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SERVICES OF MERCHANT BANKS4. Issue Management.

Management of issue involves marketing of corporate

securities i.e. equity shares, preference shares anddebentures and bonds by offering them to public.

Merchant banks act as intermediary whose main job isto transfer capital from those who own it to those who

need it.

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The issue function may be broadly divided into pre-issue management and post issue management.

In both the stages, legal requirements have to becomplied with and several activities connected withthe issue have to be co-ordinated.

The pre-issue management is divided into;

a) Issue through prospectus, offer for sale and privateplacement.

b) Marketing and underwriting

c) Pricing of issues

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a) Public issue through prospectusi)The most common method of public issue is throughprospectus.

ii) Offers for sale are offers through the intermediary ofissue house or firm of stock broker. The company sells theentire issue of shares or debentures to the issue house atan agreed price which is generally below the par value.

iii) The direct sale of securities by a company to investorsis called private placement. The investors include LIC,UTI, GIC, SFC etc.

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B) Marketing.After despatch of prospectus to SEBI, the merchantbankers arrange a meeting with company representativesand advertising agents to finalise arrangements relating todate of opening and closing of issue, registration ofprospectus, launching publicity campaign and fixing dateof board meeting to approve and sign prospectus and passthe necessary resolutions.

Publicity campaign covers the preparation of all publicitymaterial and brochures, prospectus, announcement,advertisement in the press, radio, TV, investors conferenceetc.

The merchant bankers help choosing the media,determining the size and publications in which theadvertisement should appear.

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C) Pricing of issues

The SEBI guidelines 1992 for capital issues have

opened the capital market to free pricing of issues.Pricing of issues is done by companies themselves inconsultation with the merchant bankers.

Pricing of issue is part of pre issue management.

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4 (ii) Post issue management The post issue management consists of collection of

application forms and statement of amount receivedfrom bankers, screening applications, decidingallotment procedure, mailing of allotment letters,share certificates and refund orders.

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5 Underwriting of Public issue Underwriting is a guarantee given by the underwriter

that in the event of under subscription the amountunderwritten, would be subscribed by him.

It is an assurance to the company which proposes tomake public offer against risk of under subscription.

The issues packed bywell known underwriters

generally receive a high premium from the public. Thisenables the issuing company to sell securities quickly.

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All public issues have to be fully underwritten.

Only Category I, II, and III merchant bankers are

permitted to underwrite an issue subject to the limitthat the outstanding commitments of any suchindividual merchant banker at any point of time donot exceed five times of his net worth(paid up capitaland free reserves)

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6. Managers , Consultants or

Advisors to the issue The managers to the issue assist in the drafting of

prospectus, application forms and completion offormalities under the Companies Act, appointment ofRegistrar for dealing with share applications andtransfer and listing of shares of the company on theStock exchange.

Companies are free to appoint one or more agencies asmanagers to the issue.

SEBI guidelines insist that all issues should bemanaged by atleast one authorised merchant banker.

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7. Portfolio Management Portfolio refers to investment in different kinds of

securities such as shares, debentures, or bonds issuedby different companies and securities issued by thegovernment.

It is not merely a collection of unrelated assets but acarefully blended asset combination within a unifiedframework.

Portfolio management refers to maintaining propercombination of securities in a manner that they givemaximum return with minimum risk.

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Merchant bankers provide portfolio management service totheir clients.

To a common investor who is not much aware about themarket, need expert guidance for his investment.

Merchant banker have a role to play in this regard. Theyhave to conduct regular market and economic surveys toknow.

i) Monetary and fiscl policies of the govt.

ii) Financial statements of various corporate sectors inwhich the investments have to be made by the investors.iii) Secondary market position i.e how the share market is

movingiv) Changing pattern of the industry

v) The competition faced by the industry with similar typeof industries.The merchant bankers have to analyse the surveys and help

the prospective investors in choosing the shares.

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8. Advisory service relating to

mergers and takeoversA merger is a combination of two or more companies

into a single company where one survives and otherslose their corporate existence.

A takeover is the purchase by one company acquiringcontrolling interest in the share capital of anotherexisting company.

Merchant bankers are the middlemen in settingnegotiation between the offeree and offerer.

Being a professional expert they are apt to safeguardthe interest of the shareholders in both the companies.

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9. Off shore finance The merchant bankers help their clients in the

following areas involving foreign currency.

i) long-term foreign currency loansii) Joint venture abroad

iii) Financing exports and imports

iv) Foreign collaboration arrangements.

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10 Non resident investment The services of merchant bankers include investment

advisory services to NRI in terms of identification ofinvestment opportunities, selection of securities,investment management etc.