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Investment banks in rank squabble

Charulata Vaswani

A huge rumpus is building up over just which investment bank is top dog. DSP Merrill Lynch is at the top of the Delhi-based Prime Database's league table on equity offerings for 2001-2002.

But other investment banks challenge these findings, question the methodology and raise fundamental issues about the rankings.

Prime Database does not include mergers and acquisitions while computing the table on top investment banks, and its rating on debt issues is yet to come out.

Though M&A data are not available for 2001-2002, for the calendar year ended December 31, 2001, data compiled by India Advisory Partners, the independent investment banking advisory company, show that JM Morgan Stanley topped the charts. The value of M&A deals handled by JM Morgan Stanley was Rs 114 billion.

Business Standard spoke to the leading investment bankers. None is willing to go on record, but in private all challenge the rankings.

The tag of the No 1 investment banker is a highly coveted one, especially against the backdrop of the government's ambitious divestment programme.

The bank that tops the table is widely expected to have an advantage over others in grabbing divestment mandates. The controversy revolves around several issues.

First, overseas issues are clubbed with domestic issues. Secondly, full credit is given to investment bankers for equity issues, regardless of the role they played in hawking the issue. The first is not new. But some investment bankers argue that it's just not right.

"Overseas issues are handled by foreign partners and Indian players cannot claim credit for that even though they are there," a merchant banker with a foreign tie-up said.

An executive with a private investment bank said his firm had a joint venture partner. "If the partner handles a $2 billion ADR or GDR issue, does that mean we have a 98 per cent share of the market," he asked.

Another investment banker in the public sector points out that an investment bank must be registered with appropriate regulatory authorities (the Securities Exchange Commission of the US) to manage the show abroad and no Indian investment bank can claim credit.

"Is the Indian joint venture partner recognised and identified as the global co-ordinator in the offer document? Does the Indian partner have any liability in the case of litigation after the offering? If not, why should any credit be taken by the Indian partner," he asks.

Finally, if one wishes to take credit for a deal, it is reasonable to assume that the joint venture will receive the entire fee. This is not the case. The fee is paid only to the global co-ordinator and the Indian partner receives a commission for sourcing the deal.

This cannot be the basis for getting credit for the deal on a league table, the banker points out.

However, an investment bank that has a foreign tie-up says it is the Indian partner that cracks the deal and handles roadshows abroad. Hence, it is justified in taking credit for it.

The second issue too faces flak. Since equity issues are not underwritten, Prime Database gives credit to all bankers associated with the issue, irrespective of whether they are lead managers or co-lead managers.

Consequently, every merchant banker gets credit. "There are bankers who just lend their names to get a place in the league table," a banker points out.

"All deals are handled by multiple merchant bankers. We do not give them credit for underwriting because all issues are not underwritten. They are given either full credit or credit on a pro-rata basis," said Prithvi Haldea, managing director of Prime Database.

Claims and counter-claims are also surfacing as to which investment bank is the most innovative one. Two are claiming credit for making the book-building route a successful capital market activity for new issues.

"In 2001-2002, there was only one book-built deal, Bharti Televentures. One cannot claim leadership on the basis of one deal alone. We need to look at all the book built deals to figure out who the leader is," one of them points out.

Questions have also been raised as to whether any merchant banker can claim credit for the BPL-Birla Tata AT&T and ICICI Bank-ICICI merger deals. These deals have not been formally closed.

DSP Merrill Lynch has emerged as number one in public, rights and international capital market offerings in 2001-2002 (compiled by Prime Database), with an 89 per cent market share and business worth Rs 31.921 billion. JM Morgan Stanley comes second with a 46 per cent market share and deals worth Rs 16.527 billion.

The list of the top five investment banks in terms of the value of equity issues managed during the last financial year includes Kotak Mahindra Capital Company Ltd, ABN-AMRO Securities India Pvt Ltd and ICICI Securities and Finance Company Ltd.

"The number of merchant bankers has come down from 500 to 150 and only 30-35 have actively been in the market. The top five in the industry are DSP, JM, Kotak, SBI Caps and I-Sec. There is very little to choose among them. As the number of deals goes down, I expect a fierce fight to protect their turf," said Haldea.

For 2001-2002, in the category of public issues, DSP ML leads with Rs 9.985 billion (98.6 per cent) worth of business, with JM Morgan Stanley coming second with Rs 8.390 billion (82.9 per cent) worth of business.

SBI Caps is third in the pecking order with Rs 1.694 billion of business. In the case of only rights issues, JM Morgan Stanley leads with Rs 7.044 billion of business and Kotak is second with Rs 76.5 million.

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