Investment banking fees drop 33% in 2013

Equity issuances saw 37% drop compared to 2012

Investment banking revenues from equity capital market (ECM) activities are estimated to have declined by a third in 2013, on the back of a sharp drop in public offerings.

According to Thomson Reuters and Freeman Consulting, India’s equity capital fund raising generated fees of an estimated $48.9 million in 2013 — 33.1 per cent lower compared with that of the previous calendar year.

The drop in fees was a result of a lacklustre year for equity capital raising. Equity and equity-linked issuances by Indian companies declined 37.1 per cent to $9.4 billion in 2013, lowest since 2011, when companies had raised $8.7 billion.

Also, relatively low fee generating follow-on offerings accounted for bulk of market activity in 2013. “Follow-on offerings captured majority of India’s equity capital markets activity with $9 billion worth of proceeds, a 31.5 per cent decline from the last year’s volume, and accounted for 96.1 per cent of the market activity this year,” said Thomson Reuters in its ECM review report.

The drop in fees saw some investment banks pruning staff strength and impose other cost-cutting measures. According to reports, more than 200 investment bankers were forced to quit their jobs in 2013.

“The year 2013 was clearly a painful year for ECM with only a handful of IPO transactions going through. A lot of companies, which had shown some interest in doing a public issue, had turned wary,” said a senior official with a domestic investment bank who requested not to be quoted.

The biggest and probably only notable initial public offering (IPO) of 2013 was that of a local search engine firm, Just Dial, which raised about Rs 900 crore in May. The other top five IPOs of 2013 raised a cumulative amount of less than Rs 700 crore. Investment bankers said the pain was partly mitigated as a large number of companies were forced to sell stakes to comply with the 25 per cent minimum public shareholding requirement and also due to certain large-ticket disinvestment deals.

The largest transaction of 2013 was government's 10 per cent disinvestment in power producer NTPC worth Rs 11,457crore ($2.14 billion), followed by last month's PowerGrid FPO, which raised nearly Rs 7,000 crore ($1.13 billion).

According to Thomson Reuters, Citibank, which topped the ECM league table in 2013, also captured first position in the fee ranking. The US-based banking major earned an estimated fee of $4.3 million and captured 8.7 per cent fee market share. JPMorgan, Credit Suisse and Axis Bank, which made estimated fees $4 million, $3.7 million and $3.6 million respectively, came in next in the fee ranking.

Experts said the market conditions continued to remain challenging for equity capital raising. However, they added there was a lot of capital waiting to be deployed in good companies at appropriate valuations.