Lecture Retail and merchant banking – Lecture 29

Merchant Banking provides specialist services including portfolio management, project financing and counselling, issue management and underwriting, mergers, acquisitions, venture capital financing, leasing and so on. Merchant banking, although a non-banking financial activity, resembles banking function.

Revise Lecture 29

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• Merchant Banking

Merchant Banking – An

Overview

important constituent of the financial

system and plays a significant role in the realm of economic development of a

country

component of the financial sector of our

Merchant Banking – An

Overview

services including portfolio management, project financing and counselling, issue management and underwriting, mergers, acquisitions, venture capital financing,

leasing and so on

Merchant Banking – An

Overview

non-banking financial activity, resembles

banking function

originated, and grew in Europe, was

enriched by American patronage, and

these services are now being provided

throughout the world by both banking and

Merchant Banking – An

Overview

among the Dutch and the Scottish traders, and was later on developed and

professionalized in Britain

Merchant Banking – An

Overview

engaged in providing specialist services, which generally include the issue and

underwriting, project financing, mergers, acquisitions, venture capital financing,

acceptance of bills of exchange and other banking services, are known as ‘merchant bankers’

activity and take up other activities, which may be complementary or supportive to

the specialized activity

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Merchant Banking – An

Overview

the needs of business enterprises carrying out merchant banking functions The main functions of merchant banking are the

following;

Merchant Banking – An

Overview

4 Capital restructuring

5 Credit syndication and project finance

6 Issue management and underwriting

7 Portfolio management

8 Working capital finance

9 Acceptance creat and bill discounting

10 Mergers, Amalgamations and takeovers

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Merchant Banking – An

Overview

11 Venture capital

12 Lease financing

13 Foreign currency finance

14 Fixed deposit broking

15 Mutual funds

16 Relief to sick industries

17 Project appraisal

• Public Issue

Management

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Public Issue Management

corporate sector offered to the public on a regular basis, and existing shareholders

on a rights basis, is known as ‘public issue management’

function of merchant bankers and lead

managers

Public Issue Management

funds through various types of instruments

by companies is known as ‘issue

management’

offers tremendous scope for issue

management and the merchant bankers

provide their skills and expertise to

companies in the management of capital

• Categories of Securities Issue

Public Issue Management

for raising funds from the capital market

mode of raising such finances

Public Issue Management

Public issue of securities:

issue of a prospectus, it is called ‘public

issue of securities’

funds in the capital market

par, or at a premium or at a discount

Public Issue Management

Public issue of securities:

essential facts about the company to the prospective purchasers of the shares

disclosure of information that should serve

as the basis for investors to make a

decision about the investment of their

money

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Public Issue Management

Right issue:

shareholding of a company on a privileged basis, it is called as ‘Rights Issue’

pre-emptive right to subscribe to the new issue

of shares

Public Issue Management

Private placement:

directly to the investors, especially

institutional investors, it takes the form of private placement

it is presumed that the investors have

sufficient knowledge and experience and are capable of evaluating the risks of the

Public Issue Management

Public issue of securities:

preference shares and debentures

merchant bankers and lead managers,

assumes greater significance in private

placement

Public Issue Management

Public issue of securities:

Private placement obviously commands an advantage over the public issue on the

following grounds;

than a public issue which may take 6

months to one year Time taken by

Public Issue Management

Public issue of securities:

3 Less expensive method of raising capital

because of fewer compliance procedures

4 Advantageous to small companies which

cannot afford a public issue because of the expense involved

5 Ideally suited to companies which need

only relatively limited amount of capital

• Issue Manager

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Public Issue Management

Issue Manager

which can carry out the activities

connected with issue management, is

registered with SECP, and can follow its

regulations and guidelines, is capable of venturing into issue management

for merchant bankers

Public Issue Management

Issue Manager (Requirements)

The Issue manager needs to satisfy the

following requirements before being allowed

by the SECP to carry out various issue

management activities;

such as adequate office space,

equipments and manpower to effectively discharge activities

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Public Issue Management

Issue Manager (Requirements)

2 Minimum number of two persons

needed, who are professionally qualified

in Law, Finance or Banking management and have the experience to conduct the business of the merchant banker

3 Fulfilling the capital adequacy

requirements, i.e a minimum net worth of

Rs 5 crores

• Categories of Issue managers

Public Issue Management

Categories of Issue managers

four categories as follows;

as issue manager, advisor, consultant,

underwriter and portfolio manager

only as advisor, consultant, underwriter

Public Issue Management

Categories of Issue managers

as underwriter, advisor to an issue

only as advisor or consultant to an issue

Lecture 30

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Public Issue Management

• Role of Issue manager

Public Issue Management

Role of Issue manager

The merchant banker as an issue

manager is helpful is the following ways;

1 Easy floatation:

indispensable pilot facilitating a public /

right issue This is made possible with the help of a repository of special skills

possessed by him to execute the

Public Issue Management

2 Financial consultant:

financial architect, by providing advice

relating to capital structuring, capital

gearing and financial planning for the

company

3 Underwriting:

the issues of securities made by corporate

Public Issue Management

4 Market makers:

often act as the market makers for the

issues lead managed by them

buy and sell quotes for the listed scrips of the company

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Public Issue Management

5 Due diligence:

SECP guidelines

activities with due diligence and furnish a Due Diligence Certificate to SECP

conduct for merchant bankers

• Activities involved in public issue management

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Public Issue Management

Activities involved in public issue

management:

performed by the issue manager in order

to raise money from the capital market

chalking out an appropriate marketing

strategy

Public Issue Management

Activities involved in public issue

management:

funds from the capital markets are the following;

Pre-issue Activities:

Public Issue Management

Activities involved in public issue

management:

4 Convening meeting

5 Appointment of financial intermediary

6 Preparing documents

7 Due diligence certificate

8 Submission of offer document

Public Issue Management

Activities involved in public issue

management:

10 Filing with RoC

11 Launching the issue

12 Promoter’s contribution

13 Issue closure

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