Investment bankers handling the Coal India IPO have made a tidy profit by charging 1% fee on participatory notes (PNs). Citi and Deutsche Bank will earn close to Rs 40 crore each as fees for putting in application worth $1 billion each on behalf of overseas investors, two investment bankers familiar with the matter said.
The six investment bankers levy a paltry Rs 12,500 fee from the government for managing the over Rs 15,000-crore IPO.
Morgan Stanley, DSP Merril Lynch, Enam and Kotak Mahindra will also be sharing Rs 10 crore as the interest on close to Rs 60,000 crore that came from institutions outside the applications supported by blocked amount (Asba) accounts with Citi and Deustche.
While the Rs 60,000 crore will be giving a return of close to Rs 100 crore in the 11 days till allotment, according to the new arrangement the banks will get only 10% of the interest. India-based brokerages like Citi and Deustche buy stocks or subscribe to primary issues and then issue participatory notes to foreign investors. The dividend or capital gains earned from underlying securities go to the overseas investors. The investment bankers have spent an estimated amount of Rs 4 crore each to handle the CIL issue. Participatory notes are instruments used by hedge funds that are not registered with Securities and Exchange Board of India (Sebi) to invest in Indian securities. The government is selling 10% stake, or 63.16 crore shares in the company to raise more than 35% of its disinvestment target of Rs 40,000 crore for the current fiscal year.