MERCHANT BANKING BOOK
Start by marking “The Merchant Bankers” as Want to Read: This fascinating chronicle of the world's great financial families profiles the personalities behind seven legendary banking houses: Hambros, Barings, the Rothschilds, the Warburgs, Deutsche Bank, Lehman Brothers, and Banca. The Merchant Bankers (Dover Books on History, Political and Social Science) [ Joseph Wechsberg, Christopher Kobrak] on resourceone.info *FREE* shipping on. The book presents a comprehensive and updated version of the functions merchant bankers can undertake. The mandated functions, public issue, buy- back and.
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Editorial Reviews. From the Back Cover. This fascinating chronicle of the world's great financial. The Book Presents A Comprehensive And Updated Version Of The Functions Merchant Bankers Can Undertake. The Mandated Functions, Public Issue. Merchant BankingRegulatory Framework. Public Issue Management. Marketing of New Issues. Postissue Activities. Prospectus. Underwriting.
But the scopes of both of these banks are quite different. Here are the differences between a commercial bank and a merchant bank — Customers: A commercial bank serves small business owners and the general public.
On the other hand, a merchant bank only serves high net-worth individuals and multinational companies. Services: Under the scope of services also these two banks are quite different. A commercial bank provides a checking and savings bank account, accept fixed deposits, provide recurring deposits, etc. On the other hand, a merchant bank provides underwriting services, fundraising services, financial advising, etc. Transactions: The range of transactions in a commercial bank is quite broad.
From a small savings account to offering loans to a business, a commercial bank offers a whole gamut of solutions. For a merchant bank, the range of transactions revolves around a niche area. Making money: A commercial bank makes money by offering loans and earning interest.
The option of book-building is available to all body corporate, which are otherwise eligible to make an issue of capital to the public. The initial minimum size of issue through book-building route was fixed at Rs. However, beginning from December 9, issues of any size will be allowed through the book-building route. Book-building facility is available as an alternative to firm allotment.
Accordingly, a company can opt for book-building route for the sale of shares to the extent of the percentage of the issue that can be reserved for firm allotment as per the prevailing SEBI guidelines. It is therefore possible either to reserve securities for firm allotment or issue them through the book-building process. The book-building process involves the following steps: Book-building process is of immense use in the S. Merchant Banking and Financial Services following ways: Reduction in the duration between allotment and listing b.
Reliable allotment procedure c. Quick listing in stock exchanges possible d. The regular prospectus is presented in three parts: PART I a. General Information about the company e. Name and address of the registered office consent of the Central Government for the issue and names of regional stock exchanges etc. Capital Structure such as authorized, issued, subscribed and paid up capital etc. Terms of the issue like mode of payment , rights of instruments holders etc.
Particulars of the issue like project cost , means of financing etc. Company, Management and project like promoters for the project, location of the project etc.
Disclosures of public issues made by the Company, giving information about type of issue, amount of issue, date of closure of issue, etc.
Perception of risk factors in marketing the products, of raw materials etc. General Information b. Declaration i. Application with prospectus S. Merchant Banking and Financial Services Abridged Prospectus The concept of abridged prospectus was introduced by the Companies amendment Act of to make the public issue of shares an inexpensive proposition.
A memorandum containing the salient features of a prospectus as prescribed is called as Abridged Prospectus. Because the commercial bankers are merely financiers and their activities are appropriately arrayed around credit proposals, credit appraisal and loan sanctions.
But merchant banking include services like project counseling , corporate counseling in areas of capital restructuring amalgamations, mergers, takeover etc. Publicity campaign covers the preparation of all publicity material and brochures, prospectus, announcement, advertisement in the press, radio, TV, investors conference etc. The merchant bankers help choosing the media, determining the size and publications in which the advertisement should appear.
The merchant Bankers role is limited to deciding the number of copies to be printed, checking accuracy of statements made and ensure that the size of the application form and prospectus conform to the standard prescribed by the stock exchange. The Merchant banker has to ensure that the material is delivered to the stock exchange at least 21 days before the issue opens and to brokers to the issue, branches of brokers to the issue and underwriter in time.
Securities issues are underwritten to ensure that in case of under subscription the issues are taken up by the underwriters.
SEBI has made underwriting mandatory for issues to the public. The underwriting arrangement should be filed with the stock exchange. Particulars of underwriting arrangement should be mentions in the prospectus. The various activities connected with pre issue management are a time bound program which has to be promptly attended to. The execution of the activities with clockwork efficiency would lead to a successful issue. To carry on their activities, they must be registered with the SEBI which can also renew the certificate of registration.
They are divided into two categories: The registration is granted by the SEBI on the basis of consideration of all relevant matters and, in particular, the necessary infrastructure, past experience and capital adequacy. Capital Adequacy Fee o The capital adequacy requirement in terms of net worth capital and free reserves was Rs. General obligations and responsibilities code of conduct for register to an issue and share transfer agents: A registrar to an issue and share transfer agent should: Merchant Banking and Financial Services 3 At all times exercise due diligence, ensure proper care and exercise independent professional judgment.
Such requests could be rejected only on valid and proper grounds and supported by relevant documents. Maintenance of Records: The registrars and share transfer agents have to maintain records relating to all applications received from investors in respect of an issue, all rejected applications together with reasons, basis of allotment of securities in consultation with the stock exchanges, terms and conditions of purchase of securities, allotment of securities, list of allottees and non-allotees, refund orders, and so on.
The SEBI is authorized to undertake the inspection of the books of accounts, other records, and documents of the registrars and share transfer agents to ensure that they are being maintained in a proper manner and the provisions of the SEBI Act, rules, regulations and the provisions of the SCRA.
Action in Default: To carry on activity as a banker to issue, a person must obtain a certificate of registration from the SEBI. The SEBI grants registration on the basis of all the activities relating to banker to an issue in particular with reference to the requirements: A banker to an issue can apply for the renewal of his registration three months before the expiry of the certificate.
General Obligations and Responsibilities furnish Information When required, a banker to an issue has to furnish to the SEBI the following information; a. The number of issues for which he was engaged as a banker to an issue; b. The purpose of inspection is largely to ensure that the required books of accounts are maintained and to investigate into the complaints received from the investors against the bankers to an issue.
The foregoing rules and regulations have brought the bankers to an issue under the regulatory framework of the SEBI with a view to ensuring greater investor protection. On the basis of the inspection report, the SEBI can direct the banker to an issue to take such measures as it may deem fit in the interest of the securities market and for due compliance with the provision of the SEBI Act.
They make a commitment to get the issue subscribed either by others or by themselves. Though underwriting is not mandatory after April , its organization is an important element of the primary market. To act as underwriter, a certificate of registration must be obtained from the SEBI.
Underwriters, had to, for grant or renewal of registration, pay a fee to the SEBI from the date of initial grant of certificate, Rs. A fee of Rs. Since , the registration fee has been raised to Rs.
To keep the registration in force, renewal fee of Rs. Failure to pay the fee would result in the suspension of the certificate of registration. Agreement with Clients: Every underwriter has to enter into an agreement with the issuing company.
Inspection and Disciplinary Proceedings: Merchant Banking and Financial Services 6 Not make any statement, either oral or written, which would misrepresent a the services that the underwriter is capable of performing for its client, or has rendered to any other issuer company; b his underwriting commitment. Action in Case of Default: The liability for action in case of default arising out of i. The appointment of brokers is not compulsory and the companies are free to appoint any number of brokers.
The managers to the issue and the official brokers organize the preliminary distribution of securities and procure direct subscriptions from as large or as wide a circle of investors as possible. The permission granted by the stock exchange is also subject to other stipulations which are set out in the letter of consent. Brokerage may be paid within the limits and according to other conditions prescribed.
The brokerage rate applicable to all types of public issue of industrial securities is fixed at 1. The mailing cost and other out-of-pocket expenses for canvassing of public issues have to be borne by the stock brokers and no payment on that account is made by the companies.
The issuing company is expected to pay brokerage within two months from the date of allotment and furnish to the broker, on request, the particulars of allotments made against applications bearing their stamp, without any charge. The Cheques relating to brokerage on new issues and underwriting commission, if any, should be made payable at par at all Centre where the recognized stock exchanges are situated. The rate of brokerage payable must be is enclosed in the prospectus.
Moreover, there is a plethora of companies, which knock at the doors of investors seeking to sell their securities. Above all the media bombards the modern investors with eye catching advertisement to sell their concepts to prospective investors. Under this method, the sale of securities takes place in two stages: The difference between the purchase price and the issue price constitutes profit for the intermediaries.
The intermediaries are responsible for meeting various expenses such as underwriting commission, prospectus cost, advertisement expenses, etc.
Bank of India plans to get into merchant banking
The issue is also underwritten to ensure total subscription of the issue. The biggest advantage of this method is that it saves the issuing company the hassles involved in selling the shares to the public directly through prospectus. This method is, however, expensive for the investor as it involves the offer of securities by issue houses at very high prices.
A provision contained in an underwriting agreement that gives the underwriter the right to sell investors more shares than originally planned by the issuer. This would normally be done if the demand for a security issue proves higher than expected.
It is legally referred to as an over-allotment option. However, some issuers prefer not to include Greenshoe options in their underwriting agreements under certain circumstances, such as if the issuer wants to fund a specific project with a fixed amount of cost and does not want more capital than it originally sought. The term is derived from the fact that the Green Shoe Company was the first to issue S. Merchant Banking and Financial Services this type of option. Before investing in an IPO, we go through the offer document of the company to know more about it.
A listed company is legally bound to abide by commitments made in the document. Besides providing information about the company's competitive strengths, industry regulation, corporate structure, main objects, subsidiary details, risk factors, etc.
Origin of the Greenshoe: It was the first company to implement the Greenshoe clause into their underwriting agreement.
Green Shoe Option in India: Greenshoe Option in Action It is very common for companies to offer the Greenshoe option in their underwriting agreement. In , most realty companies in India, who were planning to raise funds from the primary market, had opted for green shoe option in their IPOs to stem volatility in share prices following their listing on the exchanges. Companies such as Sahara Prime City, DB Realty, Lodha Developers and Ambience had opted for the green shoe option, which helped them stabilise share prices in the event of extreme volatility or prices moving below offer price.
A company proposing to issue capital to public through the on-line system of the stock exchange for offer of securities can do so if it complies with the requirements under Chapter 11A of DIP Guidelines. IPOs are often issued by smaller, younger companies seeking capital to expand, but can also be done by large privately- owned companies looking to become publicly traded.
In a IPO, the issuer may obtain the assistance of an underwriting firm, which helps it determine what type of security to issue common or preferred , best offering price and time to bring it to market. This is the most popular method gaining momentum in recent times among the corporate enterprises.
Under this method, securities are offered directly to large buyers with the help of shares brokers. This method works in a manner similar to the Offer for Sale Method whereby securities are first sold to intermediaries such as issues houses, etc. They are in turn placed at higher prices to individuals and institutions. Institutional investors play a significant role in the realm of private placing.
The expenses relating to placement are borne by such investors. Characteristics of Bought out deals o Parties: There are three parties involved in the bought-out deals. They are promoters of the company, sponsors and co-sponsors who are generally merchant bankers and investors. Under this arrangement, there is an outright sale of a chunk of equity shares to a single sponsor or the lead sponsor. Sponsor forms syndicate with other merchant bankers for meeting the resource requirements and for distributing the risk.
Bought-out deals are in the nature of fund-based activity where the funds of the merchant bankers get locked in for at least the prescribed minimum period. The investor-sponsors make a profit, when at a future date, the shares get listed and higher prices prevail.
Listing generally takes place at a time when the company is performing well in terms of higher profits and larger cash generations from projects. Sale of these shares at Over-the-Counter Exchange of India OTCEI or at a recognized stock exchanges, the time of listing these securities and off- loading them simultaneously are being generally decided in advance.
Benefits of Bought-out Deals: Bought-out deals provide the following benefits: Speedy sale 2. Freedom 3.
Investor protection 4. Quality offer S. The preferential allotment should be made at a price not less than the highest price during the last 26 weeks on all stock exchanges where the company securities are listed. Guidelines of Government of India Government of India through Guidelines issued on September 14, has allowed reputed foreign Institutional Investors FIIs including pension funds, mutual funds, asset management companies, investment trusts, nominee companies and incorporated or institutional portfolio managers to invest in the India capital market subject to the condition that they register with the Securities and Exchange Board of India and obtain RBI approval under FERA.
Their total cumulative investment in securities market was Rs. There is no restriction on amount of investment and there is no lock in period. For the purpose of grant of the certificate SEBI takes into account, 1. Whether the applicant is regulated by appropriate foreign regulatory authority 3. Whether the applicant has been granted permission by RBI under Foreign Exchange Regulating Act for making investments in India as a foreign institutional investor and 4.
Where the applicant is, a. A trustee or power of attorney holder established or incorporated outside India and proposing to make investments in India on behalf of broad based funds. The certificate is granted in Form B subject to payment of prescribed fees which is valid for 5 Years and can be renewed thereafter. Merchant bankers help their clients in Long term foreign currency loan, Joint venture abroad, Financing exports and imports, Foreign collaboration arrangement.
Following are the steps involved in the marketing of the issue of securities to be undertaken by the lead manager: The market conditions should be favorable. Otherwise, even issues from a company with an excellent track record, and whose shares are highly priced, might flop. Similarly, the number and frequency of issues should also be kept to a minimum to ensure success of the public issue.
All lead managers are expected to ensure that issuer companies strictly observe the code of advertisement set-out in the guidelines. An issue advertisement shall be truthful fair and clear and shall not contain any statement which is untrue or misleading.
An issue advertisement shall be considered to be misleading, It contains a.
Statements made about the performance or activities of the company in the absence of necessary explanatory or qualifying statements, which may give an exaggerated picture of the performance or activities than what it really is? An inaccurate portrayal of a past performance in a manner which implies that past gains or income will be repeated in the future.
As investors may not be well versed in legal or financial matter, care should be taken to ensure that the advertisement is set forth in a clear, concise and understandable language. Extensive use of technical, legal terminology or complex languages and the inclusion of excessive details which may distract the investor should be avoided. An issue advertisement shall not contain statements which promise or guarantee an appreciation or rapid profits.Recommended Articles This has been a guide to what is the meaning of Merchant Banks, services offered and list of top merchant banks.
A debenture, issued under the common seal of the company, usually takes the form of a certificate that acknowledges indebtedness of the company.
The issue is also underwritten to ensure total subscription of the issue. No notes for slide. Merchant Banking and Financial Services this type of option. As investors may not be well versed in legal or financial matter, care should be taken to ensure that the advertisement is set forth in a clear, concise and understandable language.