SAIL issue: DB quotes 80 paise fee

Investment bankers have quoted less than a rupee as their fee to manage the around Rs 8,000-crore follow-on issue of Steel Authority of India Ltd (SAIL).

Amid cut-throat competition among investment banks, SAIL on Thursday shortlisted six banks from a field of 17 to manage its upcoming follow-on public offer (FPO) scheduled for January 2011, sources familiar with the development said.

Deutsche Bank bid the lowest — which was promptly matched by five others — according to the sources. They said DB quoted 0.00000000001 per cent of the issue size as bankers’ fee. That works out to 80 paise.

The banks were apparently willing to waive the fee altogether, but what deterred them was that UBS was recently disqualified on technical grounds from the NTPC FPO as it had quoted nil fee.

The 80-paise fee bid has led people to ask questions about the validity of the contract that the banks will sign with SAIL and the government for the process.

Banks typically charge 2-3 per cent of the total fund raised as fees. But to garner business from the government’s ambitious disinvestment programme and consolidate their position in the league tables, investment banks have been consistently quoting ridiculously low fees. In most cases, they have been losing Rs 1-3 crore per issue on marketing, legal, roadshow-related and other expenses.

The current norms for the selection of lead managers give weight to both quality and financial parameters. There is now a greater weightage of 70 per cent on quality — technical expertise and experience. The weight assigned to bid price is 30 per cent.

The government is looking to mobilise around Rs 40,000 crore from stake sales in some central public sector enterprises in 2010-11.