The lull in fund-raising activity by way of initial public offerings (IPOs) and qualified institutional placements (QIPs) has pushed investment bankers in the equity capital market segment to look at buybacks, delisting and advisory roles to shore up revenues.
?Bankers are looking at alternatives such as buybacks and delisting as the market for IPOs and QIPs has completely dried up owing to the weak market conditions,? said Prashant Shetty, managing director, IDFC SSKI. In 2011, more than a dozen companies opted for a buyback worth more than R3,000 crore, according to data from Prime Database. Another 15 firms have lined up buybacks through open-market purchases, amounting to more than R2,300 crore. Sebi is now working on reducing the timeline of a buyback from 63-114 days to 34-44 days, which could ease the buyback process.
The number of companies opting to delist shares, though, is much lower ? since 2002, just about 50 companies have successfully delisted, BSE data show. UTV Software Communications and Carol Info Services are the two companies that currently want to delist through the reverse book-building route. Alfa Laval (India) recently proposed voluntary delisting from BSE and NSE. The money that merchant bankers make by way of buybacks or delisting is much lower than through IPOs and QIPs. ?In IPOs, a banker gets the percentage of the money raised. In buybacks and delisting, bankers get a low, fixed income unless the delisting happens to be of a large MNC,? said G Ganesh, president, Collins Stewart Inga. Typically, the fees for buybacks and delisting range between R25 lakh and R30 lakh. Top merchant bankers, however, may charge up to R60 lakh, while boutique firms may charge as less as R10 lakh. For IPOs, merchant bankers can make anywhere between R2 crore and R4 crore for an issue size of R200-300 crore.
Bankers are also looking at the advisory side to stay afloat in this market. ?We have got a lot of mandates on the structured advisory side, which includes services such as advising clients on valuations and balance sheet reconstruction,? said Ganesh. Advisory is a low-fee mandate though.
Sebi?s new norms allowing companies to raise fresh capital or offer existing shares for sale through Institutional Placement Programme and auction through stock exchanges might help revive fund raising activity to some extent. However, the two new methods may not add much to the kitty of merchant bankers, at least in the near term, as participation will be restricted mostly to PSUs.?The league table will be the driver here and not the fee potential as most of the deals might be from PSUs,? said Sanjay Bajaj, MD & head-equity capital markets, HSBC Securities and Capital Markets (India).