Four investment banks have agreed to a R1 fee to sell a part of the stake in defence aircraft maker Hindustan Aeronautics (HAL), signalling fierce competition among I-banks to build brand and find slot in the deal league table, giving up revenues.
Two global I-banks ? Goldman Sachs India and Barclays Capital and home grown SBI Caps, the investment banking arm of the State Bank of India and Enam Capital have jointly won the government mandate.
?It is tough to give a reason,? a senior investment banker at one of the largest domestic I-banks said. ?The cut throat competition continues among bankers.?
His bank, which had advised government in sale of shares for free in government companies, now stays away from it. He or his I-bank cannot be quoted as a media policy do not allow to comment on rival firms.
The four banks will have to spend anywhere between R7-8 crore from their pocket for travel and market the issue.
Some domestic I-banks, of late, have been staying away from government disinvestment programme as low fees were unattractive. Global banks pitch for lead bankers to the issue, while some domestic bankers act a co lead advisors.
Some domestic I-banks with retail distribution network, however, made money by tying up with their global rivals to sell it to retail investors for a fee.
?They pay us,? says managing director of a domestic i-bank who sold shares to retail investors in Bhel. He or his firm cannot be quoted on rival firms.
The global investment banks pitch for large disinvestment mandates to build brand and to top league table as part of its future growth strategy. Some of these banks, with healthy balance sheet, can underwrite public issues and lend money to Indian companies to buy assets in India and abroad unlike their smaller domestic banks.
Unless these global banks build a large business, selling shares for low fees will continue, the managing director of the domestic bank quoted above said. ?They don?t mind losing $10m a year to build future business.? ?In our case, forget making money, we will lose money if we bid for such fees, he added.
Investment bankers are having tough time as falling stock market shuts tap for companies to raise money and companies are preserving cash rather than buying companies. The lower valuation are forcing companies from selling their shares.
?We have a good deals pipeline, but lower valuation and economic slowdown pose as hurdles to deal completion,? says another managing director of an investment bank owned by a lender. ?The next two quarters will be disaster.? We are praying for an improvement, he added. One beneficiary to this low fees is the government who had managed to raise only 3% of the R40,000 crore target set by selling shares in companies they owned.