I-banking fees dip in nine months to September as smaller deals dominate

Even some big-ticket deals such as the LIC IPO did not generate higher fees

The fees earned by investment bankers dropped sharply during the first nine months of 2022 as smaller-sized deals dominated the activity.

According to an analysis by Refinitv, investment banking activities in India generated $668.4 million in the first nine months of 2022, down 23 per cent over the same period last year and the lowest during the same period since 2016.

The equity capital market (ECM) fee fell 46.4 per cent from a year ago at $138.4 million.  The debt capital market (DCM) fee declined 10.1 per cent to $128 million. Bankers made $252.1 million through mergers & acquisition (M&A) advisory, a decline of 17.8 per cent year-on-year.

Bankers attributed the decline in fees to smaller-sized offerings dominating the deal pipeline and some of the larger ones, such as the LIC initial public offering, not generating high fees.

"Government deals have a different fee structure. If you look at the private sector deals and the amount of money raised, the fees in 2022 are not going to be anywhere close to 2021," said V Jayasankar, Kotak Investment Banking, head of equity capital markets, at Kotak Investment Banking.

Kotak Mahindra Bank currently leads India ECM underwriting with $2.3 billion in related proceeds and a 16.9 per cent market share, as per Refinitv.

About $13.5 billion was raised through ECM activities, which include IPOs, rights issues and all other forms of pure equity fund raise, till September 2022, down 40.8 per cent in proceeds from the same period last year.  However, the number of ECM offerings grew 24.2 per cent year-on-year, bringing down the average deal size.

Domestic issuers raised $5.6 billion from initial public offerings (IPO) during the first nine months of this year, a 38.9 per cent decline from a year ago. The proceeds could have been even lower if one removed the $2.5 billion IPO of the state-owned insurance company Life Insurance Corporation (LIC).

However, the number of IPOs saw a 40 per cent year-on-year increase.

Bankers said market volatility coupled with the interest rate hikes internationally, led to FPI outflows.  And have made issuers a bit circumspect about going ahead with larger-sized offerings. In 2022 so far, FPIs have sold shares worth $ 22 billion.

“There is a shift towards smaller IPOs (Rs 750-2,000 crore). Larger IPOs look challenging due to the volatility,” said Dharmesh Mehta, managing director & CEO, of DAM Capital.

Follow-on offerings accounted for 58.2 per cent of India’s overall ECM proceeds, at $7.8 billion, a decline of 40.4 per cent from a year ago. However, the number of follow-on offerings grew 11.8 per cent year-on-year.

The financial sector dominated equity fund raising activity, with a 28.7 per cent market share worth $3.9 billion. Healthcare captured a 19.8 per cent market share as proceeds grew 52.2 per cent from a year ago to $2.7 billion.  Consumer staples saw a significant increase in proceeds and captured 10.5 per cent market share.