Banks cash in on R-Power IPO

Monday, January 21, 2008

Banks cash in on R-Power IPO

The biggest ever Initial Public offer (IPO) in the history of India's capital market has not only made Anil Ambani the richest man in India and probably in the world but has also helped the issue's bankers make a killing.

On conservative estimates, bankers to the Reliance Power issue will make more than Rs 180 crore from overnight interest payments on the application money they have received in the IPO before refunds are given to applicants who could not get their full intent fulfilled.

The refunds do not carry interest payments but banks parking the funds get some. However, investment bankers say that a part of the profit from the application money is being used for bearing some costs such as registrar fees or postage fees.

As per data collated by Hindustan Times, the application money collected under the three different categories – qualified institutional bidders, high net worth individuals and retail investors would be to the tune of Rs 112,063 crore. The issue had received bids for Rs 745,676 crore.

The company came out with 26 crore equity shares. Of this 3.2 crore was reserved for the promoters. The net issued to the public was 22.8 crore shares. Of this, 30 per cent, or 6.84 crore shares, were reserved for retail investors at the rate of Rs 430 per share. The actual issue size for the public was Rs 10,121 crore, not counting the 3.2 crore shares subscribed to by the promoters.

"The issue has demonstrated the fact the Indian market has the ability to raise resources of any magnitude if the company has right projects and the promoters have right background," said Uday Kotak executive vice-chairman of Kotak Mahindra Bank.

"It also proves that the promoters need not cross over the Atlantic to raise money. Rather, investors from across the Atlantic are willing to do that in search of good opportunities," he added, in a reference to US-based funds across the Atlantic from Britain.

Although the call rate in the money market is currently hovering around 8 per cent, even at the rate of 6 per cent, bankers would make Rs 18.4 crore per day on the money garnered but intended to be refunded without interest payment. And on an average basis this money lies with banks for around 10 days before they start giving refund to the investors. This, in turn, translates into a floating income of around Rs 184 crore for the bankers as a whole.

There are seven private sector banks – ICICI Bank, ABN Amro, HSBC, Standard Chartered, HDFC Bank, Kotak Mahindra Bank and Axis Bank – involved in this IPO.

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