Merchant bankers willing to take less for PSU offerings
Sunday, June 20, 2021 2:55 PM

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Jayanta Mallick

Kolkata, June 20

Merchant bankers continue to quote a nominal fee for book-running and lead managing the public sector offering even after recent selection norm changes substantially lowered the weight for bid price.

According to sources in the Government, one merchant banker had bid for the Coal India IPO assignment at a fee as low as 0.000001 per cent. Public sector issuer sources said the changed rules last month, which put greater weight (70 per cent) on quality — technical expertise and experience — over that on quoted fees (30 per cent) has not influenced the bidding pattern.

“The pool of registered merchant bankers sports almost similar qualitative standards. Therefore, the quoted fee determines short-listing. Competitive pressure for public sector offerings forces the merchant bankers to keep the fees low, often highly loss making or stay out,” said a top official of public sector enterprise.

Market sources say while the going rate for merchant banking fees for a private issuer of a comparable size is around 3 per cent, the rate for PSU offerings remains close to zero.

“This is not a charitable exercise. Merchant bankers extract marketing mileage and seek more future business from the Government-run organisations to serve their commercial interest indirectly. But they also to make up for the huge cost, which runs into crores of rupees, through other means, which are strictly not clean,” said the managing director of a listed private company.

Mr Prithvi Haldea, primary market expert and the Chairman of Prime Database, told Business Line that the environment was not conducive to a fair and transparent method of selecting quality services.

“The Government needs to pay a reasonable fee to merchant bankers for the best services so that the issues do not suffer. In the context of the Government's plan to raise huge sum (Rs 40,000 crore) in 2010-11 through several offloading of shares or fresh issues, the technical qualification should be the primary criterion for selection of merchant bankers. Fixing of an upfront payment to the selected book-runners and lead managers for each issue considering the cost involved can ensure better response and quality rendering of services.”

This fiscal, the lead managers for the SJVN Ltd issue were JM Financial, IDFC Capital, IDBI Capital and SBI Capital Markets. Citibank, Deutsche Bank (NYSE:DB) , DSP Merrill Lynch, Morgan Stanley (NYSE:MS) , Enam Securities and Kotak Securities have been appointed to act as book running lead managers for the Coal India Limited IPO.

For EIL, the government has short-listed HSBC Holdings Plc (NYSE:HBC) , ICICI Securities, SBI Capital Markets and IDFC Capital to manage the public offering. UBS AG (NYSE:UBS) , Kotak Mahindra Capital, Enam Securities and IDBI Capital Market Services, Avendus Capital, Edelweiss Capital and Centrum Broking also competed for EIL issue. Hindustan Copper Ltd, which would view the bids after June 24, has obtained several bids, according to sources.



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