Advertising markets in everything

by on August 6, 2010 at 12:12 pm in Current Affairs, Economics | Permalink

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 full story is here and I thank Mehul Kamdar for the pointer.  There were other low bidders, including JP Morgan.  Why bid four cents I wonder, why not bid one cent?

Here is a related page, from what is propitiously called the Department of Disinvestment.

CarLender August 6, 2010 at 12:38 pm

This one is easy; they most likely actually bid Re. 1, instead of Rs. 2, as the percentage figures implies. The percentage figure is probably just a round-up error.
They can’t bid 1 cent, because the bid must be in Indian currency.
They can’t bid 0 cent/Rs., because there must be some consideration for the contract to be legal.

Source: I am an Indian investment banker.

dearieme August 6, 2010 at 2:23 pm

I’m looking forward to the Department of Datinvestment.

lemmy caution August 6, 2010 at 3:27 pm

What kind of tangible or intangible benefits does (will) an investment bank get from offering freebies in India?

From the article:

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.

Yan August 6, 2010 at 4:35 pm

if so many banks are willing to handle the deal for free hoping for future deals, why hadn’t any bank charged a negative price (or pay to get in)?

1837tiffany August 6, 2010 at 9:00 pm

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Hyena August 7, 2010 at 2:55 am

Yan,

It’s probably illegal to do so.

Doc Merlin August 8, 2010 at 1:37 am

As anon said, the answer is probably float.

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