Adani FPO likely to fetch bankers Rs 100-150 cr
January 24,2023Investment bankers are set to pocket Rs 100-150 crore from the follow-on public offering (FPO) of Adani Enterprises. Adani’s Rs 20,000-crore FPO will be the country’s largest and may happen in two or three tranches. The initial tranche will be of Rs 10,000 crore.
The fees work out to 0.5-0.75% in percentage terms and will include a variable component that may differ from banker to banker. Fees will be on the lower side of what is typically paid out (0.75-1.25%) by private sector players in such offerings.
In absolute terms, however, this is a sizeable number, and amounts to 9.4% of fees pocketed by bankers from equity capital market activity in calendar year 2022. Banks earned Rs 1,600 crore last year from total ECM issuances of Rs 1.55 trillion, resulting in a 1% payout in percentage terms.
“It’s a pretty large issue and total fees of Rs 100-150 crore is in line with market rates. For the bankers, this is a good opportunity to rank higher in the league tables as well,” said a banker.
Food delivery firm Zomato’s Rs 9,375-crore IPO fetched record fees of Rs 229 crore for i-bankers, a significant amount for a large-sized offering, in 2021. The IPOs of Paytm, Zomato, Nykaa, PB Fintech and CarTrade – with a combined issue size of Rs 41,736 crore – generated total fees of Rs 940 crore for investment banks. This works out to be 2.25% on an average.
It is to be noted that these numbers are not strictly comparable. Fees charged by bankers for IPOs typically range from 2-3% of the issue size. This drops to 0.5-1.5% for FPOs. Fees for IPOs are higher because of the time and effort put in for market and price discovery.
Issuers typically have two or three structures for distributing fees. A fixed fee is distributed among all bankers handling the FPO mandate. Variable fees depend on parameters such as the procurement done by the banks on the institutional and retail/HNI side and the kind of work put in.
Actual fees paid to bankers of the Adani FPO will be disclosed after the issue closes on January 31.
The FPO has been marketed in the US, the UK, the West Asia and Singapore, and foreign institutional investors have evinced significant interest in it, according to two people in the know.
“The stock has done exceptionally well. Investors that have missed the bus may be keen to invest, given that the offer price is Rs 400-500 below the recent price. Investors can expect 3-5% returns in a month’s time. The key risk is an adverse market movement post the Budget since the stock is part of key benchmark indices,” said an analyst.
The stock was quoting at Rs 3,700 levels in September.
The floor price for the FPO has been fixed at a minimum of Rs 3,112 per share and the cap price is Rs 3,276 for all categories of investors. The company has announced a discount of Rs 64 per FPO equity share for retail investors.
On Monday, shares of Adani Enterprises ended at Rs 3,439.5 apiece, down 0.5% over the previous session. The stock has shed 7.4% in the past month.