Rs 8 fee to manage Rs 8,000 crore issue

MUMBAI: How much should merchant bankers charge the government for a public float that could bring in as much as Rs 8,000 crore?

Global investment banking major Goldman Sachs' proposed fee for managing the second round of divestment in Power Grid Corp adds up to Rs 8! Yes, you read right: rupees eight for a rupees eight thousand crore issue. And Indian merchant banking biggie SBI Caps' proposed fee isn't a paise more.

Merchant banking sources told TOI that on Wednesday when the government opened the financial bids for the Power Grid divestment, it found that Goldman Sachs and SBI Caps had quoted a fee of 0.00000001% of the amount proposed to be raised. If for any reason the final amount raised was say, Rs 7,500 crore, the merchant banker's take would be Rs 7.50 each.

The intense competition among merchant bankers to grab large-size government offerings at almost zero fee has been a trend for sometime now.

Market sources said merchant bankers are desperate to grab such offerings ‘at any cost' in order to stay at the top of the I-banking pecking order, something they flaunt when bidding for businesses from the private sector. Often while selecting investment bankers, private sector companies tend to be influenced by the league table.

In the Power Grid issue, the other merchant bankers who qualified were JP Morgan , which bid 0.0000001%, that is Rs 80 for the offering. Then came ICICI Securities (I-Sec ) and RBS, with a bid of 0.000001% of the amount to be raised, that is Rs 800.

Sources close to the development said that finally Goldman Sachs, SBI Caps, JP Morgan and I-Sec were selected to lead the Power Grid offering. There were 17 merchant bankers in the race initially for the divestment. In a recent interview to TOI, Uday Kotak, VC and MD of Kotak Mahindra Bank had said this was not surprising.

Serving the sovereign was the greatest honour for a banker, he claimed. What he chose not to say is that it's also great marketing.