Banks to earn $100 million from Bharti-Zain deal

Source:26 Mar 2010, 0446 hrs IST, George Smith Alexander, ET Bureau
   
MUMBAI: Banks will earn $75-100 million in fees from the Bharti-Zain deal, which could be 10-15% of the total fees they expect to rake in thisyear. The deal, involving an enterprise value of $10.7 billion, is the second-largest takeover by an Indian corporate, post the Tata-Corus transaction.

Bharti is paying around 80 basis points, or 0.8%, for the dollar funding of $7.5 billion, which will generate $60 million for banks, according to bankers who did not want to be quoted. The dollar loan has been finely priced at 174-176 bps above Libor, with the total cost for the company, including fees to banks, coming at a spread of 195 basis points — better than the all in cost of 200 bps, which bankers were expecting.

Though Bharti got one of the best rates possible, some banks may lose money in the transaction. But the deal would help Standard Chartered Bank and Barclays to maintain their second and first ranking in the Bloomberg league table. For the calendar year 2009, StanChart was 14th in the league table.

These banks, mostly international, will earn fees through a mix of financing, advisory and forex deals.

Says Sanjay Sakhuja, CEO & MD, Ambit Corporate Finance, a boutique Indian investment bank: “This year, overall fees are likely to be up by around 25% against last year’s $600 million. Last year, banks earned fees from a mix of QIPs and IPOs though M&A fees were down. This time, we are likely to see a revival by the second half of the calendar year.”

Last year, over 70% of the fees was from equity and debt markets. “Banks earned money more from the equity market because of the revival of IPOs and QIPs. Advisory fees were down drastically last year,” said a senior investment banker from a multinational firm.

Unlike some of the smaller deals where advisory fees could be over a percentage of the transaction size, in larger deals like Bharti, fees would be in the range of 15-20 bps. In cases where there are multiple bankers, the overall pool can be marginally improved.

Advisory fees earned by Standard Chartered Bank and Barclays, the main bankers for Bharti, are in the range of $15-30 million. These two banks could also earn some fees from forex and other derivative transactions. UBS — Zain’s banker — may earn more, as fees in some of the offshore markets are much better, said a senior official of a foreign bank.

State Bank of India committed the largest funding of $1.5 billion, of which $500 million is dollar loan and the balance in rupee. StanChart, the lead arranger for the dollar loan, will lend $1.3 billion while Barclays, the joint lead advisor, will fund $900 million. A group of eight international banks will lend $600 million each. These banks include ANZ, BNP, Bank of America Merrill Lynch, Credit Agricole CIB, DBS, HSBC, Bank of Tokyo Mitsubishi and Sumitomo Mitsui Banking Corporation.

Bharti was initially looking to raise $8-8.5 billion through dollar loans. But due to the tight pricing, three large international banks, including two US lenders and one British bank, walked out of the transaction. “We are likely to make a loss in the lending. However, on a longer term, we hope to get more business from the group,” said a senior official of one of the international banks.

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