Hyundai Motor India Limited (HMIL) has made waves in the Indian financial markets with its record-breaking ₹27,870 crore initial public offering (IPO). While the IPO did not achieve astronomical subscription levels, it has resulted in a remarkable windfall for the five investment banks managing the share sale. The Indian arm of the South Korean carmaker disbursed a staggering ₹493 crore in fees and commissions to the book running lead managers (BRLMs), marking the largest-ever payout for an IPO in the country.
This record eclipses the previous high of ₹324 crore, also 1.77 percent of the total issue size, paid by digital payments giant One97 Communications (Paytm) for its ₹18,300 crore IPO in November 2021. The substantial fees from HMIL’s IPO highlight the lucrative nature of large-scale equity offerings in India.
Surge in Investment Banking Fees
Buoyed by the exceptional payout from HMIL, fees from managing equity share sales have surged past ₹3,000 crore this calendar year, reaching an all-time high, according to industry estimates. This significant increase in fees sets the stage for substantial bonuses for investment banking executives involved in these high-profile deals.
Notably, the three most lucrative IPO deals have all occurred in 2024. Alongside Hyundai’s offering, Vodafone India’s ₹18,000 crore follow-on public offering (FPO) generated ₹287 crore in fees, while Ola Electric Mobility’s ₹6,146 crore IPO contributed ₹145 crore to investment bankers’ coffers.
The Competitive Landscape
The five banks managing HMIL’s IPO will split the substantial fees among themselves, benefiting greatly from the sheer scale of the deal. The size of HMIL’s IPO is over four times larger than that of the year’s second-largest IPO, Bajaj Housing Finance’s ₹6,560 crore offering, which further propels these banks up the league tables of leading investment banks in India.
In stark contrast, Life Insurance Corporation of India’s (LIC) ₹20,557 crore IPO in 2022—previously the largest—paid only ₹11.8 crore in fees spread across 16 banks. IPOs for government companies typically offer much lower fees; however, banks often pursue these mandates to enhance their league table rankings, which can be instrumental in securing more prestigious private-sector mandates in the future.
Fee Structures and Market Dynamics
For large private-sector deals, BRLMs typically charge between 1 percent and 3 percent of the total issue size. According to industry insiders, a fee of nearly 1.8 percent for a deal of Hyundai’s magnitude is highly lucrative. Investment bankers suggest that if there is significant demand for the stock, companies can negotiate favorable terms. A well-priced issue can also reduce the amount of effort required during roadshows, leading to lower overall costs for the issuer.
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As a case in point, Bajaj Housing Finance only paid ₹36 crore, or 0.6 percent of its ₹6,560 crore offering, despite its shares surging 137 percent on debut. This exemplifies the variability in fee structures based on market conditions and investor demand.
IPO Market Outlook
So far in 2024, 66 companies have collectively raised over ₹93,000 crore through IPOs. The previous record for IPO fundraising, set in 2021 when ₹1.19 trillion was raised, is now within reach, with several major offerings on the horizon. Upcoming IPOs include Shapoorji Pallonji Group’s Afcons Infrastructure’s ₹7,000 crore issue, solar panel manufacturer Waaree Energies’ ₹4,321 crore offering, food delivery giant Swiggy’s ₹11,600 crore share sale, and NTPC Green Energy’s ₹10,000 crore offering.
With a robust pipeline of IPOs and a record payout for investment banks, the Indian primary market is set for a dynamic year ahead. As the demand for equity capital continues to grow, investment banks are poised to reap the rewards, demonstrating the thriving landscape of India’s capital markets.
