Whalesbook
Kotak IB Defends Fee Structure Amidst Ranking Dip
Senior executives at Kotak Investment Bank have pushed back against market speculation suggesting the firm has slipped in investment banking fee rankings and is resorting to fee undercutting. V Jayasankar, MD, Kotak Investment Bank, asserted that the bank is unequivocally positioned to be number one in fees, questioning the methodology of common league tables.
Jayasankar explained that external league tables often misrepresent a bank's actual fee earnings. He noted that when multiple Tier-2 banks are involved in a deal, fees might be split and averaged across all participants, leading to an under-reporting of Kotak's gross fees. "Our fees last year at a gross level was about USD 77 million," he stated, confident in their standing for overall equity capital market fees and IPOs, reflecting "seniority of economics as well as the overall fee structure."
Focus on Value, Not Just Volume
S Ramesh, MD & CEO of Kotak Investment Bank, echoed these sentiments, highlighting that client relationships and deal complexity often lead to differentiated fee structures. He argued that outside analysis, without understanding these nuances, can lead to inaccurate conclusions. "If an analysis from the prospectus is done by an outsider without these details, overall fees is simply divided by number of banks in the deal, which is not be telling the true story."
The bank’s strategy, according to Ramesh, prioritizes delivering value and handling substantial deals, typically those worth ₹3,000 crore and above. This focus means Kotak participates in fewer transactions but aims for larger mandates with strong business models and promoters. The bank also highlighted successful large deals that have returned significant value to investors, outperforming market averages.
Strategic Zero-Fee Deal Management
Ramesh addressed the handling of State Bank of India’s qualified institutional placement (QIP) for zero fee. He described this as a conscious strategic decision for highly prominent companies with outstanding business models. "We have done deals where the fees is not commensurate with what they should be, but our investors like the story and we have been marketing those stories to investors," he explained. This approach, he added, is a long-term play, potentially securing future banking mandates and building experience. Kotak limits such zero-fee engagements to one in approximately 40-50 transactions.
Both executives maintained that Kotak Investment Bank does not undercut fees, suggesting that if any underpricing occurs, it is more likely among foreign competitors. "Assuming we have undercut fees, there is at least one foreign bank in all the large Rs 3,000 crore plus deals. Foreign banks have taken a junior economics to us. So why are they undercutting?" Jayasankar queried, drawing a distinction between Kotak's strategy and that of its foreign counterparts.