India’s record share sales bring banks little cheer in fees

India’s record share sales bring banks little cheer in fees

Context

Funds raised in India through share sales reached the most in a decade this year thanks to booming stock markets

News

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

Surge in stock index

India’s main stock indexes surged almost 30% 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)

Low fees for banks

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 third-largest economy the worst paid out of 11 Asian markets

• This year was particularly low because a high proportion of deals involved state-run firms which typically pay paltry fees
• An increasing number of banks involved in each deal also means fees are being split between more dealmakers, said the ECM head at a multinational bank, who was not authorised to publicly comment on fees and so declined to be identified. There is also a “new cycle of people willing to go down the fee curve,” the banker

What does a low fees signify?

Low fees mean regardless of higher deal volumes, many banks — especially foreign banks with high cost structures — are not aggressively expanding ECM teams