Record share sales bring banks little cheer in the way of fees
Funds raised in India through share sales reached the most in a decade this year thanks to booming stock markets, but the rush to raise capital while investor sentiment remained bullish pushed dealmakers' fee ratio to multi-year lows.
India's main stock indexes surged almost 30 per cent in 2017 as investors bet on economic reform and corporate earnings recovery. That spurred almost $30 billion worth of share sales including a record $11.5 billion in initial public offerings (IPO).
But for banks which arrange the sales, fees earned as a percentage of funds raised hit the lowest in four years, Thomson Reuters data showed. That made arranging work in Asia's thirdlargest economy the worst paid out of 11 Asian markets.
To be sure, the structure of Indian deal-making means fees are often comparatively small. But this year was particularly low because a high proportion of deals involved state-run firms which typically pay paltry fees. Competition was also higher with dealmakers such as IDFC Bank Ltd and IIFL Holdings Ltd gaining market share, while entrants such as China's Haitong Securities Co Ltd made headway, industry participants said.
"In a buoyant market there is no cause for anxiety for issuers, so low fees are no surprise. In a weak market, issuers may be willing to pay higher fees but the number of issues are fewer," said Prithvi Haldea, chairman of data provider Prime Database.
"That said, India has been a low-paying market for years and that's unlikely to change anytime soon," he said.
Unattractive
Bankers are optimistic about 2018's deal pipeline which they expect to include IPOs, real estate investment trusts and state-backed share sales. But some fear a continued market boom will keep fees low. Fees this year averaged 0.8 per cent of deal proceeds, from 1.3 per cent last year, Thomson Reuters data showed. The average was 2 per cent in Hong Kong, 2.6 percent in Shanghai and Shenzhen and 2.8 per cent in Tokyo. New York averaged 3.2 per cent.