SCI finalises bankers for issue; banks continue to take a hit

Shipping Corp of India (SCI), which is likely to launch its follow-on share sale in December by offering a 20 per cent stake, has shortlisted SBI Capital Markets, ICICI Securities and IDFC Capital as lead managers, according to merchant bankers.

The sale is part of a government plan to sell stakes in about 60 public sector companies as the country tries to reduce its high fiscal deficit and mop up funds to spend on development schemes for the poor. The government plans to raise Rs 40,000 crore this financial year.

The banks that won the SCI mandate bid 0.25 per cent of the money raised. Though this is an increase in absolute terms over what the banks charged in the previous mandates — 0.00000001 per cent in PowerGrid’s Rs 8,0000-crore offer, which translated into Rs 8 for four banks — the banks will continue to still lose money.

The three banks that will help SCI and the government raise around Rs 1,400 crore will make only Rs 3.5 crore together and Rs 1.17 crore individually. Typically, banks spend Rs 2-4 crore to sell an issue. Hence, they are taking a big hit. The banks do this as it helps them stay at the top of the league tables and in securing mandates from private firms.

‘‘Given that India is an over-banked market, nobody knows when this trend will end,’’ said a banker. Next week, 17 banks will bid to bag the mandate for SAIL’s follow-on offer. The list doesn’t include a couple of banks like Citibank and ICICI Securities.

‘‘If there are 20 banks, you are bound to have low quotes, especially for larger issues,’’ said another banker.

Earlier, banks used to bid for the fees, and the issue costs used to be borne by the client (the company doing the issue). Rural Electrification Corporation’s initial public offer (IPO) was the last issue in which the company picked up the costs. From thereon, the government said in its request for participation that banks would have to take care of the costs. This meant banks would add the cost, plus a fee, in their bids. But this never happened.

Not only are banks bidding near-zero fees, they are also taking a hit on selling the issue. One big US bank is believed to have lost Rs 3-4 crore in two big offerings, NTPC and NMDC, say merchant banking sources. Banks have been bidding aggressively for bigger issues like NTPC or PowerGrid and less aggressively for smaller issues like SCI as they don’t mind losing the smaller mandates.

The government has already mopped up over Rs 1,000 crore by divesting in Satluj Jal Vidyut Nigam, and around Rs 1,000 crore through Engineers India Ltd’s follow-on public offer. It’s likely to sell its stake in companies like Coal India, ONGC, IOC, SAIL, MMTC and Hindustan Copper and Power Grid this financial year. Last year, it raised Rs 25,000 crore through stake sale in Oil India, NMDC, REC and NTPC.

Coal India would launch its IPO on October 18, its CMD PS Bhattacharya said on Thursday. The world’s largest coal miner’s IPO is expected to raise $3 billion.