Investment bankers earned over Rs 1,300 crore in fees from initial public offerings (IPOs) last year, the second-highest annual buyout ever. The fees were 31 percent higher than the ₹999 crore collected by bankers last year, but less than half the record ₹2,646 crore collected from 63 offerings in 2021.
In 2023, 57 IPOs came to market raising ₹49,434 crore, translating into average fees of ₹23 crore per issue. This is less than the average collection per issue of ₹25 crore and ₹42 crore in the last two years.
At ₹102 crore, Mankind Pharma's IPO fetched ₹4,326 crore to most bankers last year. Other IPOs that fetched the most fees include Tata Technologies (₹54.6 billion) and RR Kabel (₹52 billion), data from PRIME database shows. “It was a good year for bankers given the significant number of issues that came to market in the second half of the year,” said Pranjal Srivastava, partner, investment banking at Centrum Capital. “The fee pool would have been even higher if the average issue size had not been lower. Total revenue for CY23 could still exceed CY21 when revenue from block deals and qualified institutional placements are taken into account.”
Sixteen companies raised over ₹1,000 crore last year, with Mankind Pharma, Tata Technologies and JSW Infrastructure raising over ₹10,000 crore. The average issue size was ₹867 crore, significantly lower than the previous three years.
Fees are directly related to transaction activity and transaction volume and are typically between 2 and 3 percent of the issue volume for IPOs. Percentage charges for issues above ₹5,000 crore could come down to 1.5 per cent.
“Directly proportional”
Pranav Haldea, managing director of PRIME Database Group, said: “The fee paid to bankers is directly proportional to transaction activity, with the exception of IPOs of public sector companies and new technology companies.”
Public entities follow a tender process that typically results in a low flat fee. Fees for new-age firms tend to be higher because most of these companies are first to market and the work involved is complex for bankers, Haldea said.
Fee pool distortion
In 2021, several new-age technology companies entered the market and distorted the fee pool. Zomato and Paytm, for example, paid record fees of ₹229 and ₹324 crore respectively this year. In 2022, on the other hand, LIC paid a flat fee of around ₹1 crore to bankers, resulting in a decline in the overall fee pool. This was despite the fact that LIC was the largest IPO ever.
Issuers typically have two or three structures for distributing fees. A fixed fee is distributed to all bankers handling the IPO mandate. Variable charges depend on parameters like procurement that banks do on the institutional and retail/HNI side. Some issuers also charge a discretionary fee, which they pay if they are satisfied with the bankers' work.
The IPO pipeline for this year remains robust. Up to 27 companies have regulatory approval to submit a bid and another 34 are awaiting regulatory approval of their bid documents. Together, these could fetch over ₹64,000 crore.
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