The upcoming initial public offering (IPO) of Hyundai Motor’s Indian unit is poised to generate a substantial windfall for the advising banks. According to sources familiar with the matter, the fee pool could reach up to USD 40 million, making it the second-highest payout for an IPO in India’s history.
This lucrative deal comes at a time when India is experiencing a surge in equity market activity, positioning itself as a bright spot in an otherwise subdued Asian market. Hyundai Motor’s Indian subsidiary recently filed for regulatory approval for a listing that could potentially be the largest in the country. The South Korean parent company aims to raise between USD 2.5 billion and USD 3 billion, valuing the Indian unit at up to USD 30 billion.
The banks involved in this landmark deal, including JPMorgan, Citigroup, and HSBC, are set to receive a fee of 1.3% of the IPO size. This translates to a potential USD 40 million payout, falling just short of the record USD 44 million earned by advisers in the 2021 IPO of Indian fintech firm Paytm.
This fee structure is particularly noteworthy in the Indian context, where banks typically struggle to generate substantial revenues due to cost-conscious clients and a relative scarcity of large deals. Historically, many significant equity deals in India have involved state-owned companies, which are known for offering minimal fees.
The Hyundai India IPO fee pool represents a substantial portion of India’s total IPO fee income, which reached USD 164 million in 2023. This figure marked a 55% increase from the previous year, accompanying a record 234 company listings. While impressive, it still pales in comparison to the USD 890 million earned by banks in New York for IPOs last year.
Industry experts view this development as a potential turning point for India’s investment banking sector. Utpal Oza, former head of India investment banking at Nomura, described it as “the start of a movement,” suggesting that global banks are increasingly recognising the opportunities in the Indian market.
The surge in big-ticket, private company IPOs is expected to continue, driven by growing valuations and increased interest from foreign funds in Indian equities. This trend is particularly significant given the uncertain economic outlook in China, traditionally a major focus for international investors in Asia.
The fee structure for the Hyundai India IPO aligns with typical practices in the country, where banks usually receive between 1% and 3% of the IPO size as fees. Larger deals often result in lower percentages due to the increased bargaining power of issuers. In comparison, similar-sized IPOs in New York might command fees of 3%-3.5%, while Hong Kong deals typically range from 2% to 3%.
While the exact fee split among the advising banks for the Hyundai India IPO has not been finalised, it’s customary for lead managers to receive the majority share. JPMorgan, Citi, and HSBC are reportedly taking lead roles, with Morgan Stanley and India’s Kotak also involved in the deal.
This trend of higher-paying IPOs is relatively recent in India, with most of the country’s top-paying deals occurring in the last three years. This shift is largely attributed to the increasing number of venture capital and private equity-backed companies seeking public listings.
As India’s equity market continues to evolve and mature, industry observers anticipate a sustained increase in both the number and size of deals, potentially leading to higher investment banking fees in the coming years. This optimism is shared by major players in the field, including Jefferies Financial Group, whose country head expressed expectations of rising fees in India over the next couple of years.
The Hyundai India IPO, expected to launch in the second half of this year, not only represents a significant milestone for the automotive industry but also signals a potentially transformative period for India’s investment banking sector.