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Coal India fees go up in smoke

When one bank pitched a fee of one one-millionth of a percent to be a bookrunner on the landmark Coal India IPO, every other lead manager had to accept the same level. Even officials at the issuer weren’t happy with the economics of the deal. But such is the way of Indian equity capital markets, as Chris Wright reports.

YOUR $34 DOESN’T go as far as it used to in Mumbai. It might get you a modest platter at the famed Peshawari restaurant, or a small round of drinks at one of the top new bars such as Wink or Aer, but it certainly won’t cover a hotel car to the airport.

It will, however, buy you all six bookrunners on the largest IPO in Indian history.

Bookrunners on the Coal India deal – Citi, Deutsche Bank, Morgan Stanley, DSP Merrill Lynch, Kotak Mahindra, Enam ­Securities – received just 0.000001% of the $3.46 billion proceeds on this landmark deal – between them. And the extraordinary thing is, that’s not because it’s what the government offered; it is what the banks pitched. Or, to be precise, one did and the rest were obliged to match it.

"It has never been our intention to get banks to bid zero fees or near-zero fees," says Sumit Bose, secretary of the Department of Disinvestment in India’s Ministry of Finance in New Delhi. "That’s their choice." And what’s even more remarkable is that this was supposed to be a deal that ended the self-defeating low-balling of investment banking fees in Indian stock market deals.

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