NEW DELHI: Merchant bankers have been hit hard by the fall in activities in the Initial Public Offering market, coupled with the downslide in the domestic bourses in 2008, with their fees plunging 70 per cent in a year.

During 2008, there was a clear plunge in the merchant banking fees to Rs 230 crore, a drop of 70 per cent from Rs 771 crore in the year 2007, according to data compiled by SMC Capitals, the brokerage arm of SMC Global.

The slide in the stock market since early 2008 has seen the IPO market losing sheen, as companies became jittery about hitting the capital market.

Last year the Bombay Stock Exchange benchmark Sensex skid nearly 50 per cent after scaling its all-time high level of 21,206.77 points on January 10, 2008.
s per SMC Capitals, the average percentage fee in 2007-08 for IPOs of less than Rs 500 crore ranged between 3.17 per cent to 3.67 per cent.

During 2008, Reliance Power IPO of Rs 11,563 crore was the only big ticket issue, with a merchant banking fee of Rs 50.6 crore, amounting to 0.44 per cent of the IPO size.

Exclude Reliance Power, and the percentage of fees during 2008 works out to be 2.59 per cent, SMC Capitals said.

The report also highlights that the overall average percentage of merchant banking fee for IPOs of public sector enterprises is at near-zero rates as the prestige factor in such issues carries a lot of weight.

Besides RPower, other IPOs which hit the market in 2008 had merchant banking fees in the range of Rs 35 crore to Rs five crore.

In 2007 there were big names like DLF which gave merchant banking fees to the tune of Rs 174 crore, while HDIL’s issue saw a fee outgo of Rs 51.70 crore, it added.

The total IPO volume in 2008 dropped 47 per cent to Rs 18,292 crore year-on-year, from Rs 34,386 crore in 2007.

Merchant Banking Fees includes lead management fees as well as underwriting and selling commission.

source: Economictimes

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