Goldman to brook no opposition in India?

In a sign of Goldman's seriousness about the Indian market, the US firm has transferred high flying banker, Brooks Entwistle back from New York to be chief executive officer of Goldman Sachs (India) and to serve as one of the firm's board representatives at the Kotak Mahindra joint ventures. Additionally he will spearhead Goldman's principal investing opportunities in India and look after the firm's Bangolore service centre, which employs 850 people.

The move marks a welcome return for the American banker to the Asia-Pacific. Entwistle joined Goldman in 1989 and has been posted to Asia on two previous occasions, most recently between 1998 to 2003 when he served as co-head of the Asia Technology Group, became COO for Asia-Pacific, and in the process built a strong coverage track record in India with key clients, and primarily Infosys.

He arrives in India next month, leaving New York where he worked in the financial sponsors group and was made an a managing director.

His posting to India comes at a critical time, with many investment banks seeking to clarify their strategy in what is becoming one of Asia's most important banking markets. Rumours have long been rife about Goldman's intentions towards its two JV's - Kotak Mahindra Capital and Kotak Securities.

Competitors frequently point out Goldman's lack of control over either JV and the lack of branding, which gives it low client visibility. The US investment bank established the two JV's in 1995 in association with local rainmaker Uday Kotak who has since gone on to transform Kotak Mahindra Bank into an all-encompassing financial services group.

However, unlike Merrill Lynch and Morgan Stanley, which both established JV's around the same time, Goldman opted for a much smaller stake in its Indian venture. It is believed to have paid $14 million for a 25% stake in Kotak Mahindra Capital, the investment banking arm and a similar amount for a 25% stake in Kotak Securities, the broking arm. Kotak Mahindra Bank owns the remaining 75% in both entities.

All of the JV's have regular review periods during which the two sides have an opportunity to renegotiate certain terms. Goldman's first review period came and went in 1999 with no increase in its stake and its second in 2003 passed in similar fashion.

At this point the review period was shortened to two years and in 2005 there was intense local speculation that Goldman would increase its stake to 50%. But again nothing happened.

Since then, Merrill Lynch has unwound its JV with DSP, paying founder Hemendra Kothari $500 million in order to increase its stake from 40% to 90%.

Until about 2002, Kotak, DSP Merrill Lynch and JM Morgan Stanley had the Indian investment banking market pretty much sewn up between the three of them. Since then, all their rivals have been building operations in the country and most have forsaken the JV route in favour of building a business organically.

To a man, they unanimously believe they made the right decision in light of the high exit price being commanded by the JV's local partners now the market is booming. Citigroup, for example, is thought to have spent under $20 million building its local investment banking practise up towards a similar size as DSP Merrill Lynch over the past two years.