need to show some three-four big examples. Medium-term to big examples working out through this, showing India is serious about timelines, about haircuts and then foreign capital will come.Anuj: The other big talking point has been the large buybacks from IT companies, Tata Consultancy Services (TCS) has started it and we could hear from Infosys and Wipro soon. In that space do you think this companies are running out of options to use their cash in terms of global M&A action?A: I am bullish on IT services. What is happening is that they need to reposition themselves, what is happening in the world in this sector is that these companies need to be a lot more nimble, steer the ship differently, the whole digital piece, cloud etc, artificial intelligence, these companies need to get there and in the past they have shown you, they have reinvented themselves each time there has been a requirement to do that and I think whether it is the TCS, Wipro, the Infosys, the Mindtree they are all doing that and there maybe short-term pain given what is happening in the US etc but long-term, I am very positive on these companies. I think they will come out as winners.Latha: It is very clear that banks are not able to take haircuts especially the arrest of some bankers is clearly impeding their willingness to take haircuts, do you see bankers crossing that hump?A: I think that is what we need to do. We need to provide comfort to the banks, we need to make them more independent and things like the arrest that happened always creates a sense of insecurity. So some of these issues need to be dealt with than worrying about what is the right structure to take this forward. So empower the banks, let them make the decisions, support them, let there be limited political interference and we will have the right outcomes.