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Record share sales bring banks little cheer in the way of fees

Main stock indexes surged almost 30% in 2017 as investors bet on economic reform and corporate earnings recovery

Reuters  |  Mumbai/Hong Kong 

Bonds, Stock markets, Shares, Trading

Funds raised in through reached the most in a decade this year thanks to booming stock markets, but the rush to raise capital while investor sentiment remained bullish pushed dealmakers' fee ratio to multi-year lows. India's main stock indexes surged almost 30 per cent in 2017 as investors bet on economic reform and corporate earnings recovery. That spurred almost $30 billion worth of including a record $11.5 billion in initial public offerings (IPO). But for banks which arrange the sales, earned as a percentage of funds raised hit the lowest in four years, Thomson Reuters data showed. That made arranging work in Asia's third-largest economy the worst paid out of 11 Asian To be sure, the structure of Indian deal-making means are often comparatively small. But this year was particularly low because a high proportion of deals involved state-run firms which typically pay paltry Competition was also higher with dealmakers such as IDFC Ltd and gaining share, while entrants such as China's made headway, industry participants said. "In a buoyant there is no cause for anxiety for issuers, so low are no surprise.

In a weak market, issuers may be willing to pay higher but the number of issues are fewer," said Prithvi Haldea, chairman of data provider Prime Database. "That said, has been a low-paying for years and that's unlikely to change anytime soon," he said. Unattractive Bankers are optimistic about 2018's deal pipeline which they expect to include IPOs, and state-backed But some fear a continued boom will keep low. this year averaged 0.8 per cent of deal proceeds, from 1.3 per cent last year, Thomson Reuters data showed. The average was 2 per cent in Hong Kong, 2.6 percent in Shanghai and and 2.8 per cent in Tokyo. New York averaged 3.2 per cent. "While in (usually) are attractive in the Indian context, they are not probably as attractive in an Asian or a global context," said V Jayasankar, head of (ECM) at Kotak Mahindra Ltd's investment banking arm, which Thomson Reuters data showed arranged the most deals this year by total value. Kotak and four other banks split a 0.1 per cent fee for arranging the $1.7 billion of state-run General Insurance Corp of India, the year's biggest Six banks arranging a $2.3 billion follow-on share offering by State of - 2017's largest deal - received a token fee of Rs 1 ($0.016), according to bankers. It is not uncommon for dealmakers to agree to such terms for the opportunity to take part in blockbuster deals. Underwriting The low can be partially attributed to the structure of deal-making in where, unlike elsewhere, banks do not risk underwriting "We don't see a material change in the paid, and we are at least five to 10 years away from an underwriting fee model," said Jibi Jacob, head of at , 2017's sixth-ranked arranger in this year, Thomson Reuters data showed. An increasing number of banks involved in each deal also means are being split between more dealmakers, said the head at a multinational bank, who was not authorised to publicly comment on and so declined to be identified. There is also a "new cycle of people willing to go down the fee curve," the banker said. Understaffed Looking at 2018, bankers including Citigroup Inc's head said they expected average sizes to be larger, with fundraising picking up in sectors such as infrastructure, real estate, metals and mining. "The big risk continues to be that of the global geopolitical environment and of valuations which in some cases have run up significantly. But the fundamental appetite for paper in 2018 should continue to be very robust," said Vashistha at Citi, ranked second among share sale arrangers. But low mean regardless of higher deal volumes, many banks - especially foreign banks with high cost structures - are not aggressively expanding teams, bankers said. "When you have limited resources and deal volumes pick up, I think the only thing we can do is be disciplined about which clients, what transactions, rather than trying to do everything," said a senior banker at a foreign bank's arm.

First Published: Sat, December 23 2017. 00:36 IST
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