Apart from managing the issue at zero fees, lead managers are even paying all other expenses such as legal and listing fees

The Indian government is planning to raise as much as Rs30,000 crore through disinvestment of state-run units, but it has refused to pay any fees and even expenses to the merchant bankers involved in running the public offers or follow-on public offers (FPOs). The cost of the NTPC issue runs into crore of rupees but the government thinks it is doing a favour to the lead managers.

According to an investment banker whose company declined to be part of the NTPC issue, the government has even asked the lead managers to bear the costs involved in the FPO themselves, saying that a mega-FPO like NTPC will add value to their track record.

A public issue involves a number of expenses like printing, listing fees, legal expenses and stamp duty, among others. The cost of the public issue is normally 8% to 12% of the issue size.

Several bankers thought that while it is still okay to manage an issue for zero fees, they would not pay out of their pocket for the privilege.

The current lead managers for the NTPC issue are ICICI Securities Ltd, JP Morgan India and Kotak Mahindra Capital Ltd. They have not been paid any underwriting, brokerage or management fees. On top of that, the four lead managers would have to pay out expenses of around Rs4 crore each from their own pockets.

According to sources close to the issue, Bank of America, DSP Merrill Lynch Ltd and Kotak Mahindra Capital Co Ltd, the lead managers running the Rural Electrification Corp Ltd (REC) FPO, which opens on 18th February, will only be reimbursed their expenses and the government would not pay any management fees to them.

The NTPC issue opened on 3rd February and according to data from the NSE and BSE websites, as of 4th February it had received combined retail investor subscription from 1,42,800 investors. The issue closes on 5 February 2010.