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Investment bankers earned more than Rs 1.3 billion in fees on initial public offerings (IPOs) last year, the second-highest annual sweep ever. The fee was 31% higher than the Rs 999 crore raised by bankers in the previous year, but less than half of the record Rs 2,646 crore collected in 63 offerings in 2021.
In 2023, 57 IPOs came to market and raised Rs 49,434 crore. This means an average fee of 23 billion rupees per issue. This is lower than his average collection per issue of Rs 25 million and his Rs 42 million in the last two years.
Mankind Pharma’s IPO was for Rs 102 crore, making it the banker’s highest acquisition of Rs 4,326 crore last year. Other IPOs that earned the most fees include Tata Technologies (Rs 546 billion) and RR Kavel (Rs 52 million), according to data from PRIME database. “It’s been a good year for bankers given the large amount of issuance in the market in the second half of the year,” said Pranjal Srivastava, partner in investment banking at Centrum Capital. “Had the average issue size not been lower, the fee pool would have been even higher. Considering bulk trades and returns from qualified institutional investors, CY23’s total return could still exceed CY21’s return. There is a sex.”
Last year, 16 companies raised over Rs 1,000 crore, with Mankind Pharma, Tata Technologies and JSW Infrastructure raising over Rs 10,000 crore. The average issuance amount was 867 million rupees, a significant decrease compared to the previous three years.
Fees are directly correlated to trading activity and volume and typically range from 2% to 3% of the IPO issue size. The fee, in percentage terms, can come down to 1.5% for issuances above Rs 5,000 crore.
“Direct proportion”
“Apart from IPOs of public sector and new-age technology companies, commissions paid to bankers are directly proportional to trading activity,” said Pranav Haldea, managing director, PRIME Database Group.
Public sector organizations follow a competitive bidding process, which typically results in low flat fees. Given the first-to-market nature of most of these companies and the complexity of the work bankers are involved in, new-age companies tend to charge higher fees, Haldea said.
Price pool bias
In 2021, several new-age technology companies entered the market and skewed the fee pool. For example, Zomato and Paytm paid recording fees of Rs 229 million and Rs 324 million, respectively, in the same year. Meanwhile, in 2022, LIC paid flat fees of around Rs 1,000 crore to bankers, resulting in a decline in the overall fee pool. This was despite LIC being the largest IPO in history.
Publishers typically have two or three structures for distributing fees. A fixed fee is distributed to all bankers handling IPO operations. The variable fees depend on parameters such as procurement done by banks on the institutional and retail/HNI sides. Some issuers also have a discretionary fee that they pay if they are satisfied with the banker’s efforts.
This year’s IPO pipeline remains strong. As many as 27 companies hold regulatory approval to launch offers, and a further 34 companies are awaiting regulatory approval of their offer documents. Together, they have the potential to raise more than Rs 64,000 crore.
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