espite the covid-19 pandemic, investment bankers expect the second half of 2020 to be robust for deal-making in both the equity and debt segments. Bankers say that the public equity markets are making a comeback while private equity is waiting to deploy billions of dollars into a fund-starved corporate India.
However, the investment bankers who facilitate these deals might see their fee income remain under pressure, just as it did in the first six months of the year.
“If you look at the sheer number of enabling approvals that listed companies have taken for capital raising, you’ll get a sense of the appetite for capital raising at the moment," Nipun Goel, head, investment banking, IIFL Securities, said.
Goel pointed out that a large number of qualified institutional placements and block deals have already taken place; large rights issues too have happened.
“The public markets are opening up again as has been evidenced in the response to the recent public offers (Rossari Biotech and the Mindspace REIT). We believe that the momentum in IPO activity will step up in the next few months," said Goel, adding that private equity is sitting on a lot of dry powder as well and actively scouting for ideas.
According to global financial market data provider Refinitiv, investment banking fees for equity raising fell 7% in India in the first half of 2020. This was despite equity capital raised increasing 52% to nearly $20 billion. Fees in the debt capital market fell 19%, while proceeds fell by 13% to about $40 billion.
State Bank of India, Axis Bank and ICICI Bank shared the top three positions in the investment banking fees league tables, accounting for 21% of the market share.
However, all three saw their fees at $33 million, $29.5 million and $29.4 million, respectively fall year-on-year by 28-45%.
“We’re seeing a tendency among clients to increase the number of investment banks in each transaction," a senior banker at a large investment banking firm said on condition of anonymity. This diversifies the risk and ensures the fund-raising target is met but it also reduces the fee paid out to individual bookrunners, the banker said.
“Also, clients who have relationships to domestic banks let the investment banking arms of their banks take the lead, as they feel obliged to respect the fact that the bank has stayed the course with the borrower during tough times," he said.
According to Pranav Haldea, managing director, Prime Database, while there is a lot of fund-raising activity, most of the deals this year have been follow-on offerings like rights issues, QIPs and block deals.