NTPC Green Energy, a subsidiary of PSU major NTPC, made a strong debut on the bourses on November 27 while hitting the upper circuit of 10%. This was after the Rs 10,000-crore public issue got subscribed 2.55 times on the back of a strong demand from institutional and retail investors.
While the issue has proved to be a success on most parameters, and one could say the merchant bankers managing the issue did a good job, the bankers did not really benefit in terms of fees or remuneration.
As per the details disclosed in the final offer document of the IPO, the cumulative merchant banking fee was a mere Rs 7.1 crore, a fraction of what bankers earn while managing the issues of any private sector entity – Hyundai Motor India paid its merchant bankers Rs 493 crore to manage its Rs 27,855-crore IPO.
IDBI Capital Markets, HDFC Bank, IIFL Capital Services and Nuvama Wealth Management were the merchant bankers managing the NTPC Green Energy IPO.
Incidentally, the IPO of NTPC Green Energy is among the largest to hit the markets this year with only Hyundai Motor India and Swiggy ahead of the green energy major in terms of the issue size – Vodafone Idea came to the market with an offering of Rs 18,000 crore but it was a follow-on public offer (FPO).
Merchant bankers earned a whopping Rs 275 crore by way of fees for managing the IPO of food delivery platform Swiggy.
Interestingly, merchant bankers have always quoted a very low amount while pitching for government issues as typically such offers are large in size and the merchant banking firms benefit in term of their standings in the league tables.
“Managing the IPO of government-owned companies is more about prestige rather than money. We also gain by featuring in the league tables of top merchant banking firms in terms of cumulative fund raising that helps us in bagging more and bigger mandates,” said an investment banker who has worked on PSU IPOs.
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This is still better than earlier years of divestment when bankers used to quote almost zero fee to get the mandate, he said.
Indeed, as the Rs 6,039-crore IPO of NHPC in 2009 saw the merchant bankers earning only Rs 5.5 crore as fees. While it may again look miniscule, it was still significantly higher than what bankers earned in the case of Oil India. The Rs 2,777-crore IPO of the oil major saw merchant bankers earning only Rs 45 lakh as fees.
Last year, the Rs 2,150-crore IPO of Indian Renewable Energy Development Agency was launched and the merchant bankers pocketed only Rs 11.5 crore as fees. The issue had three merchant bankers – IDBI Capital Markets, BOB Capital Markets and SBI Capital Markets.
“The trend of low fee for government IPOs is not going to change as merchant bankers look at deriving indirect benefits from the issue and hence are fine quoting such low fee. The league tables play an important role when bankers are pitching for larger mandates from the private sector where they can quote much higher fee as well,” said the banker quoted above, wishing not to be named.
Interestingly, insurance behemoth LIC, whose Rs 21,000-crore mega IPO was launched in May 2022, saw 10 merchant banking firms jointly managing the offering but the total fee paid was just Rs 11.8 crore.
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