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Hyundai Motor India’s initial public offering (IPO) has come as a windfall for the investment bankers that were part of the deal.
The offering, which is the largest to date, has paid an estimated ₹493 crore to the book-running lead managers (BRLMs) by way of fees and commissions, including brokerage, amounting to 1.77 per cent of the issue amount. This is a record and eclipses the previous best of ₹324 crore paid to bankers in 2021 by One 97 Communications, the parent company of Paytm.
- Also read: Hyundai plans ₹1,500 cr modernisation at Chennai factory
Banker fees
Fees paid to bankers in the Hyundai IPO formed more than 75 per cent of the total offer expenses and included GST charged at 18 per cent. BRLMs part of the deal include Kotak Mahindra Capital, Citigroup Global Markets India, HSBC Securities and Capital Markets (India), JP Morgan India and Morgan Stanley India. Fees for the five bankers will differ based on their roles and the variable and discretionary fee components.
Hyundai Motor India’s IPO received a lukewarm response from wealthy and retail investors, but sailed through on the final day with support from qualified institutional buyers, with an overall subscription of 2.37x.
Record earnings
Investment bankers had garnered ₹1,600 crore from 62 IPOs this year. Adding fees from the Hyundai offering will take the fee pool to about ₹2,100 crore. IPO fees in CY24 are more than double that collected last year and the second-highest mop-up for any year, behind the ₹2,646 crore collected in 2021.
Ola Electric (₹145 crore), Premier Energies (₹75 crore), and Go Digit Insurance (₹70 crore) are some of the other offerings that have fetched the most fees to bankers this year.
IPO fees are directly correlated to deal activity and volumes and typically range between 2 and 3 per cent of the issue size. In percentage terms, fees for issues of more than ₹5,000 crore could drop to 1.5 per cent or lower.
Fees for new-age firms tend to be higher given the first-to-the-market nature of most of these companies and the complexity of the work involved for bankers. In 2021, several such companies tapped the market, skewing the fee pool. Zomato and Paytm, for instance, paid ₹553 crore that year.
Issuers typically have two or three structures for distributing fees. A fixed fee is distributed among all bankers handling the IPO mandate. Variable fees depend on parameters such as the procurement done by the banks on the institutional and retail/HNI sides. Some issuers also keep a discretionary fee, which they pay if they are satisfied by the work put in by the banker.
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Published on October 18, 2024
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