I-bankers revenue from IPOs may triple by 2013

Investment banks such as ICICI Securities and Kotak Mahindra Capital are likely to see their revenues from managing public issues triple to Rs 3,000 crore by FY'13, thanks to new government norms on public holdings in listed companies, according to global consultancy Celent.

The government has made it mandatory for listed firms to have a minimum of 25 per cent public shareholding, a move that is expected to see a flurry of follow-on-offers over the next 3-4 years, since many companies do not meet the new norms at present.

In a research report on primary markets in India, Celent stated the new norms may have a strong bearing on underwriting fees charged by investment banks for managing public issues.

"The new stipulation on minimum equity could result in a bonanza for investment banks. If the new change is effective, then underwriting revenues are expected to almost triple by FY'13, going up to Rs 3,000 crore from Rs 1,100 crore in FY'10," Celent senior analyst Anshuman Jaswal said while evaluating the optimistic scenario.

"This is partly because of the glut in the market, which will make it difficult to come out with IPOs and FPOs, so the investment banks would be able to charge higher fees," Jaswal added.

The listed firms, which have a public holding of less than 25 per cent, are expected to raise around Rs 2,50,000 crore through issue of fresh shares or follow on public offers in the next 3-4 years, in addition to what had already been planned by companies.

However, if they opt for sale of existing shares they are likely to mop-up about Rs 1,60,000 crore.

"It is expected that Rs 60,000 crore would be raised in primary market in FY'11 itself, in addition to the IPOs that are already in the pipeline," the report added.
    
On the other hand, the norms could have an adverse effect on the secondary market as it is expected that some firms may actually delist, while some firms may prefer to access private equity rather than use initial public offerings.
    
Celent cautioned that, "failure of the regulation could lead to a fall in revenues for the investment banks as well."
    
"The government would have to be extremely dexterous in its implementation of this decision to ensure it does not damage the precariously placed equity markets," Jaswal added.
   
The leading investment banks in the country which manage public offers include Citigroup Global Markets, Morgan Stanley, Edelweiss Capital, JP Morgan, RBS Equities and UBS Securities and Enam Securities.
    
The government has stipulated that companies could reach this threshold limit by diluting a minimum of 5 per cent a year.