Issue Management Elective

7/29/2019 Issue Management Elective

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Issue Man agement (elective)

Part A

1) Who is Merchant banker? Elucidate the services rendered by merchantbankers.

2) Discuss the role of registrars in the new issue. State the obligations &responsibilities of an underwriter.

3) Explain Book Building Mechanism in detail.4) Comment over role of financial services in economic development &

present evolution of financial services sector.

5) Write short notes on:a. Green shoe option

b. Offer for salec. Private Placementd. Red Herring Prospectus

Part B

6. .Discuss the major functions and services rendered by merchant bankers asregards credit syndication.7. Comment over performance evaluation of Merchant Bankers.8. Write a detailed note on pre-issue management activities.


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Case Study

Reliance Power Ltd has announced that the Board of Directors of theCompany at its meeting held on February 24, 2008, has approved a proposalfor issuing free bonus shares to all categories of shareholders, excluding the

promoter group ( comprising of reliance Energy Ltd. And the ADA Group),in the ratio of 3 shares for every 5 shares held, subject to necessary approvals.The proposed bonus offering will result in reduction of the cost of reliance

power shares below the IPO price as follows: Rs 269 per share for retailinvestors, 40% lower than the IPO price of Rs 430. Rs 281 per share for other

investors, 37% lower than the IPO price of Rs 450. In a related development,Mr. Anil D Ambani, chairman, Reliance ADA group, on February 24, 2008simultaneously announced a voluntary contribution of 2.6% of hisshareholding in Reliance Power to Reliance energy Ltd., to protect theCompany from any dilution of its existing 45% stake in Reliance Power, as aresult of the bonus proposal. Accordingly, Reliance Energys stake inReliance Power will be maintained at the existing level of 45%, and therevised shareholding pattern of Reliance Power will be as follows:

Previous ExistingAnil D Ambani 45% 40%Reliance Energy 45% 45%Public shareholding 10% 15%

The reduction of Mr. Ambanis shareholding in Relaince Power by 5% from45% to 40%, represents a contribution of nearly Rs 5,000 crore (US$ 1.2

billion) by him, in favor of nearly 6 million investors in Reliance Energy andReliance Power. Coomenting on the move, Mr. Ambani said, I have beenpersonally concerned by the notional losses arising to millions of long terminvestors in reliance Power, as a result of a dramatic adverse change insentiment in global and domestic capital markets, subsequent to the pricing ofour IPO.


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An over view of Reliance Power IPO:

Reliance Power IPO has been issued by Reliance Power Limited. ReliancePower IPO was issued on 15

thJanuary, 2008 and closed on 18th January,

2008. Reliance Power Ltd Company is planning to generate capital worth Rs.

11,700 crores through the IPO. This makes it the largest IPO in the country ason 17

thJanuary, 2008. the price band of the equity shares of Reliance Power

IPO has been fixed at Rs. 405-450 per equity share. The total size of ReliancePower IPO is around 26 crores equity shares. Reliance Power IPO will belisted on the national stock exchange (NSE) and also on the Bombay StockExchange (BSE). The lead bankers of Reliance Power IPO are Enamsecurities, Kotak Mahindra capital Co, ABN Amro Rothschild, ICICIsecurities, JP Morgan chase & Co, UBS AG.

Reliance Power IPO AnalysisReliance Power Ltd. IPO details:

Price band: Rs. 405-450 per shareIssue opened between: January 15-18, 2008Book running lead managers: Kotak, UBS, Enam, I-sec and othersTo list on: NSE & BSEMarket cap post-listing: Rs. 1017 billion (based on the cap price)

Highlights:Reliance Power Limited (Relaince Power), part of RADAG has been set upto develop, construct and operate power projects domestically andinternationally. It aims to develop 13 power projects with an aggregatedgeneration capacity of 28, 200 MW.

Suggestion:Open 138.00High 141.90

Low 133.05Last price 135.05

Please go through the Reliance Power IPO case study and give your

conclusion on the following points:


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1. Understand the affect of Reliance Power IPO on Indian sharemarket.

2. Factors responsible for the fall in price of Reliance Power equity.3. Perception of a retail investor toward Reliance Power before

listing of IPO.


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Part C

1. The securities that a fund invests in depend upon its .a. Fund value

b. Time periodc. Investment objectived. Issuing company

2. The type of expenses that can be charged to a fund and the limit is

decided by .a. Issuing company

b. SEBIc. Merchant bankerd. underwriter

3. A mutual fund cannothave a. Short term

b. Long termc. Medium termd. None of the above

liabilities on its balance sheet.

4. Mutual funds have lower risks because of & .a. Portfolio diversification

b. Professional managementc. Portfolio diversification & Professional managementd. None of the above

5. The first contribution of equity capital is made by the .a. Issuer company

b. Promotersc. Leas Manager


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d. Registrars

6. A company has to follow the guidelines laid down

by issue of capital.a. Issuer company

b. Merchant bankerc. SEBId. All of the above

for the

7. A/An is a method of issue of shares to the public wherethe money raised does not add to the equity of the company.

a. Fresh issueb. Book built methodc. Offer for saled. IPOs

8. The shares have tobe a. Listedb. Unlisted

c. Both of the aboved. None of the above

after a public issue of shares.

9. Aa.FPOs b.IPOs

issue can be made only by a listed company.

c. Private Placement

d. None

10. The purpose of financial markets is to:a. Increase the price of common stocks

b. Lower the yield on bonds.c. Allocate savings efficiencyd. Control inflation.


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11. Both Debentures and Term Finance Certificates are usually issued by:

a. Public Companies

b. Private Companiesc. Listed Companiesd. Non listed companies

12. Who decides the date of the issue?

a. Issuer companyb. SEBI

c. Banker to issued. Lead manger

13. Who decides the Price Band?

a. Company with help of lead managersb. SEBIc. Lead manager onlyd. Issuer company

14. If you buy stock from a corporation newly-formed by your siblingwhen the firm makes its initial public offering (IPO), you would beengaged in:

a. direct primary financing.b. long-term debt financing.c. pari-mutuel financing.d. short term equity financing.

15. A corporation acquires new funds only when its securities are sold inthe:

a. secondary market by an investment bank.b. primary market by an investment bank.c. international money market by a stock exchange broker


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d. secondary market by a commercial bank.

16. Security transactions that do not yield flows of funds to the issuers of

the financial instruments traded are financial investments involving:a. brokerage services by investment bankers.

b. initial public offerings [IPOs]c. secondary markets.d. new issues of seasoned instruments.

17. Financial instruments issued by government agencies or corporationsthat promise to pay certain amounts of money to the holder on specific

future dates are called:a. Liens.

b. Preferred stock.c. Chattel.d. bonds.

18. Book Building is aa. Price Discovery mechanism

b. Secondary market operationc. Offer of shares to publicd. None of the above

19. A private placement of sharesof shares.

by a listed company is called a

a.b.

c.d.

Fresh issuePrivate placement

Preferential allotmentFixed price issue

20. Privately placed shares are locked-in for .a. 10 months


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b. 12 monthsc. 6 monthsd. 3 months

21. A QIP can be only made by a company that has been listed on a stockexchange

for a. 5 years.b. 1 years.c. 3 yearsd. 2 years

22. A

a. Fresh issueb. Right issuec. Both

.

issue of shares is made to existing share holders.

d. Offer for sale

23. A 3:4 rights issue of shares means the investor is entitled to.

a. Three shares for every four shares heldb. Four shares for every three shares held

c. Three shares for every seven shares heldd. None of the above

24. The due diligence certificate is signed by .a. Registrar

b. Banker to issuec. Issuer companyd. Lead manger

25. company must make a minimum public issue ofa. 15% of the post issue capital

b. 25% of the post issue capitalc. 50% of the post issue capital


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d. 10% of the post issue capital

26. A company has to refund the monies collected in a public issue if the

issue does notgarner

subscription in the issue.

a. 50%b. 70%c. 90%d. 75%

27. SEBIs rules for underwriting and minimum subscription does not

apply toa. Private placement

b. IPOc. FPOd. Offer for sale

28. The two ways a company can conduct a public issue of shares areand .

a. Private Placement & fixed price issueb. Book built issue & fixed price issuec. Fixed price issue & Book built issued. Right issue & private placement

29. Changes in stock pricesa. affect peoples wealth and their willingness to spend.

b. affect firms decisions to sell stock to finance investment spending.c. are characterized by considerable fluctuations.d. all of the above.

30. Financial markets and institutionsa. involve the movement of huge quantities of money.

b. affect the profits of businesses.c. affect the types of goods and services produced in an economy.


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d. do all of the above.

31. Markets in which funds are transferred from those who have excess

funds available to those who have a shortage of available funds arecalled

a. commodity markets.b. fund-available markets.c. derivative exchange markets.d. financial markets.

32. Economists group commercial banks, savings and loan associations,

credit unions, mutual funds, mutual savings banks, insurance companies,pension funds, and finance companies together under the headingfinancial intermediaries. Financial intermediaries

a. Act as middlemen, borrowing funds from those who have saved andlending these funds to others.

b. produce nothing of value and are therefore a drain on societysresources.

c. help promote a more efficient and dynamic economy.d. do only (A) and (C) of the above.

33. Economists group commercial banks, savings and loan associations,credit unions, mutual funds, mutual savings banks, insurance companies,

pension funds, and finance companies together under the headingfinancial intermediaries. Financial intermediaries

a. Act as middlemen, borrowing funds from those who have saved andlending these funds to others.

b. Play an important role in determining the quantity of money in theeconomy.

c. help promote a more efficient and dynamic economy.d. do all of the above.

34. Banks are important to the study of money and the economy becausethey


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a. Provide a channel for linking those who want to save with those whowant to invest.

b. have been a source of rapid financial innovation that is expanding thealternatives available to those wanting to invest their money.

c. are the only financial institution to play a role in determining thequantity of money in the economy.

d. do only (A) and (B) of the above.

35. Capital Adequacy for Category II Merchant banker is:a. Rs. 5 crore

b. Rs. 50 Lakhc. Rs. 20 Lakhd. Nil

36. Right issue is:a. issue of securities by issue of prospectus to the public

b. Securities are issued through some selected investors.c. Selling securities in the primary market by issuing rights to the existing

shareholders.d. None of the above

37. Book Building Process is completed with the help of aa. Book runner

b. Underwriterc. Registrard. Lead manager

38. In a book built issuea a. QIBs

investor can bid at cut-off price.

b. Employees of the issuer companyc. Retaild. Financial institution

39. Financial intermediation is, broadly, the process of:a. lending money out at interest.


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b. spending funds faster than revenues are acquired.c. channeling funds from savers to dissavers, and to investors in

economic capital.d. buying and selling currencies in international money markets.

40. A financial system's major economic purpose is to:a. channel savings to more efficient and productive uses.

b. print money to support the government.c. determine the prime nominal rate of interest.d. increase the value of the money multiplier.e. ensure that entrepreneurs make economic profits

Issue Management Elective

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