Global coordinators soak up 75% fees in large IPOs

Despite the nomenclature, global co-ordinators may include domestic as well as international investment banks

Companies are segregating the roles of investment banks, designating them as global coordinators and book running lead managers, with an aim to better manage large initial public offerings (IPOs).

This has mostly been done for issues in excess of Rs 1,000 crore and where there is a requirement of more than seven banks. Despite the nomenclature, global coordinators could include domestic as well as international investment banks. “Several bankers are involved in handling large issues and a few of these are elevated to global coordinators. The idea of creating a division is to place higher responsibility on one set of bankers,” said Prithvi Haldea, founder, Prime Database.
 
For instance, RBL Bank had recently appointed Kotak Mahindra Capital, Axis Capital, Citigroup and Morgan Stanley as global coordinators for its IPO. For the same offering, HDFC Bank, ICICI Securities, IDFC Securities, IIFL and SBI Caps acted as book-running lead managers for the Indian market.

Notably, all of the issuances since the beginning of 2015 (except RBL) have had a single set of bankers managing the issue, with one bank acting as a lead to oversee the work of other banks and handle regulatory filings. “While the global coordinators do most of the regulatory and institutional work, the book-running managers are largely engaged in marketing the issue to retail investors. When it comes to fees, the global coordinators are cornering a higher chunk of the fees,  sometimes as high as 75-90 per cent,” said V Jayasankar, senior executive director and head of equity capital markets, Kotak Investment Banking.

The high fees mean that there is fierce competition among banks for the role of global coordinator. "While every bank wants to play the role of a global coordinator, the appointments are usually decided based on the company's prior relationship with the banks and their involvement in the share sale," said a banker who did not want to be named.

"The bifurcation helps companies streamline their communication with the bankers. Typically, global bankers are appointed first and entrusted with most of the regulatory work, while other bankers are brought in later during the marketing stage. This ensures that a company can work closely with just a few bankers initially," said another banker on condition of anonymity. He clarified that the book-running managers also shared the responsibility of marketing the offering to institutional players.

To be sure, the sub-division of bankers is not an entirely new concept and the trend was prevalent before 2008. “The trend was seen earlier in large offerings of 2006-07 when two tiers were created to divide responsibilities and this trend will pick up going forward,” observed Haldea.

Two sets of bankers will be seen in the forthcoming IPOs of ICICI Prudential Life Insurance, Vodafone, BSE and NSE.  BSE, for instance, has hired Edelweiss Financial Services, Axis Capital, Jefferies and Nomura as joint global coordinators and Motilal Oswal, SBI Capital Markets and SMC Capitals as book-running lead managers. Rival NSE has appointed Citigroup Global Markets, JM Financial Institutional Securities, Kotak Mahindra Capital and Morgan Stanley India as joint global coordinators but is yet to appoint book-running managers.

In 2016, 17 IPOs have mopped up close to Rs 12,000 crore. Out of these, four offerings had an issue size of over Rs 1,000 crore but just one (RBL Bank) featured global coordinators.