• Thursday, July 25, 2024

Business

Hyundai India IPO to earn banks £31.75m in fees: report

Hyundai Motor’s India unit recently filed for regulatory approval for a listing, which could be the nation’s biggest.

Workers assemble cars inside the Hyundai Motor India plant at Kancheepuram district in the southern Indian state of Tamil Nadu. (Photo: Reuters)

By: Vivek Mishra

Banks advising South Korean automaker Hyundai on its India IPO are set to make up to £31.75 million in fees, three sources told Reuters. This is significant in a market where banks often struggle to profit due to cost-conscious clients and fewer large deals.

This fee would be the second-highest ever for investment banks working on an IPO in India. It comes amid a sharp increase in equity deals in the country, making India a bright spot in an otherwise slow Asian market.

Hyundai Motor’s India unit recently filed for regulatory approval for a listing, which could be the nation’s biggest. The South Korean parent aims to raise around £1.98-£2.38 billion, valuing the unit at up to £23.81 billion.

Hyundai India will pay banks, including JPMorgan, Citigroup, and HSBC, 1.3 per cent of the IPO size, the sources, who requested anonymity due to the confidentiality of the talks, told Reuters. Citi and JPMorgan declined to comment, while Hyundai India and HSBC did not respond to requests for comment.

This translates to £31.75 million for a single deal at the top end of the deal size, making it the second-best payday for banks after Indian fintech firm Paytm’s 2021 IPO, which yielded £34.92 million for its seven advisers, according to Dealogic data.

Banks in India earn between 1 percent and 3 per cent of an IPO size as fees, with larger deals giving more bargaining power to the issuers. An IPO worth about £2.38 billion would see banks in New York earning 3-3.5 per cent in fees, while it could be 2-3 per cent in Hong Kong.

Most big equity deals in India historically come from state-owned companies that offer very low fees, according to bankers. Western bankers privately complain about the Indian market’s low revenue potential but expect this to change in the coming years as both the size of deals and fees increase.

A £31.75 million payout from the Hyundai India IPO would represent a fourth of India’s total IPO fee income of £130.16 million in 2023, according to Dealogic. Indian brokerages IIFL and Kotak Mahindra, and Jefferies topped the country’s IPO fee league table last year, according to London Stock Exchange Group data.

India’s IPO fee rose 55 per cent to hit £130.16 million last year, with a record 234 companies listing. Banks in New York earned £706.35 million while Hong Kong IPO fees totaled £107.14 million last year, according to Dealogic data.

For Hyundai’s India IPO, the fee split among its advising banks has not been decided yet, but typically lead managers get the largest share. JPMorgan, Citi, and HSBC are the lead banks on the Hyundai India IPO, three sources said. Other banks on the deal include Morgan Stanley and India’s Kotak. Morgan Stanley and Kotak did not reply to a Reuters request for comment.

At £1.98 billion, the lower end of the expected size of the Hyundai India IPO, banks would end up pocketing a combined £26.19 million in fees, still the second-best IPO fee in the country.

Bankers are optimistic about a surge in large private company IPOs and investment banking fees in India over the next few years as valuations grow and foreign funds chase Indian equities amid an uncertain economic outlook in China.

“There is money to be made in India, and this (Hyundai IPO) is the start of a movement. More and more global banks believe there is an opportunity here,” said Utpal Oza, Nomura’s former head of India investment banking.

Nearly all of India’s highest paying IPOs have come in the last three years, Dealogic data shows, with many venture capital and private equity-backed companies seeking listings.

Jefferies Financial Group expects investment banking fees in India to rise in the next couple of years as the number of deals grows, its country head said in December last year.

(Reuters)

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