Will Lazard Brothers Boss Over Bose?

RESTRUCTURING
Will Lazard Brothers Boss Over Bose?

With a wave of restructuring likely to grip corporate India, Lazard India's niche focus may yield results.

By Roshni Jayakar

Udayan Bose, CEO, Lazard India: "I am not trying to run a Bose enterprise" "I am not selling my brandname to Lazard. It is my personal bond with CEOs that counts."
Udayan Bose, CEO, Creditcapital, October, 1994

''When I position myself vis-à-vis our clients, the effect will be stronger if the company is represented as Lazard.''
Udayan Bose, CEO, Lazard India, October, 1999

That, in 5 short years, is how Udayan Bose's dream of transforming the 13-year-old Creditcapital into a financial powerhouse ended in reality. Finally, Creditcapital-which was renamed Lazard Creditcapital when the London-based Lazard Brothers increased its equity stake in it from 40 to 50 per cent in June, 1993-will soon be rechristened Lazard India.

Already, there is a change in the composition of the board. A 13-member board-which included 7 nominees of Bose-has been truncated to 8, with 5 of his long-term associates stepping down. And the parent has also pumped in an additional Rs 16 crore into the company through a Rs 7-crore rights issue and a Rs 9-crore preferential allotment.

Not surprisingly, the change is evident in Lazard's operations too. After disposing of several businesses, like the company's venture capital arm-sold to Infrastructure Leasing & Financial Services (IL&FS) in September, 1996-and Creditcapital Asset Management-merged with HB Asset Management in April, 1997-Bose has decided to focus only on corporate advisory services.

Of course, he still doesn't acknowledge the power-shift: ''We never had an identity different from Lazard's. after all, I am not trying to run a Bose enterprise,'' he says. In the past, though, Bose did exactly that by straying away from the parent's core skills in M&A and other advisory services. That took its toll of the company's bottomline: in 1998-99, Lazard Creditcapital incurred losses of Rs 5.60 crore compared to net profits of Rs 1.93 crore in the previous year (15-month period) while its income (annualised) slipped by 44.55 per cent to just Rs 6.59 crore.

Now, Lazard Brothers-which handled the $8.50-billion merger between Viacom and Paramount as well as the $1.10-billion deal between Bertelmann and Random House-wants its Indian subsidiary to refocus its activities to match the parent's portfolio. It would like to see Lazard India's revenues come from corporate restructuring, including M&A and disinvestment, private placement of municipal bonds, and project financing in sectors like power and fertilisers.

That implies that Bose has decided to give up his ambition of making CreditCapital a one-stop financial services shop. Still, Bose, who controls 50 per cent of the company's equity, is bullish, claiming that the focus could catapult the company's turnover to Rs 30 crore this year. To be sure, he is an M&A specialist, who made his mark as a deal-maker during the post-FERA (Foreign Exchange Regulation Act, 1973) era, when transnationals were forced to limit their stakes in their Indian subsidiaries to 40 per cent.

The M&A Focus

Of the 4 areas that Bose is now focusing on, M&A is, probably, the most lucrative. If the value of deals was $1.40 billion (Rs 6,100 crore) in 1998, the figure has already crossed the $1-billion (Rs 4,360 crore) mark in the first 6 months of 1999 in India. In fact, the spate of activity witnessed in the cement and pharma sectors will only intensify. The London-based Acquisitions Monthly predicts that the number of cement companies operating in India could fall, through M&A, from 55 to 12 over the next 5 years.

To exploit that potential, Bose-who handled the mandate for B.V. Raju, who sold his stake in Raasi Cement and Sri Vishnu Cement for Rs 560 crore to India Cements-has decided to focus on cement, pharma, telecom, and oil. Agrees Jayant Thakur, 39, a Mumbai-based chartered accountant: ''There's a fair amount of activity in cement and pharma, and we may see the same in telecom.''

Globally, according to Thomson Financial Securities, Lazard Brothers, with $102.10 billion of deals, ranks ninth in the 1999 list of top M&A managers. However, sheer size has become critical. On that count, Lazard Brothers' capital-base of $200 million is a fraction of Goldman Sachs' (rank: No. 1) capital-base of $30 billion. Since half of Lazard Brothers' global profits come from M&A deals and divestitures, the parent is trying to seek lucrative avenues in Asian markets like South Korea, Indonesia-and India.

With cross-border mergers impacting Indian businesses-Air Products and Air Liquide's joint takeover of BOC was the biggest deal in 1999-the parent's global presence will certainly help its Indian subsidiary. In fact, Bose claims he has already secured 38 mandates for corporate restructuring and divestitures, and another 26, he claims, are in the pipeline.

There are some problems with the restructuring business in India. One, the M&A segment is overcrowded, and Bose's competitors have already emerged as the leaders. In 1998, according to Acquisitions Monthly, DSP Merrill Lynch handled Rs 2,616 crore of deals, and Jardine Fleming, Rs 1,229 crore. In comparison, BT estimates that Lazard India's figure could not have been more than Rs 300 crore although Bose refuses to divulge the figures.

The Disinvestment Bonanza

Similarly, a large number of players are eyeing the disinvestment bonanza. But Bose says he has several mandates, including one from an Indian company, which has decided to bid for the GOI's 74 per cent stake in Modern Foods, and another for Nippon Steel's bid for a 74 per cent stake in Kudremukh Iron Ore.

Still, there are bottlenecks. For one, considering that the GOI has managed to raise only Rs 1,300 crore in the first 8 months of 1999-2000, it may not be able to reach its disinvestment target of Rs 10,000 crore. Moreover, such deals can be time-consuming and, hence, fees could be delayed. Agrees Bose: ''Success-fees are paid only after the deal is over, which could take even upto a year.''

A second area that interests him is municipal bonds. According to the National Institute of Urban Studies' estimates, the funds required by the 73 towns that have municipal corporations is Rs 40,000 crore. Besides, budgetary support to municipalities by the Centre and the states has declined by 20 per cent over the past decade. The result: over a dozen profitable municipalities have decided to raise money through bonds (see Here Come The Muni(ficent) Bonds, BT, April 22, 1999).

Explains Ravi Rangachari, 45, Head (Corporate Affairs), Lazard: ''Munibonds are a profitable business.'' Bose claims that he has mandates for placing bonds for 4 municipalities including, Calcutta, Jalgaon (Maharashtra), and Indore (Madhya Pradesh). While another 13 are in the pipeline, including, Pune, Hyderabad, and Chennai. Bose expects to raise Rs 1,000 crore this year-and clock in Rs 3 crore as fees.

However, only 2 corporations-Bangalore Municipal Corporation (Rs 125 crore; September, 1997), and Ahmedabad Municipal Corporation (Rs 100 crore; January, 1998)-have raised money in the past 3 years. Moreover, municipalities need to restructure their operations to make themselves attractive to investors.

For the colourful Bose, who was once known as an influential deal-maker, managing Lazard's new avataar could prove to be a humbling experience. Yet, things are not all bad. Since corporate India is furiously restructuring, opportunities in M&A will open up. And, with Bose still on its side, Lazard Brothers could, once again, focus on a new future.

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