Home / Market / Stock-market-news /  Local investment banks top gainers in IPO boom

Mumbai: Local investment banks (i-banks) have won most of the mandates to manage initial public offerings (IPOs), propelling them to the top of the 2015 IPO league table in a boom year for primary market activity. Their global rivals are likely to make a strong comeback in the last three months of the year when bigger IPOs are expected to hit the market.

Axis Capital Ltd, Edelweiss Financial Services Ltd and Kotak Mahindra Capital Ltd are leading the rankings in terms of the capital raised from issuances they have brought to the market so far this year, according to league tables compiled by Thomson Reuters. ICICI Bank Ltd and Citibank India make up the top five investment banks in terms of IPO market share.

Fifteen Indian companies have sold shares to the public for the first time this year, raising 6,348 crore, and many of them have chosen to work with local investment banks because of the relatively smaller size of the offerings. The bigger IPOs may need the services of global investment banks with a wider network of institutional clients.

“Typically, when you have larger deal sizes, you find more foreign banks. With a larger deal size, you need more marketing, more linkages, and that’s where foreign banks bring in value," said Prithvi Haldea, chairman of Prime Database group, a primary market data tracker. Foreign banks, he said, will catch up as larger issues come to the market.

The bigger IPOs expected this year include Coffee Day Enterprises Ltd (CDEL), the parent firm of the company that runs the Café Coffee Day chain. It will open for subscription on Wednesday and is likely to raise 1,150 crore. InterGlobe Aviation, which owns IndiGo Airlines, is expected to raise 2,500 crore by selling shares to the public for the first time later this month. The rush of IPOs is likely to continue with as many as 30 companies having filed for IPOs with the capital market regulator. They may potentially raise as much as 20,000 crore over the next 12 months.

To be sure, Axis Capital and Kotak Mahindra Capital have maintained their standing in the top three across most years when the primary markets have been active. Edelweiss has improved its ranking over the years.

“This year has been reasonably better than last year when it comes to issuances, but we are expecting that through March it will be better," said S. Subramanian, managing director for investment banking at Axis Capital.

Indian banks have been investing to build their investment banking businesses, which is allowing them to compete effectively with top global rivals, he said.

With five issuances under its belt, Axis Capital currently has the highest market share of 14.7%. Axis Capital is also part of the IPOs of CDEL, private lender RBL Ltd and AGS Transact Ltd.

It also topped the league table in 2010, when a record 37,535 crore was raised through the primary market. In 2007, when companies raised 34,179 crore in IPOs, the second highest, Axis Capital was ranked No. 2.

A number of primary issues are coming from companies backed by private equity firms as some of them look to sell part of their holdings, while others are seeking growth capital for the firms they have invested in. As such, most of the issues so far have been in the range of 350 crore to 600 crore. Large IPOs are likely in the last three months of 2015.

The new entrant among the top three, Edelweiss Financial Services added more people to its investment banking team and strengthened its network to improve its standing in the market.

“Over the last few years, we have been busy strengthening our distribution network and maintaining our lead in retail and HNI (high net-worth individual) segment. We have added more people even in the senior management, which has helped us to grow our network," said Vikas Khemani, president and chief executive at Edelweiss Securities Ltd. Edelweiss is currently placed second with a 10.1% market share.

Khemani expects the IPO pipeline to stay strong over the next 12-18 months.

“Bigger companies take time to prepare for an IPO. For them to launch an IPO, the markets have to be right, given the large amount of funds to be raised. We are seeing more big firms filing for IPOs and the trend will grow stronger in the next 12-18 months," said Khemani.

V. Jayasankar, senior executive director and head of equity capital markets at Kotak Mahindra Capital, said the bank will focus on both large and medium-sized issues. Kotak is part of the CDEL, InterGlobe Aviation and RBL Bank IPOs, among others.

Kotak, which is currently No. 3 with a market share of just under 10%, says the bank will continue to use its strong distribution network and retail and HNI outreach to maintain and improve its standing.

Among the foreign banks, Citibank currently has a 6.9% market share and is ranked fifth, a notch below its ranking in 2007 and 2010. Bank of America Merrill Lynch (BoA-ML), which was placed third in the league tables in 2007 and fifth in 2010, is now No. 8.

Citibank and BoA-ML declined to comment.

“Foreign banks focus towards IPOs where they can add value to and bring in global insights and participation from global institutions—all three put together," said Samarth, executive director at Morgan Stanley.

As market confidence increases and the capex cycle picks up, infrastructure-related IPOs will find their way in the next wave of primary listings, which is at present dominated by consumer-facing companies.

CDEL will be Morgan Stanley’s first IPO this year. It closed in 2010 at No. 3 in the IPO league tables in India.

Foreign bank-backed IPOs could also see higher participation from foreign institutional investors, which has so far been thin, as these investment banks have a wider network among foreign institutional clients. The higher profile of these issues and the larger size will also be a draw for foreign investors, said bankers.

“We are expecting very strong FII (foreign institutional investor) participation in the upcoming IPOs including Coffee Day’s issuance. As large IPOs start hitting the markets more FIIs will start investing in the long term story of these firms," Jayasankar added.

Some of the other large IPOs expected to hit the markets before the end of this year include Alkem Laboratories Ltd and Blackstone-backed Nuziveedu Seeds Ltd.

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