The tough stock market conditions of the last one-and-a-half years have showed on the performance of investment banks. ENAM Securities is no different. While the company was awaiting clearance from the banking regulator, the Reserve Bank of India, to merge with Axis Bank, its ranking slipped several notches in the league table. The company has recently received a go-ahead from the apex bank.
However, during this period, it has scored on the fees’ front, which is good, given that the competition is so intense and investment banking fees are one of the lowest, globally.
According to data from Bloomberg, the Mumbai-based investment bank’s ranking has slipped from four and three for calendar year 2009 and 2010, respectively, to 10 in 2011 and is at 12 for the current year as on May 2.
“We do not think it is appropriate for us to comment on league table rankings. However, we believe that ENAM continues to enjoy a very strong equity capital markets and merger and acquisition franchise in the country,” said the official spokesperson at Axis Bank.
League table rankings or quantum of funds raised enhances the prospects of an investment bank for getting future mandates. Some issuances, especially large-sized, have league table rankings as one of the criteria for shortlisting bankers.
For the 18-month period since the Axis Deal was announced, ENAM has accounted for just Rs 2,028 crore, or 2.9 per cent of the total Rs 69,500 crore raised by India Inc. If one has to compare its performance for the preceding 18-month period, it accounted for Rs 12,437 crore or 8.7 per cent of the total of Rs 1,42,900 crore raised from domestic equities.
On the positive side, however, Enam’s fees have improved to 2.81 per cent from 1.2 per cent for the period in comparison. Typically, investment banks charge higher percentage of fees for small-sized issuances.
To be sure, in the past 18 months, overall fund raising activity has more than halved due to the weak secondary market conditions.
“As the primary market has been down for more than a year, a signal large transaction can skew the league table rankings. Even though we have a large number of mandates in the pipeline, including several big-tickets ones like Steel Authority of India and Hindustan Copper, they have not been able to hit the market due to unfavourable conditions,” said a senior official of Enam Securities.
Incidentally, Axis Bank recently lowered the valuation of ENAM by revising the share swap ratio. According to the revised scheme, ENAM shareholders will receive five shares of Axis Bank for every one share held in Enam. The original deal offered 5.7 shares of Axis Bank for one share of ENAM. The lender has cited ‘prevailing market conditions and underlying commercial factors’ for the reassessment of valuation.
Even though the Axis Bank-ENAM deal was announced in November 2010, due to the pending regulatory approvals the final integration is yet to take place. The transaction still awaits approvals from Gujarat and Bombay high courts.
The investment banks - Citi and Morgan Stanley - who are at the top of the league table for 2012 have primarily made it there on the back of large share sales of ONGC and Wipro. According to industry experts, the major volume this year will come from companies wanting to sell shares to comply with the 25 per cent public shareholding norm.
Over 180 private companies and 16 public sector undertakings will sell shares worth a cumulative Rs 40,000 crore by August 2013 to meet the public shareholding norms.
