The recent flood of offer-for-sale (OFS) issues has helped shore up revenues of investment bankers who were forced to lie low for more than a year due to little fund-raising action in the primary market.
According to estimates, OFS alone could have contributed about 50-55% to the fees earned by investment bankers by way of equity issuances since January 2012. In contrast, initial public offerings (IPOs) have contributed a mere 25-30%, while QIPs have contributed 13-15% to the fee base. Together, the two new modes of fundraising ? OFS and institutional placement programmes (IPPs) ? may have roughly contributed 55-60% to the overall fee base of merchant bankers.
OFS and IPPs together have raised more than R51,000 crore since January 2012 against a little over R21,000 crore raised through IPOs, QIPs and FPOs put together, according to data collated from Prime Database.
?At a time when the capital market is yet to recover, the flood of OFS has certainly helped the industry,? said V Jayasankar, senior executive director and head, ECM, Kotak Investment Banking.
Merchant bankers stand to earn anywhere between 0.7% and 1.2% of the total issue size as fees for an OFS compared with 2.25% and 3% for an IPO. Since January 2012, 81 OFS issuances have hit the market, totalling R46,363 crore. This would mean bankers have made anywhere between R313 crore and R556 crore from the OFS. In contrast, merchant bankers have pocketed anywhere between R188 crore and R 250 crore by way of 42 IPOs worth about R8,300 crore that hit the market during this period. Bankers typically earn anywhere between 2.25% and 3% for an IPO deal.
The total fees earned by way of OFS and IPPs could be anywhere between R346 crore and R 616 crore compared with fees of R 273-R403 crore earned through IPOs, FPOs and QIPs combined.
OFS and IPPs enjoy several benefits over IPOs, especially in terms of cost savings and execution time. While the fees paid for an IPO are higher compared with OFS and IPPs, the expenses are also on the higher side, said experts. Bankers have to bear high legal and marketing expenses as well as costs on preparing detailed offer documents ? for instance, legal fees alone could eat up 15-20% of the total fees earned by a banker. Also, bankers are paid fees in a staggered manner based on milestones such as Sebi approval and market conditions.
In contrast, fees for OFS and IPP issuances are minuscule, according to experts. ?The cost of doing an OFS is very low and is a quick way to earn fee-based income,? said a merchant banker who has been a part of several of the recent OFS.
Also, while OFS and IPPs are usually a 1-2- week exercise, IPOs are a long-drawn process and could take anywhere between six months to a year to complete.
Some of the notable OFS that hit the market since January 2012 include NTPC (R12,000 crore), NMDC (R5,900 crore) and Oracle Financial Services (R1,153 crore).
