Three sources said that banks assisting South Korean carmaker Hyundai on its initial public offering (IPO) in India stand to earn up to $40 million in fees. This represents a windfall in a sector where banks often struggle to turn a profit due to cost-conscious clientele and a decline in large deals.

It comes amid a dramatic upsurge in stock deals in the nation, making it a bright light in otherwise drab Asia. That would be the second-highest fee pool ever for investment banks working on an initial public offering (IPO) in India.

This month, Hyundai Motor’s India division submitted a request for regulatory clearance to list. This might be the company’s largest offering in the country, and the South Korean parent company will be able to raise between $2.5 and $3 billion at a $30 billion valuation for the division.

According to people with direct knowledge of the sale discussions, Hyundai India would pay banks, such as JPMorgan, Citigroup, and HSBC, 1.3% of the IPO size. However, these people spoke on condition of anonymity since the conversations are private.

JPMorgan, Citi, and Hyundai India all declined to comment, and HSBC did not respond to demands for comment.

According to Dealogic statistics, it amounts to $40 million for a single sale at the high end of the deal size, making it the second-best payment for banks after the 2021 IPO of Indian fintech company Paytm, which paid $44 million to its seven advisors.

In India, banks are paid 1% to 3% of the amount of an initial public offering (IPO), with larger deals offering issuers greater negotiating leverage. Banks in New York would get fees on an IPO valued at around $3 billion, but in Hong Kong, the fees may be as low as 2%–3%.

Bankers claim that state-owned enterprises, which have historically made up the majority of large equity deals in India, provide extremely cheap costs.

In private, Western bankers bemoan the poor income potential of the Indian market, but they anticipate that in the years to come, as transaction sizes and fees rise.

Dealogic estimates that a $40 million payout from the Hyundai India IPO would account for one-fourth of India’s $164 million in 2023 IPO fee income. According to London Stock Exchange Group data, Indian brokerages IIFL, Kotak Mahindra, and Jefferies were the top three in the nation for IPO fees last year.

With a record 234 businesses launching last year, India’s IPO fee increased by 55% to reach $164 million. According to statistics from Dealogic, banks in Hong Kong paid out $135 million in IPO fees last year, while banks in New York made $890 million.

Although the fee distribution among Hyundai’s advising banks for its India IPO has not yet been determined, lead managers usually receive the largest portion.

According to three reports, JPMorgan, Citi, and HSBC are the main banks for the Hyundai India IPO. They added that India’s Kotak and Morgan Stanley (MS.N), among other banks, are involved in the transaction.

When Reuters asked Morgan Stanley and Kotak for comment, they did not respond.

Banks would wind up pocketing a combined $33 million in fees at $2.5 billion, the lower end of the estimated size of the Hyundai India IPO, which is slated to be issued in the second half of this year. This is still the second best IPO fee in the nation.

In the next years, as valuations rise and foreign funds seek out Indian stocks in the face of an uncertain Chinese economy, bankers are relying on a spike in high-profile private firm initial public offerings (IPOs) and investment banking fees in India.

“The Hyundai IPO represents the beginning of a trend, and there is money to be made in India. Global banks are starting to see this as an opportunity, according to Utpal Oza, the former head of Nomura’s investment banking division in India.

Dealogic data indicates that the last three years have seen nearly all of India’s highest-paying initial public offerings (IPOs), with several businesses backed by venture capital and private equity vying for listings.

As the volume of deals increases, Jefferies Financial Group anticipates that investment banking fees in India would climb over the next several years, as stated by the company’s national head in December of last year.

(Adapted from Reuters.com)