Investment bankers' equity market fee pool rises to 21% at $321 mn in 2018

Equity market fee up 21% even as issuances fall 44% this year

Investment bankers have taken home more money this year than they did in 2017, a record-breaking year for equity issuances. According to the Thomson Reuters data, the so-called equity capital market (ECM) fee pool has risen 21 per cent year-on-year to $321 million in 2018, despite equity issuances dropping 44 per cent to $15.8 billion from $28.3 billion last year. Industry players said deals this year were more lucrative compared to last year, which was dominated by big-ticket issuances from the government sector, where fees are near zero.

The biggest equity issuance of 2018 was the $3.5-billion fundraising by HDFC Bank through a mix of American Depository Receipts (ADRs) and qualified institutional placement (QIP). The second-biggest equity fundraising was the $2-billion rights offer from Tata Steel, followed by $1.4-billion share repurchase programme by TCS.

ECM activity comprises any kind of equity capital raise — initial public offerings (IPOs), rights, QIPs, block deals, etc. The biggest IPOs of 2018 were $700-million offer from Bandhan Bank, followed by $640-million offer from Hindustan Aeronautics, and $540-million offer from ICICI Securities.

2017, the best-ever year for fundraising via IPOs, was led by two large public sector undertaking (PSU) issuances of General Insurance Corp and The New India Assurance, which raised $1.8 billion and $1.5 billion, respectively. The investment banking fees paid by these two PSUs were 0.1 per cent of the fund raised. Typically, firms pay around 2 per cent as investment banking fees.

Large-ticket deals are handled by a number of investment banks and the fee pool gets divided among them.

Industry experts say this year had a healthy mix of IPOs and secondary fundraising by listed companies, which helped boost the fee pool.

“There was a preponderance of follow-on issues. They are the relatively high fee-paying mandate. The fee is less in IPOs. There are more bankers, whereas QIPs and block deals have fewer bankers,” said Pranjal Srivastava, an independent capital markets professional.

Citibank topped the ECM league table proceeds with $1.9 billion, the Thompson Reuters data showed. Citibank, whose ECM vertical is led by Ravi Kapoor, was second in the ECM league table last year. Axis Bank is second on the table this year and is followed by Kotak Mahindra Bank. Salil Pitale and Chirag Negandhi are managing directors and co-head at Axis Bank’s ECM vertical. S Ramesh is MD & CEO of Kotak investment banking.

Despite ranking sixth on the league table, ICICI Bank, whose ECM vertical is spearheaded by Ajay Saraf, pocketed the maximum fees of $44.3 million. Axis Bank generated ECM fees of $42 million. Citi pocketed $25 million, the data showed. 

Just like 2017, the ECM activity was dominated by the financial sector this year. However, the share of financial sector declined from 54 per cent last year to 48 per cent in 2018.