New Delhi: The government is likely to appoint six merchant bankers, including the lowest bidder Citigroup, that have been shortlisted for managing the initial public offer (IPO) of state-owned Coal India Ltd (CIL) within a few days, according to market sources.
Sources close to the development said that the other five shortlisted bankers -- Deutsche Bank, Morgan Stanley, Enam, Kotak Mahindra and DSP Merrill Lynch -- are expected to match the “near-zero” fee bid of the Citigroup because of the high profile and size of the CIL IPO.
Sources said that as against the global norm of 3-5% fee that bankers charge for managing IPOs, Citigroup has bid a tiny fraction of the estimated size of the issue (around Rs12,000 crore) so as to ensure that a commercial contract can be signed.
“There has been an instance, or two, where government has rejected zero-fee bid because for a commercial contract to be signed there has be some amount on paper,” said one source. He added, “Just to give a perspective, at the current fee while CIL IPO managers are expected to incur $3-4 million in costs -- from legal documentation to marketing -- they will end up getting just about Rs12,000-13,000 in all.”
One banker said that although this kind of fee is “unique”, merchant bankers view the costs (or loss) they incur as “advertising cost” and “future investment”, in a country (like India), which is planning to raise Rs40,000 crore through disinvestment plan in the near term. “That itself is a big ticket (attraction),” he added.
Although official indications are that the planned 10% divestment of CIL through the IPO may fetch the government between Rs10,000 crore and Rs12,000 crore, sources said the thinking among the short-listed managers is that the issue should fetch 10-20% more than the “upper limit” being talked about.