Low fee won’t be enough to bag Rs 20k-cr IOC selloff account
New Delhi   03-Nov-2010

Quoting rock-bottom charges will not guarantee banks the coveted mandate to handle the Rs 20,000 crore share sale of IndianOil, with the government deciding to pick up the winner based on factors such as the size of issues it has managed earlier.

The government has, for the first time, kept a minimum fee of Rs 6 lakh for the investment banks. IndianOil will also pay up to Rs 5 crore to the bank that manages to secure the highest retail subscription among the six picked up for the job.

The criterion of lowest fees has been virtually removed after it was made irrelevant by banks, which started quoting abysmally low fees for cornering mandates. Several banks had bid less than a paise for managing the Rs 8,000 crore follow-on public offer of steel maker Steel Authority of India. “Every investment banker would bid at the floor fee,” said the managing director of a foreign Investment bank, ruling out the theoretical possibility of bidders quoting prices above Rs 6 lakh in multiples of Rs1 lakh.

IOC chairman BM Bansal said the state-run fuel retailer has invited investment banks to make a pitch for managing the issue. He did not comment on the selection criteria. Historically, the selection of merchant banks to handle public issues has been based on financial and technical criteria. But in most cases the bank bidding the lowest amount used to bag the deal. “Since the financial bid has become irrelevant, the selection will be based on the technical marks for all practical purpose,” said another banker.

The technical criteria involve experience and capabilities in handling similar transactions, sector expertise, experience and understanding of IOC. Besides, it also gives weight to marketing strategy, local presence and strength in drawing retail investors. Global presence and research capabilities also would be key parameters in technical assessment.

In the case of Rs 8,000-crore SAIL offer, Deutsche Bank had quoted a fee lower than a paise. As a result, the company had approached the law ministry to evaluate the legality of the transaction. The six investment banks for the issue slated for January were appointed after getting the law ministry’s clearance.

The government has approved fresh equity issue of 10% of existing paid-up capital by IOC and additional sale of 10% of the pre-issue equity capital. At the current price of Rs 423.50 per share, the proposed issue will rake in a whopping Rs 20,564 crore. The just concluded Coal India IPO managed to raise Rs 15,200 crore.