CLSA India and SBI Capital Markets (SBI Cap), the investment banking subsidiary of State Bank of India, have announced an exclusive alliance for all investment banking mandates in India. At the moment there is no legal joint venture and both entities will continue to function independently.
What the MOU (Memorandum of Undertanding) will facilitate is a collaboration between the two sides on all equity capital markets and M&A/Advisory transactions. Pankaj Agarwal, CLSA's managing director and head of Indian investment banking says, "the alliance is intended to leverage the strengths of both parties, which are complementary, to provide a more comprehensive suite of products to our clients."
SBI Cap started business in 1986 and today ranks as the top lead manager of domestic capital market issues. It has been looking for a new foreign JV partner since the beginning of the decade after it split from Lehman Brothers.
CLSA, meanwhile, has been in India since 1994 and is one of the biggest institutional brokers in the country. Its decision to form an alliance comes at a time when established JV's are being broken apart. This is largely because the international banks want to maximise the profit potential of such a fast growing market.
Merrill Lynch, for example, recently bought founder Hemendra Kothari out of DSP Merrill Lynch for $500 million and Morgan Stanley is rumoured to be preparing a similar move with Nimesh Kampani at JM Morgan Stanley.
When questioned about potential conflicts of interests on mandates Agarwal comments, "On existing mandates this will be sensitively managed on a case by case basis keeping best interests of the clients in mind. Going forward we'll work together to ensure we target agreed upon clients and minimize conflicts".
State Bank Chairman, A.K. Purwar adds, "the alliance will further strengthen the position of State Bank group as a powerhouse of financial services for our corporate clients."
CLSA has past experience in making joint ventures successful. China Euro Securities Limited, its JV in China, was the first to be granted a domestic investment banking license in the country since its entry into WTO.