 "Investment banks in a spot over exchange IPOs")
Investment banks wanting to be part of share sales of both the BSE and National Stock Exchange of India (NSE) are apprehensive that the exchanges might insert a clause barring the banks from being part of both the initial public offerings (IPOs).
According to sources, merchant bankers have started making informal visits to NSE to make preliminary presentations. BSE, which has already appointed Edelweiss as its lead merchant banker, is yet to finalise its team of bankers.
This could lead to a clash in the timings for the appointment for bankers and result in a situation where a particular banker appointed by one exchange is barred from the selection process of the other. The bankers, too, might face a catch-22 situation in which they might have to decide in advance which exchange's IPO they want to be part of.
BSE aims to raise between Rs 400 crore and Rs 1,200 crore from its equity offering. NSE's issue size is expected to be larger.
"There is definitely a conflict of interest especially when there is not enough gap between the two IPOs. After one exchange appoints its set of merchant bankers, the other exchange is likely to exclude them. Even the DoD, about three years ago, had barred merchant bankers appointed for state firms from handling issues of private firms in the same sector," said Prithvi Haldea, founder, Prime Database, a primary market tracker.
Assuming each exchange selects 6-8 bankers for their IPOs, there might be a stampede to cherry-pick bankers. Market participants feel there is ample choice as 10-15 bankers are active currently. That said, recent IPOs have largely been handled by domestic investment bankers, with the likes of Kotak Mahindra Bank, Axis Bank, Edelweiss Financial Services and ICICI Securities dominating the league tables, as per Bloomberg. What's more, foreign i-banks have cut personnel by 30-50 per cent over the past few years and have largely stayed away from the IPO scene in the last two years.
Both the exchanges did not respond to questions regarding the issue.
According to experts, Sebi's present ICDR/merchant banking norms do not prohibit a merchant banker from handling IPOs of rival companies. However, a company has a right to prescribe conditions in its mandate letter restricting the merchant banker from accepting assignment from a direct competitor, particularly when the timings clash.
"This may be a unique situation involving two rival stock exchanges wherein lot of roadshows, market making and price discovery may happen through the merchant banker," said Tejesh Chitlangi, partner, IC Legal, a law firm. "So, as lawyers, from the perspective of avoiding conflict of interest, we would advise the client to put such terms in the mandate letter which restrict the merchant banker from accepting the mandate from the direct competitor as well."
To be sure, bankers do and can handle IPOs of the same sector provided there is a reasonable time gap and the companies are not cutthroat rivals. In such cases, picking bankers who have previously handled issues from the same sector can actually be advantageous because of their sectoral domain knowledge.
"There have been instances in the past where the same investment banker has handled issues of two rival companies in the same sector. At the end of the day, it's the exchange management that has to take a call on the issue," said a merchant banker, on condition of anonymity.
He added that several investment banks have large teams and can create internal Chinese walls to ensure there is no information leak.
"My worry is not about whether they can do an honest job. My worry is that there's so much work to be done during an IPO - roadshows, meeting brokers and institutional investors, coordinating with the listing exchange, press meets, price determination and allotment - that the banker may not have the bandwidth to handle both the IPOs at the same time."
