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D-Mart listing: Investment banks earn lowest fee in last two years

LiveMint logoLiveMint 22-03-2017 Swaraj Singh Dhanjal

Mumbai: While investors in the initial public offering (IPO) of Avenue Supermarts Ltd, the parent of retailer D-Mart, made a killing on Tuesday as the stock closed almost 114.3% up from its IPO price on the first day of trading, the bankers to the IPO did not have much to brag about their returns, as they made the lowest fee in the last two years of the IPO boom.

Shares of D-Mart closed on Tuesday at Rs640.75 apiece, up 114.3% from the issue price of Rs299. Earlier in the month, the IPO of D-Mart parent Avenue Supermarts, to raise Rs1,870 crore, saw a subscription of a staggering 104.48 times.

According to the final prospectus filed by the company with capital markets regulator Securities and Exchange Board of India, the bankers to the issue (nine of them) collectively made a fee of Rs9.43 crore or just 0.5% of the issue size.

The fee will not be split equally, as the fee paid to the bankers follows a hierarchy. The so-called “left lead” banker makes the highest fee, followed by other banks called “global coordinators and book running lead managers” (GCBRLM), followed by other “book running lead managers”.

“In the case of D-Mart, Kotak Mahindra Capital, which was the left lead and the sole GCBRLM, will take home a substantial chunk of the fee. The fee is significantly lower compared to other issues and that is also why you did not see any foreign banks participate,” said a person associated with the D-Mart IPO, requesting anonymity as he is not authorized to speak with the media.

“D-Mart being a marquee brand that banks would like to work with and the fact that Damani himself has deep connects with the investor base thus reducing need for marketing of the issue are some of the factors for the lower fee,” he added.

Also read: Irrational exuberance in D-Mart shares

To put the D-Mart fee in perspective, Mint’s analysis of all IPOs so far this financial year shows that banks on an average made a fee of 1.9% of the issue size.

Even substantially larger issues like that of ICICI Prudential, which raised over Rs6,000 crore, paid out Rs90.9 crore or 1.5% of the issue size in fee, and that of PNB Housing Finance, which raised Rs3,000 crore, made the bankers a fee of Rs43.8 crore or 1.46% of the issue size, filings show. Generally, the higher the issue size, the lower is the fee percentage.

Other successful IPOs this financial year such as those of RBL Bank (issue size Rs1,212.9), BSE Ltd (issue size Rs1,243.4 crore) and Equitas Holdings Ltd (issue size Rs2,176 crore) paid out larger pay cheques for bankers with a fee of Rs30.3 crore, Rs28.6 crore and Rs37.6 crore, respectively.

Avenue Supermarts declined to comment on an email questionnaire sent on Tuesday morning. Emails sent to all the nine banks involved in the D-Mart IPO did not elicit any response.

Overall, fiscal year 2016-17 has been better for investment banks as it saw more number of initial share sales, resulting in higher fee disbursal for banks (in absolute amount). The year saw investment bankers make a total of Rs510 crore by managing 23 IPOs so far and helping raise Rs27,640 crore. In financial year 2015-16, banks took home a fee of Rs458 crore.

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