17310044 Merchant Banking

8/3/2019 17310044 Merchant Banking

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Merchant Banking


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Merchant Banking-An Overview

Companies raise capital by issuing securities in the market.

Merchant bankers act as intermediaries b\w the issuers of

capital and the ultimate investors who purchase these

securities.

Merchant banking is a function that facilitates the low of

capital in the market.


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Definition

Ministry of Finance: Any person who is engaged in

the business of issue management either by making

arrangements regarding selling, buying or subscribing

to securities as manager, consultant, advisor or

rendering corporate advisory service in relation to

such issue management


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Merchant Banking in India Grindlays Banks-1967

Management of capital issue

Production planning, system design to market

research

Management consultancy

Citibank-1970

SBI-1972


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Services rendered Organising finance for investment in projects

Assistance in financial management

Acceptance of house business Raising Eurodollar loans and issue of foreign

currency bonds

Financing export of capital goods, hydropower

Financing of hire-purchase transaction, leasing

Mergers, takeovers, valuation of assets


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SEBI Merchant Banking Regulation Category I to carry on the activity of issue management and to

act as adviser,consultant, manager, underwriter, portfolio

manager.

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 IV- that is to act only as adviser or consultant to an

issue.


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Registration with SEBI Around 250 Merchant Bankers

Abolished all categories and maintainedCategory-I

Separate registration for underwriters and

portfolio manager

Segregation between fee based and Fund

based activities


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Authorized Activities

Issue Management

Preparation of prospectus

Information relating to the issue

Determining financing structure

Tie-up of finances and final allotment and/or

refund of subscription

Corporate advisors to the issue

Consultants or advisors to issue and underwriting


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General Obligations and Responsibilities Maintenance of books of accounts, records and documents

Copy of the balance sheet, auditors report and statement

of financial position Responsibilities of lead Manager

Underwriting obligation

Submission of due diligence certificate

Insider Trading

Acquisition of shares


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Main functions of a merchant banker

Management of debt and equity offerings-

This forms the main function of the merchant banker.

He assists the companies in raising funds from the

market.

It include:

instrument designing

pricing the issue

registration of the offer

document

underwriting support marketing of the issue

allotment and refund

listing on stock

exchanges


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Cotn. Placement and distribution- The merchant banker helps in

distributing various securities like equity shares, debtinstruments, mutual fund products, fixed deposits, insurance

products, commercial paper to name a few.

The distribution network of the merchant banker can beclassified as institutional and retail in nature.

institutional network consists of mutual funds, foreign

institutional investors, private equity funds, pension funds,financial institutions etc. The size of such a network represents

the wholesale reach of the merchant banker.

retail network depends on networking with investors.


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Cotn

Corporate advisory services-Merchant bankers offer

customized solutions to their clients financial problems. The

following are the main areas in which their advice is sought:

Financial structuringincludes determining the right debt-

equity ratio and gearing ratio for the client, the appropriate

capital structure theory is also framed.

Merchant bankers also explore the refinancing alternatives of

the client, and evaluate cheaper sources of funds.


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Cotn

Another area of advice is rehabilitation and turnaround

management. In case of sick units, merchant bankers may

design a revival package in coordination with banks and

financial institutions.

Risk managementis another area where advice from a

merchant banker is sought. He advises the client on

different hedging strategies and suggests the appropriate

strategy.


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Cotn.

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 of the clients cash flows

Prepares a detailed loan memorandum This takes place in a series ofsteps. Firstly they, based on which the terms of borrowings can be

defined. Then the merchant banker, which is circulated to various

banks and financial institutions and they are invited to participate in

the syndicate.


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Thank U

17310044 Merchant Banking

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