Goldman May Earn 4 Cents to Manage First State Sale in India
Goldman Sachs chief financial officer David Viniar
Andrew Harrer/Bloomberg
David Viniar, Goldman Sachs’s chief financial officer, pictured, told analysts that the firm is investing more in faster-growing emerging markets after it reported second-quarter net income plunged 82 percent.
David Viniar, Goldman Sachs’s chief financial officer, pictured, told analysts that the firm is investing more in faster-growing emerging markets after it reported second-quarter net income plunged 82 percent. Photographer: Andrew Harrer/Bloomberg
Goldman Sachs Group Inc., winning its first job managing a share sale by an Indian state-owned company, may earn next to nothing for the privilege.
The most profitable securities firm in Wall Street history tied for the lowest bid among 17 banks vying to manage the $1.8 billion offer by Power Grid Corporation of India Ltd., three people with knowledge of the matter said. Goldman Sachs and SBI Capital Markets Ltd. said they’d do the work for a fee equal to 0.00000001 percent of the sale proceeds. That means the firms stand to reap about 2 rupees (4 cents) each on the deal.
The Indian government’s plan to sell a record 400 billion rupees of assets this year is producing near-zero fees for Wall Street firms that charge an average of about 4 percent of money raised for U.S. offerings, data compiled by Bloomberg show. As many as 20 banks still compete for each state sale, betting the league-table credits will help them win more investment-banking work in Asia’s third-largest economy.
“They bet they can absorb any losses through other state or private sector deals,” said Ashvin Parekh, head of financial services for India at Ernst & Young LLP.
Goldman Sachs is among U.S. banks seeking to make more of their revenue in developing markets such as India as tougher regulations and slower economic growth reduce opportunities in the U.S. and Europe. David Viniar, Goldman Sachs’s chief financial officer, told analysts on July 20 that the firm is investing more in faster-growing emerging markets after it reported second-quarter net income plunged 82 percent.
Lowest Fees
JPMorgan Chase & Co. and ICICI Securities Ltd. may earn similar fees to manage Gurgaon-based Power Grid’s sale, the people said. Banks must match the lowest fees to be hired under government guidelines.
S.K. Chaturvedi, chairman of Power Grid, India’s largest electricity transmission company, declined to comment, as did Christopher Jun, a spokesman for Goldman Sachs in Seoul. Spokespeople at the remaining banks also declined to comment.
Goldman Sachs bid without success to manage offers from state-owned Coal India Ltd. and Manganese Ore (India) Ltd. this year. Both those sales may generate fees of 0.000001 percent for underwriters including Citigroup Inc. and Edelweiss Capital Ltd., according to bankers with knowledge of the deals.
New York-based Goldman Sachs, ranked second globally for equity sales, is No. 23 in India, where the average fee is 0.7 percent, including offerings by private companies, according to Bloomberg data. SBI Capital, the Mumbai-based investment banking unit of India’s largest lender, is No. 13 on share sales in the nation, while New York-based Citigroup is the top-ranked arranger, the data show.
Two Offers
Citigroup, whose local investment-banking operations are run by Ravi Kapoor, has managed two offers by state-owned companies this year and 10 sales by private firms, Bloomberg data show. Sunil Sanghai, who was co-head of investment banking at Goldman Sachs along with Brooks Entwistle, quit in June. The company hasn’t named a replacement yet.
For state asset sales in India, rules governing the selection of underwriters have helped squeeze fees.
Bankers must have the lowest fees as well as the best technical bids if they want to win the mandates, according to government guidelines. The bids must include reimbursements for arranging roadshows, conducting market research, placing advertisements and other expenses incurred by the banks, the government has said.
Record Offers
India’s government plans to raise the 400 billion rupees in the year that ends March 31 by selling stakes in companies including Coal India, the world’s largest producer of the fuel, and Steel Authority of India Ltd., the nation’s second-biggest producer of the metal.
The government and Power Grid will sell a combined 841.8 million shares, according to a statement last month. Shares of Power Grid have declined about 10 percent this year, valuing the 20 percent stake at about 83.2 billion rupees.
Presentations by the banks competing for the offering ended Aug. 4 in New Delhi, according to a notice on the company’s website.
The bidders included Bank of America Corp., Citigroup, Deutsche Bank, HSBC Holdings Plc, Nomura Holdings Inc., Morgan Stanley, Royal Bank of Scotland Group Plc and UBS AG, the notice showed. The domestic banks were Enam Securities Pvt., Edelweiss, IDBI Capital Market Services Ltd., IDFC Capital Ltd. and Kotak Mahindra Capital Co., it said.
To contact the reporter on this story: Ruth David in Mumbai at rdavid9@bloomberg.net
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