Trips to IPO St turn expensive as fees shoot up
It’s a double whammy for the companies going for initial public offers (IPOs).
By James Mathew and Vivek Sinha, TNN |
NEW DELHI: It’s a double whammy for the companies going for initial public offers (IPOs). While the change in the market sentiment has put a lot of uncertainty over the success of their issues, merchant bankers who manage public issues are also jacking up their fees, raising the total cost of bringing out IPOs.
The merchant banking fees for handling IPOs have gone up to 3-3.5%, from the average fee level of about 2% earlier. The fee hike is on the ground that making a successful IPO issue has become a tough task in the changed market scenario and requires increased efforts to market them.
Sources said while many of them have already increased their fees, the remaining are expected to follow suit soon. Industry sources said some of the foreign banks which were earlier either not participating or had limited participation in handling IPOs, are now planning to enter this segment in a big way, following the improved fee levels for handling new issues.
Significantly, for companies the current situation is a far cry from the days when merchant bankers used to engage in a dogfight to bag IPOs, charging negligible or at times even no fees. In many of the mega IPOs of public sector units, the fees were very marginal.
For instance, the merchant banking fees in the ONGC IPO was just about 0.075%. “The scenario has changed drastically now, with the change in the market conditions.
Today, it is a huge task to take an IPO through. Starting from the valuation, we have to get a lot of factors, including the timing, correct in order to just get through,” said a senior executive in a leading merchant bank, justifying the move to charge higher fees for handing such issues now.
The scenario now is a sharp contrast to the market condition till about a month back when investors were literally fighting for investing in IPOs. Most of the issues were oversubscribed within minutes of the issues being opened for subscription.
The subscription levels itself were in multiples from all sets of investors, including the retail investor. However, the complexion of the equity market has changed dramatically after the stock market crash of mid-May.
In fact two of the IPOs which have come up for subscription after the market meltdown — Air Deccan and Prime Focus — have had to extend the issue closing dates, apart from dropping the lower end of the price band of the issue.
The merchant banking fees for handling IPOs have gone up to 3-3.5%, from the average fee level of about 2% earlier. The fee hike is on the ground that making a successful IPO issue has become a tough task in the changed market scenario and requires increased efforts to market them.
Sources said while many of them have already increased their fees, the remaining are expected to follow suit soon. Industry sources said some of the foreign banks which were earlier either not participating or had limited participation in handling IPOs, are now planning to enter this segment in a big way, following the improved fee levels for handling new issues.
Significantly, for companies the current situation is a far cry from the days when merchant bankers used to engage in a dogfight to bag IPOs, charging negligible or at times even no fees. In many of the mega IPOs of public sector units, the fees were very marginal.
For instance, the merchant banking fees in the ONGC IPO was just about 0.075%. “The scenario has changed drastically now, with the change in the market conditions.
Today, it is a huge task to take an IPO through. Starting from the valuation, we have to get a lot of factors, including the timing, correct in order to just get through,” said a senior executive in a leading merchant bank, justifying the move to charge higher fees for handing such issues now.
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The scenario now is a sharp contrast to the market condition till about a month back when investors were literally fighting for investing in IPOs. Most of the issues were oversubscribed within minutes of the issues being opened for subscription.
The subscription levels itself were in multiples from all sets of investors, including the retail investor. However, the complexion of the equity market has changed dramatically after the stock market crash of mid-May.
In fact two of the IPOs which have come up for subscription after the market meltdown — Air Deccan and Prime Focus — have had to extend the issue closing dates, apart from dropping the lower end of the price band of the issue.
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