LIC IPO: Banks get just 0.06% of proceeds to handle India's largest float

According to LIC's final offer document, the company shelled out just Rs 11.8 cr as payment to book running lead managers, or 9.9% of total issue expenses

The government had to pay just 0.06 per cent of the proceeds to investment bankers for handling the mega share sale of Life Insurance Corporation of India (LIC). According to the final offer document filed by LIC, the company shelled out just Rs 11.8 crore as payment to book running lead managers (BRLMs). This was 9.9 per cent of the total issue expense of nearly Rs 120 crore and 0.06 per cent of total IPO proceeds of Rs 20,557 crore. The IPO was entirely a secondary share sale by the government, which diluted 3.5 per cent of its holding in LIC.

All the 10 BRLMs had agreed to work on the LIC mandate for the base fee of Rs 1 crore each set by the government. “Investment bankers will get a total of Rs 10 crore for handling the LIC share sale. The additional Rs 1.8 crore shown in the offer document is on account of GST,” said an investment banker.

The investment banks that handled the share sale were Kotak Mahindra Bank, Axis Capital, Bofa Securities, Citibank, Nomura, Goldman Sachs, ICICI Securities, JM Financial, JP Morgan and SBI Capital Markets. LIC’s IPO will boost the league table standing for all the 10 banks for the year 2022, which could prove beneficial while bidding for future mandates.

The other two IPOs by state-owned companies to hit the market since 2021, Railtel and Indian Railway Finance Corporation (IRFC) had paid Rs 16.5 crore and Rs 4.0 crore to investment bankers.

The fees paid on PSU mandates is only a fraction of that paid for private sector IPOs.

Last year, Paytm coughed up Rs 324 crore, 1.8 per cent of its IPO proceeds of Rs 18,300 crore, while Zomato paid Rs 229 crore. The recently-concluded Delhivery IPO paid Rs 105 crore, 2 per cent of its issue size.

LIC had to spend Rs 40 crore on broker commissions. Industry players said the issuer had to pay a commission between 15 basis points and 35 basis points to brokers for garnering subscriptions from individual investors. The commission is paid only on applications that get allotment. In LIC’s IPO over 6 million small investors got allotment for shares.

LIC paid fees of Rs 4.3 crore to legal counsels, the offer document showed. In a statement, Cyril Amarchand Mangaldas advised LIC and the government on the IPO. Besides, BRLMs had their separate legal counsels.