merchant banking (3)
TRANSCRIPT
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INDEX
Sr. No. Contents Page No.
1. Executive Summary 1
2. Introduction to merchant banking 33. Origin of merchant banking 34. Objective of doing this project 55. Need & importance of merchant banking in India 76. Objectives of merchant banker 87. Function of merchant bankers 98. Types of issues 109. What is IPO (initial public offering)? 13
10. Role of merchant banker in issue management 15
11. Role of merchant banker as a lead manager 1712. Regulatory framework 2213. Advantages of listing 4414. Problems of merchant bankers 4515. Scope of merchant banking services 4616. Challenges ahead 5017. Some past issues 5218. Growth of capital market 5319. Some corporate examples: 5420. Questionnaire 5621. Limitations of the project 5922. Conclusion 6023. Annexure 62
EXECUTIVE SUMMARY
In this competitive world, where banks and financial institutions are
providing traditional services, now is a scenario where they need to retain
customers by providing them some extra special services besides traditional
services.
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With the opening up of the economy, a number of private sector banks
have joined the fray & are offering a plethora of products & services.
Banking sector has made a tremendous growth in last few years. The main
achievement of bank is participation in capital market through merchant banking activities. New issues coming day by day it is necessary for the
regulator to create code & conduct for primary issues, secondary market,
thus through merchant bankers are being allowed to enter in to capital
market through
Project management.
Issue management
Portfolio management service
Counseling
Bought out deals
Venture financing
The main objective of this study is to learn new issue market activities
procedures & to know importance of merchant bankers as sponsor of
capital issues also to learn what are the duties & responsibilities of the
merchant bankers as lead managers, underwriter, bankers to an issue,
brokers to an issue, registrars to an issue and share transfer agents, debenture
trustee, portfolio managers etc.
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In todays world of competition in the banking service & products it is
essential to generate more & more income from other fund based /non fund
base activities. Also looking at todays scenario in stock market there are
many public issues which have been successfully listed with the help of merchant bankers. Today it is difficult to go for public issue without the help
of merchant banker.
But there is some legal requirements, rules & regulations to be
followed by these bankers otherwise there can be chances of default. SEBI
has made code & conduct to be followed by all the financial intermediaries
including merchant bankers.
INTRODUCTION TO MERCHANT BANKING
The Indian financial system is a vast universe. This universe is
regulated and supervised by two Government agencies under Ministry of
Finance viz., RBI, SEBI. The economic reforms, being an integrated
process, included deregulation of industry, liberalization on foreign
investment, regime, restructuring and liberalization of trade, exchange rate
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and tax policies, partial disinvestments of Government holdings in public
sector companies and financial sector reforms. Securities market in India has
frown exponential as measured in terms of amount raised from market,
number of stock exchanges and other intermediaries, the number of listedstocks, market capitalization, trading volumes and price indices.
Origin:-
The term Merchant Banking has its origin in the trading methods of
countries in the late eighteenth and early nineteenth century when trade-
taking place was financed by bill of exchange drawn by merchanting houses.
As international trade grew and other lesser-known names wanted to import
goods from abroad, the established merchants lent their names to the
newcomers by agreeing to accept bills of exchange on their behalf. The
acceptance houses would charge a commission for this service.
The second historical of Merchant Banks was the raising of capital for
foreign Government through the issue of stocks and bonds. Therefore,
Merchant Banks can be accepting houses or issuing houses or both.
The term merchant banking is used differently in different countries
and so there is no precise definition for it. In London, merchant banker refers
to those who are members of British Merchant Banking and SecuritiesHouse Association who carry on consultation, leasing, portfolio services,
assets management, euro credit loan syndication etc. In America, merchant
banking is concerned with mobilizing savings of people and directing the
funds to business enterprise.
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Dictionary meaning of merchant bank refers to an organization that
underwrites corporate securities and advises such clients on issues like
corporate mergers, etc. involved in the ownership of commercial ventures.This organization may be a bank, corporate body, firm or proprietary
concern.
Merchant banking although a nonbanking financial activity
resembles banking function. The functions of merchant banking which
originated ,& grew in Europe .the word Merchant banking originated
among the Dutch and was later on developed and professionalized in
Britain.
The need for specialized merchant banking services was felt in India
with the rapid growth in the number and size of the issue made in the
primary market. The merchant banking services were started by foreign
banks, namely the National Grindlays Bank in 1972 recommended the
setting up of merchant banking institutions by commercial banks and
financial institutions. This marked the beginning of specialized merchant
banking in India.
OBJECTIVE OF DOING THIS PROJECT
As the student of BANKING AND INSURANCE, the main aim of
this project is to know how merchant banks plays role in issues
management,
Basic objective of doing this project is to enlarge the knowledge relating to:
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How the merchant banking services originated in India?
What were the need, importance and functions of the merchant
banker?
What are the different types of issues through which money is raised
and what is the role of merchant banker in these issues?
What is the regulatory framework prescribed by Securities and
Exchange Board of India?
What are the future scope, challenges and problems faced by
merchant banker?
The main objective of doing this project is to get the knowledge regarding
how this all is practically done.
DEFINITION OF MERCHANT BANKER
According to the securities and exchange board of India (Merchant
Bankers) Rules, 1992
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A merchant banker has been defined as any person who is
engaged in the business of issue management either by making arrangements
regarding selling, buying or subscribing to securities or acting as manager,
consultant, advisor or rendering corporate advisory service in relation tosuch issue management.
A set of financial institution that are engaged in providing specialist
services, which generally include the acceptance of bills of exchange,
corporate finance, portfolio & issue management and other banking services,
are known as Merchant bankers . A merchant banker may specialize in
one activity, and take up other activities, which may be complementary or
support to the specialized activity.
NEED & IMPORTANCE OF MERCHANT BANKING IN
INDIA
1) Important reason for the growth of merchant banking has been the
developmental activity throughout the country, exerting excess
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demand on the sources of funds for ever expanding industry and trade,
thus, leaving a widening gap unabridged between the supply and
demand of investible funds.
2) All India financial institutions had experienced resource constraint to
meet the ever-increasing demand for funds from the corporate sector
enterprises.
3) With the growing demand for funds there was pressure on capital
market that enthused the commercial banks, share brokers and
financial consultancy firms to enter into the field of merchant banking
and share the growing capital market.
4) The need of merchant banking institutions is felt in the wake of huge
public savings lying still untapped
5) Merchant banks have been procuring impressive support from capital
market for the corporate sector for financing their projects. This is
evidenced from the increasing amount raised from the capital market
by the corporate enterprises year after year.
OBJECTIVES OF MERCHANT BANKER
Merchant Banker plays a vital role in the economic and financial
development of the country. As a result of economic and financial
liberalization new companies are formed and number of issues floated to
raise resources from the investor community.
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Considering the significance of the issue the Government of India
instituted SEBI in 1990 to regulate and control various market
intermediaries. SEBI issued various rules and regulations for each and everysegment of the capital market. To regulate Merchant bankers, with the twin
objective viz., investor protection and development of the capital market,
SEBI issued rules and regulations for Merchant Bankers. Subsequent
amendments also have been made to these regulations to further strengthen
this segment of the securities industry. These regulations (Merchant
Banking) specified that every company desires to float an issue to the public
should engage Merchant Banker (Registered under these regulations with
SEBI) as Lead Manager. In this context Merchant Banker gained the
importance in the Indian Securities Industry.
Having given a serious and careful thought to securities industry
reforms, SEBI has taken efforts seriously to boost the splendid endeavor of
securities market intermediaries. As a result, Merchant Bankers came into
being to look after the promotion and administration of issues. It is well
known fact that without adequate professional support of Merchant Bankers
the securities industry cannot prosper.
FUNCTION OF MERCHANT BANKERS
Among the important financial intermediaries are the merchant
bankers. The services of Merchant bankers have been identified in India
with just issue management. It is quite common to come across reference to
merchant banking and financial services as though they are distinct
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Less than or equal to one crore
rupees.
A flat charge of ten thousand rupees
(Rs.10,000/-).More than one crore rupees, but less
than or equal to five thousand crore
rupees.
0.1 per cent. of the issue size.
More than five thousand crore rupees,
but less than or equal to twenty five
thousand crore rupees.
Five crore rupees (Rs.5,00,00,000/-) plus
0.025 per cent of the portion of the issue
size in excess of five thousand crore rupees
(Rs.5000,00,00,000/-).
More than twenty five thousand crore
rupees.
A flat charge of ten crore rupees
(Rs.10,00,00,000/-).
2) Exchange issue - An exchange issue is one in which shares of one
company are exchanged for another as in case of takeover and mergers. It
does not add to funds of the company making the exchange although the
merger may result in synergy. Another form of issue that does not result in
raising new funds is the bonus issues. Bonus shares are distributed to
determine proportion to existing shareholders.
3) Right issues - Right issue is the issue of new shares in which existing
shareholders are given pre-emptive rights to subscribe to new issue. They
are issued at a premium, which is freely determined by the company making
the issue. It is when a listed company which proposes to issue fresh
securities to its existing shareholders as on a record date. The rights arenormally offered in a particular ratio to the number of securities held prior to
the issue. This route is best suited for companies who would like to raise
capital without diluting stake of its existing shareholders unless they do not
intend to subscribe to their entitlements.
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2) To finance increased working capital requirement.
3) As an exit route for existing investors.
4) For debt financing.
ADVANTAGES:
1) The IPO provides avenues for funding future needs of the
company.
2) It provides liquidity for the existing shares.
3) The reputation and visibility of the company increases.
4) Additional incentive for employees in the form of of thecompanys stocks if offered through Employees Stock Option Plans
(ESOP).
5) It commands better valuation for company.
PROCESS OF INITIAL PUBLIC OFFERINGS (IPO):
Receipt of Applications and CollectionOf A lication Mone
Issue of Prospectus
Selection of Merchant Banker
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ROLE OF MERCHANT BANKER IN ISSUE MANAGEMENT
Collection of MinimumSubscri tion
Non Collection of Minimum
Under Subscri tion
Par Subscri tion
Over Subscri tion Refund
Of Application
Money
Establish underwritersLiabilit
Rejection of someA lications
Allotment of Shares
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The public issue of securities is the core of merchant banking function. A
one time merchant banking was constructed as the sole function.
Merchant bankers were identified as issue houses
WHAT IS ISSUE MANAGEMENT?
The new issue market/activity was regulated by the controller of capital
issues (CCIs) under the provisions of the capital issues (Control) Act, 1947
and the exemption orders and rules made under it. And under act, the
protection of that interest of the investors in securities market and promotion
of the development and regulation of the market became the responsibility of the SEBI. To tone up the operations of the new issues in the country; it has
put in place rigorous measures. These cover both the major intermediaries as
well as the activities. The project focus on the lead managers, underwriters,
bankers to an issue, registrars and share transfer agents, debentures trustees,
and portfolio managers.
ISSUES MANAGEMENT
They usually render the following
services:
Pre issues management Post issues management
Issue through prospectus, offer for sale
and private placement,
Marketing and underwriting
Pricing of issues.
Dealing with stock exchange,
Collection of subscriptions,
Allotment and dispatch of shares/refund
Orders through registrar to the issue.
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1) Drafting of prospectus and getting it approves from the stock
exchanges.
2) Obtaining consent/acknowledgement from SEBI.
3) Appointing bankers, underwriters, brokers, advertisers, printers etc.4) Obtaining the consent of all the agencies involved in the public issue.
5) Holding road shows, to sell the issue. These shows are held for the
analysts, brokers & institutional investors. The purpose of these
shows is to answer queries from these people about the company and
the project for which the funds are being raised.
6) Deciding the pattern of advertising.
7) Deciding the branches where application money should be collected.
8) Deciding the dates of opening and closing of the issue.
9) Obtaining the daily report of application money collected at various
branches.
10) Obtaining subscription to the issue.
11) After the close of the issue, obtaining consent of stock
exchange for deciding basis of allotment etc.
The merchant bankers offer following services during the public issues:
1) Preparing an action plan and budget for the total expenses for the
issue. Preparation of application to SEBI and assistance in obtaining
the consent from SEBI. Drafting of the prospectus.2) Selection of underwriters. Brokers, bankers to the issue advertising
agency for publicity etc.
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ROLE OF MERCHANT BANKER AS A LEAD MANAGER
The importance of merchant bankers as sponsors of capital issues is
reflected in their major services such as, determining the composition of thecapital structure(type of securities to be issued), draft of prospectus(offer
documents)and application forms, compliance with procedural formalities,
appointments of registrars, listing of securities, arrangement of
underwriting/sub- underwriting , placing of issues, and so on. In the view
of the overwhelming importance of merchant bankers in the process of
capital issues, it is now mandatory that all public issues should be managed
by merchant bankers functioning as lead managers.
REGISTRATION - Merchant bankers require compulsory registration with
the SEBI to carryout their activities. Earlier they fell under four
categories.
a) Category 1 Merchant banker could carry on any activity related to
issue management, that is, the preparation of prospectus and other
information relating to the issue, determining the financial structure,
tie-up of financiers, final allotment of securities, and refund of the
securities.
b) Category 2 merchant bankers could act as advisors, consultants, co-
managers, underwriters and portfolio managers;
c) Category 3 merchant bankers could act as underwriters, advisors, andconsultants to an issue. Thus only category 1 merchant bankers could
act as lead managers to an issue. To carry on activities as underwriters
and portfolio managers, they have to obtain separate certificates of
registration from the SEBI.
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GRANT OF CERTIFICATE -The SEBI grants a certificate of registration
if
a) Merchant bankers should also be a body corporate other than a non-
banking financial company.
b) They are expected to have the necessary infrastructure like office,
space, manpower etc.
c) Have recognized professional qualification in finance, law or business
management and or their registration is in the interest of the investors.
CAPITAL ADEQUACY REQUIREMENT - The minimum net worth
requirement for each category was: Rs5 crore (category 1), Rs 0.5 crore
(category 2), Rs 0.2 crore (category 3) and nil for category.
REGISTRATION FEE -
a) Category 1 Rs 2.5 lakh annually, for the first 2 years and Rs 1 lakh for
the 3 rd year
b) Category 2: Rs 1.5 lakh annually, for the first 2 years and Rs 50,000
for the 3 rd year.
c) Category 3: Rs 1 lakh annually, for the first 2 years and Rs 25,000 for
the 3 rd year.
d) Category 4: Rs 5000, annually, for the first 2 years and Rs 1,000 for the 3 rd year.
Since 1999, the registration fee was raised to Rs 5 lakh.
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e) To ensure that the copies of the prospectus, offer document, letter of
offer or any other related literature is made available to the investors
at the time or the offer.
f) Not to make any statement, either oral or written, this wouldmisrepresent the services that the merchant banker is capable of
performing for any client or has rendered to any client.
g) Avoid conflict of interest and make adequate disclosure of its interest.
h) Always to render the best possible advice to the clients having regard
to their needs.
i) Maintain arms length relationship between its merchant banking
activity and any other activity.
j) Not to make untrue statement or suppress any material fact in any
documents, reports or information furnished to the SEBI.
k) Maintain appropriate level of knowledge and competence and abide
by the provisions of the SEBI Act/regulation/circulars and guidelines.
l) Provide adequate freedom and powers of its compliance officer for the
effective discharge of his duties.
m) Ensure that good corporate policies and corporate governance are in
place.
n) Have internal control procedures and financial and operational
capabilities which can be reasonably expected to protect its
operations, its clients, investors and other registered entities from
financial loss arising from theft, fraud, and other dishonest act, professional misconduct or omissions
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RESTRICTION ON BUSINESS - No merchant banker, other than a
bank/public financial institution (PFI) is permitted to carry on business other
than that in the securities market.
MAXIMUM NUMBER OF LEAD MANAGERS - The maximum number
of lead managers is related to the size of the issue. For an issue of a size less
than Rs50 crore, two lead managers are appointed. for size groups of Rs 50
crore to Rs 100 crore and Rs 100 crore to Rs 200 crore, the maximum lead
managers required are 3 and 4 respectively.
RESPONSIBILITYES OF LEAD MANAGERS - Every lead manager has to enter into an agreement with the issuing companies, setting out their
mutual rights, liabilities and obligations relating to such issues, and in
particular to disclosures allotment and refund. It is necessary for a lead
manager to accept a minimum underwriting obligation of 5 per cent of the
total underwriting commitment or Rs 25 lacks, whichever is lesser.
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REGULATORY FRAMEWORK
Operational Guidelines - SEBI has pronounced the following guidelines
for compliance by the eligible merchant bankers:
1) Submission of offer document
a) The offer documents of issue size up to Rs.20 crores shall be filed by
lead merchant bankers with the concerned regional office of the board
under the jurisdiction of which the registered office of the issuer
company falls. According to the Guidelines, the draft offer document
filed with the Board shall be made by public.
b) The lead merchant banker shall make available 10 copies of the draft
offer document to the board and 25 copies to the stock exchange(s)
where the issue is proposed to be listed. Copies of the draft offer
document shall be made available to the public by the lead merchant bankers/stock exchange. The lead merchant banker and the stock
exchange(s) may charge a reasonable charge for providing a copy of
the draft offer document.
c) The lead merchant banker shall also submit to the board the draft offer
document on a computer floppy in the specified in schedule. Alongwith the floppy, the lead manager shall submit an undertaking to SEBI
certifying that the contents of the floppy are in HTML format, and are
identical to the printed version of the prospectus/ letter of offer filed
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with the Registrar of Companies/ concerned Stock Exchanges(s), as
the case may be.
d) The Lead Merchant Banker shall submit two copies of the printedcopy of the final offer document dealing offices of the Board within
three days of filing offer document with Registrar of
Companies/concerned Stock Exchange(s) as the case may be.
e) Whenever offer documents (for public/rights issues, takeovers or for
any other purposes) are filed with any Department/office of the board,
the following details certified as correct shall be given by the lead
merchant banker in the forwarding letters;
Registration Number
Date of Registration/Renewal of registration
Date of expiry of registration
If applied for renewal, date of application
Any communication from the Board prohibiting them acting as a
merchant banker
Any inquiry/investigation being conducted by the board
Period up to which registration/renewal fees has been paid
Whether any promoter/director/group and/or associate company of the
issuer company is associated with securities-related business and
registered with SEBI
If any one or more of these persons/entities are registered with SEBI,
their respective registration numbers
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Details of any enquiry/investigation conducted by SEBI at any time.
Penalty imposed by SEBI (Penalty includes deficiency/warning letter.
adjudication proceedings suspension/ cancellation/ prohibitory orders)
Outstanding fees payable to SEBI by these entities, if any
Offer documents not accompanied by the information as contained above
may be rejected. Lead Merchant bankers shall obtain similar information
from their intermediaries to ensure that they comply with these
guidelines and are eligible to be associated with a letter concerned issue. The
intermediaries shall also indicate in their letters that they have obtained such
information from other intermediaries.
2) Dispatch of issue material - Lead merchant bankers shall ensure that
whatever there is a reservation for NRIs, 10 copies of the prospectus
together with 1000 application forms are dispatched in advance of the issue
opening date, directly along with a letter addressed in person to Advisor
(NRI). Twenty copies of the prospectus and application form shall be
dispatch in advance of the issue opening date to the various Investors
Associations.
3) Underwriting - While selecting underwriters and finalizing underwriting
arrangements, lead merchant bankers shall that the underwriters do not
overexpose themselves so that it becomes difficult to fulfill their underwriting commitments. The overall exposure of underwriter(s)
belonging to the same group or management in an issue shall be assessed
carefully by the lead merchant banker.
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4) Compliance obligations - The merchant banker shall ensure compliance
with the following post-issue obligations:
a) Association of resource personnel - In case of oversubscription in
public issues, a Board nominated public representative shall be
associated in the process of finalization of the basis of allotment. The
lead merchant banker shall intimate to the person so nominated the
date, time, venue etc regarding the process of finalization of the basis
of allotment.
b) Redressal of investor grievances - The merchant bankers shall
assign high priority to investor grievances, and take all preventive
steps to minimize the number of complaints. The lead merchants
banker shall set up a proper grievance monitoring and redressal
system in coordination with the issuers and the registrars to issue.
They shall take all necessary measures to resolve the grievance
quickly. They shall actively associate with post-issue refund and
allotment activities, and regularly monitor investor grievance arising
thereform.
c) Submission of post issue monitoring reports - The concerned lead
merchant banker shall submit, its duplicate, the Post Issue
Monitoring Reports within 3 working days from the due dates, either
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by registered post or deliver them at the respective regional
offices/head office. Where the offer documents have been dealt with
by any of the regional offices of the board, a copy of the report shall
be sent to the Boards Head office, Mumbai. The Lead MerchantBanker(s) shall inform the Board on important development about the
particular issues being lead managed by them during the period
intervening the reports.
d) Issue of NO objection certificate (NOC) - In accordance with
Listing Agreement of the Stock Exchanges, the issuer companies shall
deposit 1% of the amount of securities offered to the public and/or to
the holders of the existing securities of the company, as the case may
be, with the regional Stock Exchange. The securities can be released
by the concerned Stock Exchange only after obtaining an NOC from
the board. An application for NOC shall be submitted by the issuer
company to the Board in the format specified in the guidelines.
e) Registration of merchant bankers - Application for renewal of
certificate of registration shall be made by the merchant bankers
according to regulation 9 of SEBI (Merchant Bankers) Rules and
Regulations, 1992. While filing the renewal application for the
certificate of registration as merchant banker, it shall provide a
statement highlighting the changes that have taken place in the
information that was submitted to the Board for the earlier registration, and a declaration stating that no other changes besides
those mentioned in the above statement have taken place.
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Merchant Bankers, while forwarding the renewal application in form A of
the SEBI (Merchant Bankers) Rules and Regulations, 1992, shall also
forward the additional information as specified in Schedule. Registered
Merchant Bankers shall inform the Board of their having become a member of AMBI, with the relevant details.
f) Reporting requirements - Penalty points may be imposed on the
merchant banker for violation of any of the provision for operational
guidelines. The report referred shall be submitted twice a year, on
March 31 and September 30, and it should reach the Board within
three months from the close of the period to which it relates.
g) Imposition of penalty points - Penalty points may be imposed on the
merchant banker for violation of any of the provision for operational
guidelines. The merchant banker, on whom penalty points of four or
more has been imposed, may be restrained from filing any offer
document or associating or managing any issues for a particular
period.
The Board may initiate action under the SEBI (Merchant Bankers)
Regulation against the merchant bankers, irrespective of whether anyPenalty point is imposed or not. Imposition of penalty point is not a
precondition for initiation of proceeding against the merchant banker under
the SEBI Regulations.
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a copy of the MOU is submitted to the Board along with the draft offer
documents.
In case a public or rights issue is managed by more than one Merchant banker,
the rights obligations and responsibilities of each merchant banker shall be
demarcated as specified in schedule
In case of under-subscription of an issue, the lead merchant Banker,
responsible for underwriting arrangements, shall invoke underwriting pay the
amount of development. The same shall be incorporated in the inter-se
allocation of responsibilities (Schedule II) accompanying the due diligencecertificates submitted by the lead merchant banker to the Board.
b) Due diligence certificate - The lead merchant banker shall furnish to the
Board a due diligence certificate along with the draft prospectus. Besides, the
lead merchant banker shall also certify that all amendments, suggestions or
observations made by the Board have been incorporated in the offer
document. They have to furnish a fresh due diligence certificate at the timeof filing the prospectus with the Registrar of companies in the format
specified, furnish a fresh certificate, immediately before the opening of the
issue has opened but before it close for subscription.
c) Certificate signed by professionals - The lead merchant banker shall
furnish the following certificates duly signed by the company secretaries or
Chartered Accountants along with the draft offer documents.
That all refund orders of the previous issues were dispatched within the
prescribed time and in the prescribed manner.
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That all security certificates were dispatched to the allottees within the
prescribed time and in the prescribed manner.
Those securities were listed on the stock exchanges, as specified in
offer documents.
d) Undertaking - The issuer shall submit an undertaking to the Board to the
effect that transactions in securities by the promoter, the promoter group
and the immediate relatives of the promoters during the period between the
date of filing the offer documents with the Registrar of Companies or Stock
Exchanges as the case may be and the date of closure of the issue, shall be
reported to the stock exchanges concerned within 24 hours of the transaction.
e) List of premium Group - The issuer shall submit to the Board a list of
persons who constitute the Promoters Group and their individual
shareholdings.
3. Appointment of intermediaries
a) Appointment of merchant bankers - A merchant banker who is
associated with the issuer company, as a promoter or a director, shall
not lead-manage the issue of the company. The lead merchant banker
holding the securities of the issue company may lead-manage the
issue if the securities of the issue company, are listed, or proposed to
be appointed, as specified in the offer document.
b) Appointment of co-manager -The lead merchant banker shall ensure
that the number of co-managers to an issue does not exceed the
number of lead merchant banker to the said issue, and that there is
only one advisor to the issue.
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c) Appointment of other intermediaries -The lead merchant shall
ensure that the other intermediaries being appointed are duly
registered with the Board, wherever applicable. Before advising the
issuer on the appointment of other intermediaries, the lead merchant banker shall independently assess the capability and the capacity of
the various intermediaries to carry out the assignment.
The lead merchant banker shall ensure that the issuer companies enter
into a Memorandum of Understanding with the intermediary(ies) concerned,
whenever required. The lead merchant banker shall ensure that Bankers to
the issue are appointed in all the mandatory collection centres as specified.
The lead merchant banker shall not act as a Registrar to an issue in which it
is also handling the post issue responsibilities.
The Lead Merchant Bankers shall that the Registrars to Issue
registered with the Board are appointed, in all public issues and right issues.In cases where the issuer company is a registered Registrar to an issue, the
issuer shall appoint an independent outside Registrar to process its issue.
The lead merchant banker shall ensure that the Registrars to an issue
which is associated with the issuer company as a promoter or a director shall
not act as Registrar for the issue company. Where the number of application
in a public issue is expected to be large, the issuer company, in consultation
with the lead merchant banker, may associate one or more Registrars
registered with the Board for the limited purpose of collecting the
application forms at different centers and forward the same to the designated
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Registrar to the Issue, as mentioned in the offer document. The designated
Registrar to the Issue shall be solely responsible for all the activities
assigned to them for the issue management.
4. Underwriting
The lead merchant banker shall satisfy themselves about the ability of
the underwriters to discharge their underwriting obligations. In this respect,
the lead merchant banker shall incorporate a statement in the offer document
to the effect that in the opinion of the lead merchant banker, the
underwriters assets are adequate to meet their underwriting obligations.They would have to obtain underwriters written consent before including
their names as underwriters in the final offer document.
In respect of every underwritten issue, the lead merchant banker(s)
shall undertake a minimum underwriting obligation of 5% of the total
underwriting commitment, or RS. 25Lacs, whichever is less. The
outstanding underwriting commitments of a merchant banker shall notexceed 20 times the net worth at any point of time. In respect of an
underwritten issue, the lead merchant banker shall ensure that the relevant
details of underwriters issue, the lead merchant banker shall ensure that the
relevant details of underwriters are included in the offer document.
5. Offer documents to be made public - The draft offer documents filed
with the Board shall be made public for a period of 21 days from the
date of filing the offer document with the Board. The lead merchant
banker shall simultaneously file copies of the draft offer document
with the stock exchanges where the securities offered through the
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issue are proposed to be listed, and make copies of the offer document
available to the public. Lead merchant banker or stock exchanges may
charge an appropriate sum for a copy of offer documents.
6. Dispatch of issue material - The lead merchant banker shall ensurethat public issue offer documents and other related materials are
dispatched to the various stock exchanges, brokers, underwriters,
bankers to the issue, investors associations, etc in advance. In the case
of rights issues, the lead merchant banker shall ensure that the letters
of offer are dispatched to all shareholders at least one week before the
date of opening of the issue.
7. No complaints certificate After a period of 21 days from the date
the draft offer documents is made public, the lead merchant banker
shall file a statement with the Board giving a list of complaints
received by it a statement by it whether it is proposed to amend the
draft offer document or not, and highlight those amendments.
8. Mandatory collection centers The minimum number of collection
centers for an issue of capital shall be the four metropolitan centers
situated at Mumbai, Delhi, and Chennai, and in addition, all such
centers where stock exchanges are located in the region in which the
registered office of the company is situated. The issuer company shall
be free to appoint as many collection centers as it may deem fit in
addition to the above minimum requirements.
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9. Authorised collection agents - The issuer company can also appoint
authorized collection agents in consultation with lead merchant
banker, subject to necessary disclosures including the names and
address of such agents made in the offer document. The modalities of selection and appointment of collection agents can be made at the
discretion of the lead merchant banker. They shall ensure that the
collection agents so selected are properly equipped for the purpose,
both in terms of infrastructure and manpower requirements.
The collection agents may collect applications that are accompanied
by payment through cheques, draft and stock invests. The Authorised
collection agent shall not collect the application money in cash. The
collected application shall be deposited in the special share application
account with the designated scheduled bank either on the same date or latest
by the next working day.
The application forms, along with duly reconciled schedules, shall be
forwarded by the collection agent to the registrars to the Issue after
realisation of cheques, and after weeding out the invalid applications, within
period of 2 weeks from the date of closure of the public issue.
The application forms, along with duly reconciled schedules, shall be
forwarded by the collection agent to the registrars to the issue after
realisation of cheques, and after weeding out the invalid application, within
period of 2 weeks from the date of closure of the public issue.
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The application accompanied by stock-invests shall be sent by the
collection agent directly to the Registrars to the issue along with the
schedules, within one week from the date of closure of the issue. The offer
documents and application forms shall specifically indicates that theacknowledgement of receipt of application money, given by the collection
agents, shall be invalid and binding on the issuer company and any other
person connected with the issue.
The investors from places other than where the mandatory collection
agents are located, can forward their applications along with the stock
invests to the Registrars to the issue directly by registered post with
acknowledgement due. The Registrars shall deal with the applications
received through registered post to the issue in the normal course.
10. Advertisement for rights post issues - The lead merchant banker
shall ensure that in the case of rights issue, an advertisement giving
the date of completion of dispatch of offer letters, shall be released in
a least one English National Daily with wide circulation, one Hindi
National Paper, and a Regional language daily circulated at the placewhere registered office of the issuer company is situated, at least 7
days before the date of opening of the issue.
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The advertisement shall indicate centers other than registered office of
the company where the shareholders or other eligible persons may obtain
duplicate copies of the composite application forms in case the original
application forms are not received even within a reasonable time after theopening of the rights issue.
If the shareholder have neither received the original composite
application forms nor are they in a position to obtain the duplicate forms,
they may make application to subscribe to the rights on plain paper. The
advertisement shall also contain a format to enable the shareholders to make
the application on a plain paper containing the necessary particulars like
name, address, ratio of rights issue, issue price, number of shares held,
ledger folio numbers, number of shares entitled and applied for, additional
shares if any, amount to be paid along with the application, particular of
cheques, etc.
The advertisement shall further mention that application by the
shareholder can be directly sent through registered post, along with the
application money, to the companys designated official address as given in
the advertisement. The advertisement may also invite the attention of the
shareholder application made other than on the standard form shall not be
entitled to renounce their rights and shall not utilize the standard form for
any purpose including renunciation, even if it is received subsequently, If the
shareholder makes an application on plain paper and also in standard form,
both the applications may be rejected.
11. Appointment of compliance officer- An issuer company shall
appoint a compliance officer who shall directly with the Board
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regarding compliance with various laws, rules, regulations and other
directives issued by the Board, besides matter related to investors
complaints. The name of the compliance officer so appointed shall be
intimated to the board.
12.Abridged prospectus-
The lead merchant banker shall ensure the following:
a) Every application form distributed by the issuer company, or anyoneelse, is accompanied by a copy of the abridged prospectus.
b) The application form may be stapled to form part of the abridged
prospectus. Alternatively, it may be a perforated part of the abridged
prospectus.
c) The abridged prospectus shall not contain matters which are
extraneous to the contents of the prospectus.
d) The abridged prospectus shall be printed at least in point 7 size, with
proper spacing.
e) Enough space shall be provided in the application form to enable the
investors to fill in various details like name, address, etc.
13. Agreement with depositories - The lead manager shall ensure that the
issuer company has entered into agreements with all the depositors for dematerialization of form through any of the depositories.
14. Books of Account/Record/Documents - A banker to an issue is
required to maintain books of accounts/records for a minimum period of
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three years, in respect of applications received, the names of investors, he
time within which applications received were forwarded to the issuing
company/registrar to an issue and dates and amounts of refund money to
investors.
Post-Issue Obligation
1. Post - issue monitoring reports - Irrespective of the level of
subscription, the post-issue lead merchant banker shall ensure
the submission of the post-issue monitoring reports. These
reports shall be submitted within 3 working days from the due
dates.
Following are the reports to be submitted with regard to Public Issues:
3-day post-issue monitoring report - The due date for this report
shall be the 3 rd day from the date of closure of subscription of the issue.
78-day post-issue monitoring report - The due date for this
report shall be the 78 th day from the date of closure of subscription of the
issue.
Following are the reports to be submitted with regard to Rights Issues:
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3-day post-issue monitoring report - The due date for this shall be
the 3 rd from the date of closure of subscription of the issue.
50-day post-issue monitoring report -The due date for this report
shall be the 50 th day from the date of closure of subscription of the issue.
2. Redressal of investor grievances - The post-issue lead merchant banker
shall actively associate with post-issue activities namely, allotment,
refund, allotment, refund and dispatch and shall regularly monitor
redressal of investor grievances arising thereform.
3. Coordination with intermediaries The Post-Issue lead merchant
banker shall maintain close coordination with the Registrar to the issue,
and arrange to depute its officers to the offices of the various
intermediaries at regular intervals after the closure of the issue in order to
monitor the flow of applications from the collecting bank branches,
processing of the applications including those accompanied by stock-invest and other matters until the basis of allotment is finalized, dispatch
security certificates an refund orders completed and securities listed. Any
act of omission or commission on the part of any of the intermediaries
noticed during such visits shall be duly reported to the board.
4. Stock-invest - The lead merchant banker shall ensure compliance withthe instruction issued by RBI or handling of stock invests any person
including Registrars.
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5. Underwriters - If the issue is proposed to be closed at the earliest closing
date, the lead merchant banker shall ensure that the issue is fully
subscribed before announcing closure of the issue. In case there is no
definite information about subscription figures, the issue shall be keptopen for the required number of days to take care of the underwriters
interest and to avoid any dispute, at a later date, by the underwriters in
respect of their liability.
In case there is a development on underwriters, the lead merchant
banker shall ensure that the underwriters honor their commitments within 60
days from the date of closure of the issue. In case of under-subscribed issues,
the lead merchant banker shall furnish information in respect of underwriters
who have failed to meet their underwriting development to the board.
6. Banker to an issue - The post-issue lead merchant banker shall
ensure that the money received pursuant to the issue and kept in
a separate bank (i.e. Bankers to an issue), in accordance with
the provisions of section 73(3) of the companies Act 1956, is
released by the said bank only after the listing permissions
under the specific Section has been obtained form all the stock
Exchanges where the offer document is proposed for the
securities to be listed.
7. Post-issue advertisements The post-issue lead merchant
banker shall ensure that in all issues, the advertisement giving
details relating to oversubscription, basis of allotment, number,
value and percentage of applications received, along with stock
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invest, number, value and percentage of successful allottees
who have applied through stock-invest, date of completion of
dispatch of refund orders, date of dispatch of certificates and
date of filing listing applications, is released within 10 daysfrom the date of completion of the various activities, in at least
one English National Daily with wide circulation, one Hindi
National Paper and a Regional language daily circulated at the
place where the registered office of the issuer company is
situated.
The post-issue lead merchant banker shall ensure that the issuer
company/advisors/brokers or any other agencies connected with the issue do
not publish any advertisement starting that the issue has been
oversubscribed, or indicating the investors response to the issue, during the
period when the public issue is still open to the public. Advertisement
stating, The subscription to the issue has been closed may be issued after
the actual closure of the issue.
8. Basis of allotment - In a public issue of securities, the
Executive Director/Managing Director of the Regional Stock
Exchange, along with the lead merchant banker and the
Registrars to the Issue, shall ensure that the basis of allotment is
finalized in a fair and proper manner.
9. Reservation for small individual applicants - The above
proportionate allotments of securities in an issue that is
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oversubscribed shall be subject to reservation for small
individual application as described below:
a) A minimum of 50% of the net offer of securities to the public shall
initially be made available for allotments to individual applications
who have applied for allotment equal to, or less than, 10 marketable
lots of shares or debentures or securities offered, as the case may be.
If the category of individual applicants applying for up to 10
marketable lots were entitled to 70% of the public offer in accordance
with proportionate formula, the category should get 70%. If the
category is entitled to get only 30% then there should be reservation
of a minimum of 50% of the net public offer.
b) The balance net offer of securities to the public shall be made
available for allotment to individual applicants who have applied for
allotment of more than 10 marketable lots of shares, or debentures or the securities offered, and other investors including corporate
bodies/institutions irrespective of the number of shares, debentures,
etc applied for.
c) The unsubscribed portion of the net offer to any of the categories
specified above shall/may be made available for allotment toapplicants in the other category, if so required.
The draw of lots, where required, to finalize the basis of allotment, shall
be done in the presence of a public representative from the Governing Board
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of the Regional Stock Exchange. The basis of allotment shall be signed by
the Executive Director/Managing Director of the stock exchange and the
public nominee (where applicable), in addition to the lead merchant banker
and the Registrar to the Issue being responsible for post issue activities. Thestock exchange shall invite the public representative, on a rotation basis,
from the various public representatives on its governing board.
10. Other responsibilities-
a) The lead merchant banker shall ensure payment of interest to the
applicants for delayed dispatch of allotment letters, refund orders, etcas prescribed in the offer document.
b) The post-issue lead merchant banker shall ensure that the dispatch of
refund orders/allotment letters/ share certificates is done by way of
registered post/certificate of posting, as may be applicable.
c) In case of all issues, advertisement, details relating to over-
subscription, basis of allotment, number, value and percentage of
orders, date of dispatch of certificates and date of completion of
dispatch of certificates and date of filing of listing application shall be
made. Such advertisement shall be released within 10 days from the
date of completion of the various activities.
d) Post-issue lead merchant banker shall continue to be responsible for
post issue activities until the subscribes have received the
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shares/debentures certificates, or refund of application money. The
listing agreement is entered into by Issuer Company with the stock
exchange and listing/trading permission is obtained.
11. Certificate regarding realization of stock-invests The post-
issue lead merchant banker shall submit, within two weeks
from the date of allotment, a certificate to the Board certifying
that the stock-invests on the basis of which allotment was
finalized, have been realized.
ADVANTAGES OF LISTING
1) Listing means the admission of the securities of a public limited
company for trading on a stock exchange. The main objective of
listing are to provide liquidity and free negotiability to securities,
ensure proper supervision and control of dealings therein, and protect
the interests of shareholders and of the general investing public.
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2) Advantage top shareholders and company with regard to tax matters.
Higher status, expansion of activities and helps to grow by making
future financing easier.
3) Companies also appoint the market makers on all stock exchanges
where the securities are listed from time to time various rules and
regulations are issued are stock exchange and company have to
compiled with all this requirements. They mainly relate to the
memorandum and articles of association, prospectus, norms about
publicity, minimum public offer, and basis of allotment and execution
of listing agreement.
PROBLEMS OF MERCHANT BANKERS
1) SEBI guidelines have authorised merchant bankers to undertake issue
related activities only with an exception of portfolio management
These guidelines have made the merchant bankers either to restrict
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their activities or think of separating these activities from the present
one and float new subsidiary and enlarge the scope of its activities.
2) SEBI guidelines stipulate a minimum net worth of Rs.1 crore for authorisation of merchant bankers. Small but professional and
specialised merchant bankers who do not have a net worth of Rs.1
crore may have to close down their 'business. The entry is denied toyoung, specialised professionals into merchant banking business.
3) Non co-operation of the issuing companies in timely allotment. of
securities and refund of application money is another problem of
merchant bankers. The guidelines have put the responsibility on the
merchant bankers. They have to seek the co-operation of the issuing
company to shoulder the responsibility.
SCOPE OF MERCHANT BANKING SERVICES
In the present dynamic environment where public money is playing a
vital role in financing a large number of projects, both in the public and
private sectors, Merchant Banking has a significant role in managing the
show and meeting the growing demands for funds by the corporate sector.
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Merchant Banking includes a whole gamut of activities which meet the
needs of both corporate and individual investors. Merchant bankers act as a
guide for the entrepreneurs who are unaware, or have little knowledge or
experience, of the complexities involved in the above spheres.
In addition to the above, the scope of Merchant Banking services has
extended to providing advisory services to companies to increase or divest
their stakes, public sector undertaking disinvestments, international issues,
etc. With the OTCEI being operation now, Merchant Bankers will have a
key role to play in terms of appraising the projects and offering two-way
quotes for market making in case of entrepreneur going for listing in the
above exchange.
In the present day capital market scenario, the merchant banks play
the role of an encouraging and supporting force to the entrepreneurs,
corporate sectors and the investors. There is -vast scope for merchant
bankers to enlarge their operations both in domestic and international
market.
1. Growth of New Issues Market: The growth of new issue market is
unprecedented since 1990-91 The amount of annual average of capital issues by non-government public companies was only about 90 crores in the 70s,
the same rose to over Rs.1,000 crs in the 80s' and further to Rs.12,700 crores
in the first four years of 1990's. This figure could be well beyond Rs.40,000
crores by the end of 1994-95. The number of capital issues has also
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increased from 363 in 1990-91 to 900 in 1993-94. The trend is expected to
continue in future.
2. Entry of Foreign Investors: An outstanding development in the historyof Indian capital market was its opening up in 1992 by allowing foreign
institutional investors to invest in primary and secondary market and also
permitting Indian companies to directly tap foreign capital through euro
issues. Within two years to March 1994, the total inflow of foreign capital
through these routes reached to about $5 billion. It is estimated that this
figure may go up to $ 35-40 billion by the turn of this century. Further,
foreign direct investments as also investment by NRIs have risen
considerably due to number of incentives offered to them.
3. Changing Policy of Financial Institutions: With the changing emphasis
in the lending policies of financial institutions from security orientation to
project orientation, corporate enterprises would require the expert services of
merchant bankers for project appraisal, financial management etc. The
policy of decentralisation and encouragement of small and medium
industries will further increase the demand for technical and financial
services which can be provided by merchant bankers.
4. Development of Debt Market: The concept of debt market has set to
work through National Stock Exchange and the Over the Counter Exchangeof India. Experts feel that of the estimated capital issues of Rs.40, 000 crores
in 1994-95, a good portion may be raised through debt instruments. The
development of debt market will offer tremendous opportunity to Merchant
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Bankers.
5. Innovations in Financial Instruments: The Indian capital market has
witnessed innovations in the introduction of financial instruments such asnon-convertible debentures with detachable warrants, cumulative convertible
preference shares, zero coupon bonds, deep discount bonds, triple option
bonds, secured premium notes, floating rate bonds, auction rated debentures
etc. This has further extended the role of Merchant Bankers as market
makers for these instruments.
6. Corporate Restructuring: As a result of liberalisation and globalisation
the competition in the corporate sector is becoming intense. To survive in
the competition, companies are reviewing their strategies, structure and
functioning. This had led to corporate restructuring including mergers,
acquisitions, splits, disinvestments and financial restructuring. This offers
good opportunity to Merchant bankers to extend the area of their operations.
7. Disinvestment: The government raised Rs.2000 crores through
disinvestment of equity shares of selected public sector undertakings in
1993-94. The government proposes to shift the present method of periodic
sale of public sector shares to round the year off loading of shares directly
on the stock exchange from the year 1995-96. The government will sell the
shares of identified public sector at any time during the year when they get agood price above minimum stipulated level. This is likely to provide good
business to Merchant Bankers in future.
Ranking of Merchant Banking in India :
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Note: OE: Overall Excellence; FSS: Financial Soundness ; QPS: Quality
Product/Service; QM: Quality Management; INN: Innovativeness.
Merchant Banker OE FSS QPS QM INN
ICICI Securities 4.0 4.0 4.2 3.8 4.3
IDBI 4.2 3.2 4.5 4.0 4.8
SBI Caps 4.4. 3.9 4.6. 6.7 5.2
DPS 6.1 5.7 6.0 6.0 5.3
IFCI 6.1 5.7 6.0 6.0 6.3
Bank of Baroda 6.7 6.5 6.7 6.6 6.8
Jardine Fleming 5.8 6.2 5.9 5.0 5.5
JM Finance 6.0 6.5 5.5 5.9 5.4
ENAM 6.3 6.8 6.4 6.3 6.2
PNB Caps 6.8 6.8 6.7 6.8 6.8
CHALLENGES AHEAD
1) Merchant bankers have to tap the opportunities lying ahead with the
developing pace of the economy. These opportunities arise in the
form of challenges before the merchant bankers to test their skills,
expertise and efforts to attune their activities with the programme of
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economic development of the country, adopt new instruments and
innovative means of financing to meet the growing financial
requirements of the corporate clients.
2) Merchant bankers will have to conduct management of capital issues
in a different fashion than what is being done at present. If small
industries are to be provided the full benefit of their services of
corporate counseling, project counseling and loan syndication than
besides distributions of their securities to the public and arranging
long-term institutional or banking finance for them, it would be
necessary for merchant banks to make out-right purchase of capital
issues in and to retain the purchased equity of the company till the
implementation of the project, commencement of production and
profitable working of the company when the issue may be treated as
good for marketing to the general public, may be on premium, so as to
make capital gains on that.
3) If the planned objective of economic decentralization and rapid
development of rural economy is to be achieved merchant bankers
will have to make expert efforts in the interest of the national
economy by mobilizing the savings from the rural sector and creating
avenues for its investment in rural areas in industry, trade and
commerce in different shapes and different magnitudes
4) Merchant bankers have to find out ways and means for rehabilitating
the sick industries and also devise the manner by which the running
industry might be saved from going sick.
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5) In the international field, where the public and private enterprises are
entering to raise foreign currency resources, Indian counterparts have
to depend upon the assistance of foreign merchant bankers. Indianmerchant bankers, therefore, will have to sharpen their skills and
attain the requisite expertise in the field of international merchant
banking.
6) To tap the latest technology available internationally and procure the
transfer of the technology to India, merchant bankers should
frequently make-exploring tours to foreign countries, organize
meetings and conferences with the Chamber of Commerce and
Industry and other commercial, industrial and financial organizations
so as to enthuse the foreigners to take interest in investment activity in
India.
7) Merchant Bankers have reason to believe they will be handicapped
without the marketing support. But the worst sufferer would be the
investor, especially the small investor it is this class, which forms the
backbone of the capital market. As a result of the ban, the small
investor would be deprived of the opportunity to study the corporate
profile of the Issuer. In the absence of adequate information, they will
have to depend on manipulated facts and information fed byunreliable sources.
SOME PAST ISSUES
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NAME
OF THE
ISSUE
BOOK
RUNNING
LEAD
MANAGER
DATE
OF
ISSUE
NO. OF
BIDDIN
G
CENTER
S
ISSUE
SIZE
(LAKH
SHARES)
FLOOR
PRICE
ISSUE
PRICE
Biocon
Ltd
Kotak Mahindra
capital co.
ltd,DSP Mrrril
Lynch ltd.
11/03/04
to
18/03/04
20 100 Rs. 270
To
Rs. 315
Oil
&Natural
Gas
Corporati
on Ltd.
Kotak Mahindra
Capital Co.
Ltd.,DSP
Merrill Lynch
Ltd, JM Morgan
Stanley Pvt.
Ltd.
05/03/04
to
13/03/04
62 1425.933 Rs.680
To
Rs.750
Rs.750 &
Rs.712.50
for retail
investors
Gas
Authority
of India
Ltd.
HSBC
Securities &
Capital Markets
(India) Ltd
27/02/04
to
05/03/04
36 845.6516 Rs.185 Rs195 &
185.25 for
retail
investorsPatni
Compute
rs
Systems
Ltd.
DSP Merrill
Lynch
Ltd.,Kotak
Mahindra
Capital Ltd.
27/01/04
to
05/02/04
27 187.24 Rs.200
To
Rs.230
Rs.230
GROWTH OF CAPITAL MARKET
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SOME CORPORATE EXAMPLES:
2004-05
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Initial public offerings (IPO) OF UNION BANK OF INDIA August
2002 - Union Bank of India, one of Indias largest public sector banks in the
country which has achieved excellence in every sphere of banking and has
emerged as a strong bank, hit the capital markets in August-2002 with anIPO of 18, 00,00,000 equity shares of Rs. 10 each for cash at premium of Rs.
6 per share (at an issue price of Rs. 16 per share ). Opened to public on Aug
20, 2002 and closed on Aug 28, 2002.
For its IPO, the bank engaged a host of lead managers which included
ICICI Securities, DSP Merrill Lynch, JP Morgan Stanley Private Ltd., SBI
Capital Markets Ltd., etc. A majority of procedures was planned to be
utilized to meet the growing demand for credit, and for funding its ambitious
Information Technology programme.
The issue was oversubscribed by five times, with the bank collecting an
amount of Rs. 1,432 crores from the primary market.
Initial public offerings (IPO) OF BIOCON INDIA
BIOCON INDIA is the Indias first biotech IPO. The companys offer was
for Rs. 10 million. The price band was between Rs. 270 and Rs. 315 per
equity share of face value Rs. 5. The company received bids for more than
330 million shares.
Issue was oversubscribed by 33 times. The issue opened on March
11, 2004 and closed on March 18, 2004. The shares were subscribed within5 minutes of its opening. The lead managers were DSP Merrill Lynch, Kotak
Mahindra Capital and HSBC Securities.
SECONDARY DATA
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OBJECTIVE;
Objective of this survey was to find whether issue management helped
the investors in getting the benefits of the funds being handled by the expert
portfolio manager and his services and thereby gaining higher returns from
the funds invested.
RESEARCH DESIGN:
The method used for the survey was QUESTIONAIRE personal visit
were made to a bank, and experts to get a more practical knowledge on this
topic.
RESERCH METHODOLOGY:
This survey was aimed at finding out whether the investors are really
benefited out of the issue management service. It also includes whether the
investors and firms are really affected of these intermediaries. This question
helps in finding out what is the role and effect of merchant banking activity
in the issue management.
QUESTIONNAIRE
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A: I personally find one is that there is wide gap of about 45 days between
the date of final pricing and the date on which the issue opens, then issue is
required to be marketed to the large number of retail investors, which
involve big expense and if not marketed properly there are chances of under subscription. Also while allotting the shares to the public we face much
difficulty due to insufficient information in the application form.
4) Does become a good lead manager affects the investors attitude
towards any public issue?
A: Yes, it affects the mind and attitude of the investor, I am not saying thathaving a support of good merchant banker gives guarantee to success but at
the time of advertising of the public issue we publish the name of lead
manager, that gives the basic idea about the genuineness of the issue.
5) Does the regulatory environment in India is efficient to control
and promote the merchant bankers?
A: Yes, Consequent upon the policy of liberalization adopted by the
government in 1991, and the subsequent abolition of capital issues control
1992, the primary market got a tremendous boost. After establishment of
SEBI the market became more flexible and investors confidence have
increased in current days, also SEBI is also promoting the primary and
secondary market through various policies.
6) As being a portfolio manager where do you invest the clients
money?
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A: As our main object of portfolio is to reduce risk by diversification and
maximize gains, we mostly invest clients money in a good rated company
and we often invest their money sector wise also which is in boom in current
market condition.
7) According to you, which sector does you think is booming to
invest the clients money?
A: I think the IT sector and banking sector is the best option to invest the
clients money.
8) So, as a merchant banker, where do you see IPO market after 10
years? What would you advice our investors?
A: As I said before since 1991 our IPO market is under tremendous growth
and in coming years there are chances of coming thousands of issues. And
most of the companies will get success in the capital market if the market
remains in this condition.
LIMITATIONS OF THE PROJECT
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As far as my project is concerned, it was a great experience to meet
various people in the finance field. People from various banks, financial
institutions to whom I met, helped in giving me practical knowledge of this
topic issue management.
However, there were certain limitations. The main limitation was I
was not able to collect information about the topic from all the merchant
bankers. Some of them were senior manager, business development
manager. If the information collected from them is not 100% correct then it
may affect tabulated primary data. Also there was shortage of data available
with the bank.
These were some of major limitations I found while collecting
secondary data.
CONCLUSION
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After analyzing the primary data, It can be conclude that at present
capital market is the best option available to those people who want to take
risk and want high returns, also various services offered by the merchant
banks will gain a lot of importance in future since it helps an individual
investor, other intermediaries and FIIS, who have a large funds, by the way
of management of funds by expert portfolio managers.
Portfolio management is an important and effective tool for managing
funds. So, as the time passes and when the people will understand the benefits and importance of portfolio management, its popularly will
definitely increase.
The current scenario Indian Inc is at the top of the achievement cycle.
This is really healthy sign for Indian economy. Taking lessons from the past
events of the dotcom bust and vanishing companies, the investors should
scrutinize the IPO before investing. Investment in IPOs does not itself mean
a profit rather it may bring loss to the investors as happened during an IPO
boom between 1992-95 where the investors lost in over 80% of the 3911
issues. Number of IPOs has also delivered negative returns in the recent
past.
It seems that some companies are flooding the issues without any
genuine reason. They simply want to encash the opportunities to raise funds.
In this regard, SEBI is considering the idea of IPO grading so that the
investors do not get confused by a series of public issues hitting the market.
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In spite of all these efforts investors should think for quality IPOs. After all
it is investors money that is at stake.
The merchant banker plays a vital role in channelising the financialsurplus of the society into productive investment avenues. Hence before
selecting a merchant banker, one must decide what the services for which he
is being approached are. Selecting the right intermediary who has the
necessary skills to meet the requirements of the client will ensure success.
It can be said that this project helped me to understand every details
about Merchant Banking and in future how its going to get emerged in the
Indian economy. Hence, Merchant Banking can be considered as essential
financial body in Indian financial system.
Market development is predicated on a sound, fair and transparent
regulatory framework. To sustain the growth of the market and crystallize
the growing awareness and interest into a committed, discerning and
growing awareness and interest into a essential to remove the trading
malpractice and structural inadequacies prevailing in the market, and
provide the investors an organized, well regulated market place in future.
ANNEXURE
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Format of Due Diligence Certificate to be given by the Debenture
Trustee Before. Opening of the Issue
To
Securities and Exchange Board of IndiaDear Sirs,
Sub.: Issue of by Ltd.
We, the under noted debenture trustee(s) to the abovementioned forthcoming
issue state as follows:
(1) We have examined various documents pertaining to the security to be
created for the said issue and other such relevant documents.
(2) On the basis of such examination and of the discussions with the
company, its directors and other officers, other agencies and of independent
verification of the various relevant documents, we confirm that:
(a) The company has made adequate provisions for and/or has taken steps to
provide for adequate security for the debentures to be issued.
(b) The company has obtained all the permissions necessary for creating
security on the said property(ies).
(c) The company has made all the relevant disclosures about the security and
also its continued obligations towards the debenture holders.
(d) All disclosures made in the draft prospect us letter of offer with respect
to the security are true, fair and adequate to enable the investors to make a
well-informed decision as to the investment in the proposed issue.
(3) We have satisfied ourselves about the ability of the company to servicethe debentures.
Place:
Debenture Trustee to the Issue with the Seal
Format for Due Diligence Certificate at the
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Time of Filing of the Offer Document with the ROC
To,
The Securities and Exchange Board of India
Mumbai/Chennai /New Delhi/KoIkata
Issue Management: Pre-Issue and Post-Issue Obligations __ Dear Sires)
Sub: Public issue of shares of etc.
(Details of the issue)
This is to certify that the offer document filed with the Registrar of
Companies on was suitably updated under intimation to the SEBI and that
the said offer document contains all the material disclosures in respect of the
issuer company as on the said date. We confirm that the registrations of all
the intermediaries named in the offer document are valid as on date and that
none of these intermediaries has been debarred from functioning by any
regulatory authority. We confirm that written consent has been obtained
from shareholders for inclusion of their securities as part of promoters'
contribution, subject to lock-in. We further confirm that the securities
proposed to form part of promoters' contribution and subject to lock-in have
not been disposed off/sold/transferred by the promoters during the period
starting from the date of filing the draft prospectus with the SEBI, till date.
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BIBLIOGRAPHY
BOOKS:
Financial Management -
By M.Y.Khan
Indian Banking (Theory) -By Natrajan and S. P. Parmeshwaran
WEBSITES:
www.mangement paradise.com
www.google .com
www.rbi.org.in
www.sebi.gov.in