Foreign i-bankers latch onto large IPOs

With a number of large Initial Public Offers (IPOs) set to hit the market in the coming months, foreign investment bankers are getting back into action. In the past two years, they were mostly shied away from IPOs.

Four of the six bankers shortlisted for the Rs 16,000 crore Vodafone IPO — Bank of America Merrill Lynch, UBS, Deutsche Bank and HSBC — are foreign names. Similarly, the Rs 6,000 crore offering of ICICI Prudential Life Insurance includes four from abroad – CLSA, Bank of America, UBS and Deutsche Bank.

RBL Bank (issue size of Rs 1,500 crore) has enlisted the services of Citigroup and Morgan Stanley, while L&T Infotech (Rs 2,000 crore) has hired Citigroup. Asia’s oldest bourse, BSE, is also expected to hire a few foreign i-bankers.

“Large offerings need a wider reach and connectivity with overseas investors, which is where foreign i-bankers’ expertise can prove useful,” said Prithvi Haldea, chairman of Prime Database, a primary market tracker.

  In 2015, there were three offerings with an issue size over Rs 1,000 crore. This year, Equitas Holdings has been the only large issue (Rs 2,175 crore) so far.

Several foreign i-banks had cut on personnel by 30-50 per cent over the past few years and become picky about deals, said experts. “Team sizes have become much smaller and so the bankers want to be part of fewer but larger offerings,” said a foreign i-banker, on condition of anonymity.

Domestic investment banks have dominated the IPO league table for 2015 and 2016 so far. Last year, Kotak Mahindra Bank topped the charts with nine issues and a market share of 13.6 per cent, data from Bloomberg shows. Axis Bank came second, followed by Citi, Edelweiss Financial Services and JP Morgan.

In 2016 so far, HSBC is the only foreign i-banker in the top 10. Contrast this with the year 2006, when the top three investment banks were all foreign names.

“In the heydays of 2006 and 2007, you had two-three overseas bankers and one or two domestic bankers handling a large issue; now, you have more of domestic bankers,” said the foreign i-banker quoted earlier.

Over the years, domestic i-bankers have gained experience in managing large issues and are preferred by small and medium-sized issuers of up to Rs 1,000 crore over foreign i-bankers, said experts. “Even for the larger issues, the dependence on foreign banks has reduced,” says Haldea.

Experts believe Indian companies are a lot more confident about the implementation skills of domestic banks, especially on attracting institutional investors. “Earlier, there was a perception that only foreign i-bankers can attract money from abroad. That’s no longer the case,” said Dharmesh Mehta, managing director, Axis Capital.

Despite a volatile secondary market, the IPO market saw a revival of sorts in 2015 after four disappointing years, with 21 IPOs collectively raising Rs 13,600 crore, says Prime Database.

Ten companies have hit the primary markets in 2016, mopping Rs 6,700 crore. Some of the larger issues are of Equitas Holdings, Ujjivan Financial Services and Parag Milk Foods. Companies looking to go public in the next two months are RBL Bank, Mahanagar Gas, GVR Infra Projects, Quess Corp, Larsen and Toubro Infotech, GNA Axles, Advanced Enzyme Technologies and Sandhar Technologies. These IPOs could mop close to Rs 6,000 crore, according to estimates.