HSBC Securities has been mandated by the divestment ministry to act as adviser to the strategic sale of 34 per cent government equity in Hindustan Petroleum Corporation Ltd.

The company has quoted a commission fee of 0.064 per cent, the lowest for any divestment deal till date.

HSBC pipped 16 leading merchant bankers, including Merrill Lynch, ICICI Securities, Lazard, ANZ Investment Bank, KPMG, Ernst & Young, SBI Caps, ABN Amro Rothschild, J M Morgan Stanley and J P Morgan Chase, to bag the prestigious contract.

HSBC's bid was based on an expected realisation of about Rs 5,000 crore (Rs 50 billion) from the sale of government equity in HPCL to a strategic partner, a merchant banker said. The merchant banker's commission would, therefore, work out to around Rs 3.2 crore (Rs 32 million).

"There was competitive bidding for the project because of the size of the deal. Although the percentage appears small, the realisation for the merchant banker will be high," the banker said.

Hindustan Petroleum was the only major deal from the disinvestment ministry in the past several months, he pointed out.

While the fees charged by merchant bankers from the government varies with each deal depending on the mode of divestment, the realisable value, quantum of work required to complete the transaction, degree of difficulty and chances of success, the level of the fee has been decreasing with the rising number of companies on the sell-off list.

The rate of commission has come down from nearly 3 per cent in 1996 to 0.21 per cent quoted by the CSFB-SBI Caps combine for the divestment of Videsh Sanchar Nigam Ltd. KPMG had quoted 0.3 per cent for its services during the sale of Computer Maintenance Corporation.

The government has invited expressions of interest for HPCL and the deal is expected to be completed in the third quarter of 2003-04.