60130847 Merchant Banking

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MERCHANT BANKING


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Presented By

Nidhi Ashar 02

Minjal Dharamshi 07

Sagar Dharod 08

Hitesh Ganatra 13

Abhishek Sanghvi 55

Naitik Savla 60


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Contents

Origin OfMerchant Banking

Merchant Banking-An Overview

Merchant Banking in India

Services rendered

Regulation Structure

Registration with SEBI

Authorized Activities

Terms ofAuthorization

General Obligations and Responsibilities

Main functions ofa merchant banker

Services OfMerchant Bankers

Banks Providing Merchant Banking Services In India

Some Problems OfMerchant Bankers

Current Affairs


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Merchant Banking

Merchant banking may be defined as an institution which

covers a wide range ofactivities such as underwriting ofshares,

portfolio management, project counseling, insurance etcThey

render all these services for a fee

ORIGIN :

The term merchant banking originated from the London who

started financing foreign trade through acceptance ofbills

Later they helped government ofunder developed countries to

raise long term funds

Later these merchants formed an association which is now

called Merchant Banking and Securities House Association


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Companies raise capital by issuing securities

in the market. Merchant bankers act as

intermediaries between the issuers ofcapitaland the ultimate investors who purchase

these securities.


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Merchant banking is the financial intermediation thatmatches the entities that need capital and those that have

capital. It is a function that facilitates the flow of capital in the

market.

Ministry of Finance: Any person who is engaged in thebusiness of issue management either by making

arrangements regarding selling, buying or subscribing to

securities as manager, consultant, advisor or renderingcorporate advisory service in relation to such issue

management


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Banking commission Report-1972

a) Necessity

b) Distinct from commercial Banksc) Investment Management and Advisory services

d) Medium and small savers

e) Manage


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Merchant Banking in India

Grindlays Banks-1967

Management ofcapital issue

Production planning, system design to marketresearch

Management consultancy

Citibank-1970

SBI-1972


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Services rendered

Organising finance for investment in projects

Assistance in financial management

Acceptance ofhouse business

Raising Eurodollar loans and issue of foreign currencybonds

Financing export ofcapital goods, hydropower

Financing ofhire-purchase transaction, leasing

Mergers, takeovers, valuation ofassets


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Regulation

Merchant Bankers Regulations ofSecurities

and Exchange Board ofIndia

Company Act 1956 Listing guidelines ofStock Exchanges

Securities Contracts (Regulation) Act, 1956

Formation ofdivisions

Subsidiaries companies


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Structure

Category-I

to carry on any activity ofthe issue management,

which will inter-alia consist ofpreparation of

prospectus and other information relating to theissue, determining financial structure, tie-up of

financiers and final allotment and refund ofthe

subscription; and

to act as adviser, consultant, manager,

underwriter, portfolio manager.


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Structure

Category II

that is, to act as adviser, consultant, co-manager,

underwriter, portfolio manager;

Category III

that is to act as underwriter, adviser, consultant to

an issue;

Category IVthat is to act only as adviser or consultant to an

issue.


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Around 250 Merchant Bankers

Abolished all categories and maintained

Category-I Separate registration for underwriters and

portfolio manager

Segregation between

fee based and

Fundbased activities


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Registration with SEBI is mandatory to carry out the businessofmerchant banking in India. An applicant should comply withthe following norms:

The applicant should be a body corporateThe applicant should not carry on any business other than those

connected with the securities market

The applicant should have necessary infrastructure like office space,equipment, manpower etc.

The applicant must have at least two employees with prior experience inmerchant banking

Any associate company, group company, subsidiary or interconnectedcompany ofthe applicant should not have been a registered merchantbanker

The applicant should not have been involved in any securities scam orproved guilt for any offence

The applicant should have a minimum net worth ofRs.5 crores


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Authorized Activities

Issue ManagementPreparation ofprospectus

Information relating to the issue

Determining financing structure

Tie-up offinances and final allotment and/orrefund ofsubscription

Corporate advisors to the issue Consultants or advisors to issue and

underwriting


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Terms of Authorization

Authorization is valid for an initial period of3 years

Authorization fee, annual fee and renewal fee

All issues should be managed by at least one authorized

merchant bankers, functioning as sole manager or leadmanager

MB expected to exercise due diligence independently

Involvement ofMB in post-issue management

Adhere a code ofconduct prescribed by SEBI MB may be cancelled or suspended for suitable duration

MB regulations integrate issue management withunderwriting


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General Obligations and

Responsibilities Maintenance ofbooks ofaccounts, records and

documents

Copy ofthe balance sheet, auditors report and

statement offinancial position

Responsibilities oflead Manager

Underwriting obligation

Submission ofdue diligence certificate

Insider Trading

Acquisition ofshares


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Main functions of a merchant

banker Management of debt and equity offerings- This

forms the main function ofthe merchant banker. He assists the

companies in raising funds from the market. The main areas ofwork in

this regard include: instrument designing, pricing the issue, registration ofthe offer document, underwriting support, marketing of the issue,allotment and refund, listing on stock exchanges.

Placement and distribution- The merchant banker helpsin distributing various securities like equity shares, debt instruments,

mutual fund products, fixed deposits, insurance products, commercial

paper to name a few. The distribution network ofthe merchant banker

can be classified as institutional and retail in nature.


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Functions

Corporate advisory services- Merchant bankers offer customized solutions to their clients financial

problems. The following are the main areas in which their advice issought:

Financial structuring includes determining the right debt-equity ratio and

gearing ratio for the client, the appropriate capital structure theory isalso framed.

Merchant bankers also explore the refinancing alternatives ofthe client,and evaluate cheaper sources offunds.

Another area ofadvice is rehabilitation and turnaround management. Incase ofsick units, merchant bankers may design a revival package incoordination with banks and financial institutions.

Risk managementis another area where advice from a merchant bankeris sought. He advises the client on different hedging strategies andsuggests the appropriate strategy.


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Functions

Project advisory services- conceptualizing the project idea

feasibility studies Preparing different documents like the detailed project report.

Loan syndication- Tie up loans for their clients

Analyze the pattern ofthe clients cash flows

Prepares a detailed loan memorandum This takes place in a

series ofsteps. Firstly they, based on which the terms ofborrowings can be defined. Then the merchant banker,which is circulated to various banks and financialinstitutions and they are invited to participate in thesyndicate.


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Services Of Merchant Bankers

PROJECT COUNSELLING :

It includes preparation of project reports,deciding upon the

financing pattern, appraising the project relating to its

technical, commercial and financial viability. It includes fillingup of application forms for obtaining funds from financial

institutions.

LOAN SYNDICATION :

Assistance is rendered to raise loans for projects afterdetermining promoters contribution. These loans can be

obtained from a single institution or a consortium.


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ISSUE MANAGEMENT :

Management of issues involves marketing of corporate securities

ieequity shares, preference shares and debentures by offering them

to public.

Pre-issue activities:

They prepare copies of prospectus and send it to to SEBI and then

file them to Registrar of CompaniesThey conduct meetings with company representatives and

advertising agencies to decide upon the date of opening of issue,

closing of issue, launching & publicity campaign etc..

They help the companies in fixing up the prices for their issues

Post-issue activities:

It includes collection of application forms, screening of applications,

deciding allotment procedure, mailing of allotment letters, and

refund orders


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UNDERWRITING OF PUBLIC ISSUES :

Underwriting is an insurance to the company which makes

public issues. Raising of external resources is easy for the

issues backed by well known underwriters.

MANAGERS,CONSULTANTS OR ADVISERS TO THEISSUE :

SEBI insist that all issues should be managed by atleast one

authorised merchant banker but not more than two. For an issue

of 100 crores, upto a maximum of four merchant bankers shallbe appointed. They help in listing of shares in stock exchange,

completion of formalities under Companies Act etc..


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PORTFOLIO MANAGEMENT :

Portfolio refers to investment in different kinds of securities

such as shares, debenture issued by different companies. It is

a combination of assets but a carefully blended asset

combination.

Portfolio management refers to maintaining propercombination of securities in a manner that they give

maximum return

Investors are interested in safety, liquidity and profitability of

his investment but they cant choose the appropriate

securities. So merchant bankers help their investors in

choosing the shares. They conduct regular market and

economic surveys.


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NRI INVESTMENT :

NRIs has to follow lots of complicated rules for investing in the

shares in India.M

erchant bankers help them in choosing the sharesand offer expert advice fulfilling government regulations thus

mobilising more resources for corporate sector.

ADVISORY SERVICE RELATING TO MERGERS AND

TAKEOVERS :Merger is a combination of two or more companies into a singe

company where one survives and other loses its existence

Takeover is the purchase by one company acquiring controlling

interest in the share capital of another company

Merchant banker acts as middlemen between offeror and

offeree,negotiates mode of payment and gets approval from

government.


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OFF SHORE FINANCE :

Merchant bankers help their clients in :

Long term foreign currency loan

Joint venture abroad

Financing exports and imports

Foreign collaboration arrangement


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BANKS PROVIDING MERCHANT BANKING SERVICES

IN INDIA

Commercial banks

Foreign banks like National Grindlays Bank, Citibank, HSBC

bank etc..

Development banks like ICICI,IFCI,IDBI etc..

SFC , SIDCs

Private firms like JM Financial and Investment service , DSP

Financial Consultants, Ceat Financial Services, KotakMahindra,

VMC Project Technologies, Morgan Stanley, Jardie Fleming,

Klienwort Benson etc


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SOME PROBLEMS OF MERCHANT BANKERS

SEBI stipulates high capital adequacy norms for

authorisation which prevents young, specialized

professionals into merchant banking business

Non co-operation of the issuing companies in timely

allotment of securities and refund of application of money

etc.. is another problem

Yet merchant banking is vast but should develop adequateexpertise to provide a full range of merchant banking

services


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Current Affairs

Morgan Stanley makes i-banking comeback The joint venture between JM Financial and Morgan Stanley

was inked in 1997 and formalized in 1999.

The JV had investment banking operations other than equitybroking, research, wealth management and advisory and

securities distribution operations.

Post the split, JM Financial acquired the investment banking

company together with its subsidiaries, which were engaged in

fixed income, equity broking, wealth management, advisoryand distribution businesses of$ 20 million.

. The Indian partner sold its 49% holding in JM Morgan Stanley

Securities (JMSPL), the institutional equity broking company

to Morgan Stanley for $ 445 million.


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Current Affairs

PNB aims profit of7,500crore by 2013 The country's second largest public sector lender Punjab

National Bank aims to double its profit to Rs7,500 crore in the

next four years."The bank has set a target to expand total business to

Rs10crore and earn net profit ofRs7,500 crore by 2013," said

PNB Chairman and Managing Director K C Chakrabarty, who is

charge ofDeputy Governor ofRBI.

The growth driver would be better asset liability management,thrust on recovery, focus on customers and financial inclusion,

he had said. Besides, the bank plans to open new line of

businesses in the current fiscal including merchant banking

subsidiary.


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THANK YOU

Date post:	06-Apr-2018
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