Professional Documents
Culture Documents
Quantitative aspect:-
Primarily various books on merchant banking were read to know
various features and principle used in working of the industry. Moreover,
various magazines were read to know about the latest happening in this
field.
Websites were visited and information regarding different aspect, to
get a better knowledge on the topic was collected. Various websites were
visited so as to study the important of merchant banking in the ever rising
competition in today’s world.
Qualitative aspect:-
MR. NAVNEET (Anand rathi) was approached and interviewed, and
implementation and scope of merchant banking was understood through his
expertise in the field. Some analysis was done for different cases so as to
understand different strategies in different situation,
MR. Kotiyal (share khan) was also approached to give an insight on
the future of merchant banking in India and the current scenario
EXECUTIVE SUMMARY
Merchant banking an overview:-
Company raises capital by issuing securities in market. Merchant bankers at as
intermediaries between the issuer of capital and the ultimate investor who purchase these
securities.
Merchant banking……. is the financial intermediation that matches the entities that
need capital and those that have capital? It is function that facilitates the flow of capital in the
market.
4. Financial structuring:-
Includes determining the debt-equity ratio and gearing ratio for
the client: the appropriate capital structure theory is also framed.
Merchant banker also explores the refinancing alternatives of the client
and evaluate cheaper source of fund. Another area of advice is
habilitation and turnaround management. In case of sick units,
merchant banker may design a revival package in coordination with
banks and financial institution. Risk management is another area
where advice from a merchant banker is sought. He advice the client
on different hedging strategies and suggest the appropriate strategy.
6. Loan syndication:-
Merchant banker arranges to tie up loans for their clients. This
take place in a series of step. Firstly they analyze the pattern of the
clients cash flows, based on which the terms of borrowing can be
defined. Then the merchant banker prepares a detailed loan
memorandum, which is circulate to various banks and financial
institution and they are invited to participate in the syndicate. The
banks then negotiate the terms of lending on the basis of witch the
final allocation is done.
Registration of merchant banker….
Registration with SEBI is mandatory to carry out the business of
merchant banking in India. An application should comply with the
following norms:
• The applicant should not carry on business other than those connected
with the securities market.
• The applicant must have at least two employees with prior experience in
merchant banking.
• The applicant should not have been involved in any securities scam or
proved guilt for any offence.
Introduction
The history of origin and growth of merchant banking
throughout the world, as discussed in the forgoing paragraphs, has
established, beyond doubts, the fact that the role of the merchant
banker had never been determined. They had followed strategy of
assuming different roles according to the need of need of time to
maintain their existence in the business environment. This is one of the
reasons that no fixed definition cold be ascribed to “MERCHANT
BANKING”.
Very commonly, the merchant banking has been defined
as to what a merchant banker does. This is well convinced definition
that could be given to any service oriented industry. The definition
given by different authors explaining the meaning of merchant banking
revolved around the role played by merchant banks. There role and
scope of such role have enlarged with the passage of time. The survey
of the existing literature in the foregoing pages reveals that merchant
banking is a non-banking financial activity resembling banking
originated, grown and sustain in European land, got enriched under
American patronage and now being rendered throughout the world by
both banking and non-banking institution. Some of the definitions are
discussed below to locate the practical meaning of the term “merchant
banking”. Dictionary meaning of merchant banking hints at merchant
banks as an organization that underwrites securities that underwrites
securities for corporations.
Dictionary meaning of merchant banking hints at merchant
banks as an organization that underwriters securities for operation
advises such clients on mergers and is involved in the ownership of
commercial venture. These organizations are sometimes banks which
are not merchants and sometimes merchants who are not banks and
sometimes houses which are neither merchants nor banks. These
definition reflects the historical formation of the merchant banking
profession as such, in which the merchants had assume banking role
and subsequently banks assume the merchant roles. Paul ferries
rightly states this phenomenon; the original label of ‘merchants and
bankers was replaced by merchant banker’s. There name lent
creditability involving the other people money.
In financial history of Western Europe, Charles P Kindle
Berger writes about merchant banking as the development of banking
from commerce frequently encountered a prolonged intermediate
stage known in England original as merchant banking. The merchant
banker was a banker was a merchant who lent his credit to others. This
was done in various ways viz. making advance to produces before
goods were sold, either the goods entrusted to merchant on
commission for sale abroad or received on consignment from abroad,
by issuing letters of credit under which merchants could draw bills of
exchange created by trade. Most merchant banks drifted from
generalized commerce into specified commerce and from specialized
commerce into finance.
Merchant Banks, thus, in essence, are financial institution
providing specialist services which generally include the acceptance of
bill of exchanges, corporate finance, portfolio management and other
banking services. It is not necessary that a merchant banker should do
all such activities to be called a merchant bankers, one merchant bank
may specialized in one activity only, and take up other activities also,
which may be complimentary or supportive to specialized activity. For
example, firms in England which are engaged in the business of
acceptance of bills are known as merchant bankers. Again, the firm
which are members of the issue House Committee in England (not
necessarily be engaged in the former activity) are also merchant
banks. Thus, merchant banks despite specialization in one activity
have different roles to play in different economic situation.
Merchant Banking is an emerging concept in the area of
financial services in India. The profession of Merchant Banking is
dedicated to fulfill the needs of trade and industries by acting as an
intermediary, consultant, liaison man and financer too. Merchant
banking is a result oriented profession commanding high degree of
skills and dexterity in solving business problems, assisting in
investments and financial decision making, assisting in laying
corporate strategies, assessing capital needs and helping in producing
the owed as well as borrowed funds for achieving balanced capital
structure of the client corporate un its. Merchant’s banker’s with the
confidence of investors and general public command high reputation
for passing on accurate, adequate and timely information which helps
and facilities in the functioning of capital markets, money markets &
international financial system. Merchant Bankers observe their skill as
personal possession for their comparative strengths in the profession.
Definition
The main trading center for world trade and during the above period
had remained in Amsterdam where the Dutch trader relied, on the finance of
trade, upon the expertise of merchant banker, then knows as “commission
agent”. The important service they rendered including handling of the costal
trade and for their masters goods on commission basis, financing the owners
or suppliers of the goods and the shipping agencies by expounding their
payment obligations by accepting credit in addition to the direct financing.
These commission agents did big business by making small investment in
the goods manufactured by the sellers and thus accumulated huge wealth.
This gives a fillip to merchant banking activities and involves them in acts of
lending in addition to doing the jobs on commission basis. The main
borrowers of their funds were crowns, emperors and state government, as
started earlier, to whom these merchant banker continued lending for
reasons of patronage, recognition and higher expectation, despite the
suffering, at their hands and by their fellow trader. During the 17 th centuries
also, the
Dutch trader and banker lent heavily to finance continental wars,
William of England borrowed huge sums in Amsterdam to fight the
continental wars. Many European states
Including Germany, Russia and Sweden had borrowed in Amsterdam
such huge sums during beginning of the 18th century. During Napoleonic war,
margrave of hassle, the richest merchant of Europe, had financed the
germane prince: jaws of Kassel and Frankfurt made loans to the rulers in the
name of, banker. This risky investment was made with the sole objective of
profit maximization by the merchant banker.
The industrial revolution in England gave further boost to the
merchant banking activity with the growth of the home industry made goods
like linen and paper. The scope of international trade and expanded to the
colonies of the new world. That is the North America and other continents.
Many more persons and firms were attracted to take up the merchant
banking activities particularly to transship the machine made goods from
European nations to other nations, developing colonies of the European
nation in other continents and bringing raw material from other nations and
colonies to Europe, and to finance such trade.
The founders of the several of the present day merchant banks who
started the business having the 18th century and early 19th century were the
merchants who traded overseas and earned reputation with their name.
These prominent merchants were requested to lend their name to the lesser
known traders by accepting a bills they guaranteed that the holder of bill will
receive the full value on the date of payment. This acceptance business has
grown with the expansion of the trade through the European nations and
continuous today the banks most activity engaged in it are the number of the
acceptance house committee of London.
The merchant banker traded for centuries and retained their names
and activities in different nations by expanding their activities. For example,
in Amsterdam, john & co. were bankers in 18th century and at the same time
engaged in trading of all commodities they could sell at a profit. In Frankfurt,
Meyer mashes Rothschild traded coffee, sugar, tobacco, along with the
British manufactures.
Growth of merchant banking in India
Merchant baking activities in India originated in 1969 with the
merchant banking division set up by the grind lay bank, the largest foreign
bank in the country, at the time. The main service offer to the corporate
enterprises by the merchant bank includes management public issue and
financial consultancy. Other forcing bank like city bank, chartered bank also
assumed the merchant banking activity in India. State bank of India started
merchant banking in 1973 followed by the ICICI in1974; both emerged as
leader in merchant banking with significance business during the period of
1974-1985 in comparison to forcing banks. Mid seventies witnessed a growth
of merchant banking organization in the country with various commercial
banks, financial institutions, broker firms entering in to the field of merchant
banking.
The growth in merchant banking business during the early
seventies was to forcing exchange regulation act 1973 [ FERA] where in large
number of forcing companies operating in India were required to dilute their
foreign holdings In order to continue business in the country his result in
expansion in the capital markets providing enough opportunities to merchant
bankers to established themselves. The change in Indian economy opened
new doors for merchant banking business enter in diversified area of
activities, but at the same time this brought competition in merchant
banking sector. This sector has traditionally been dominated by financial
institution, banks and their subsidiaries. Now, various private sectors
merchant bankers have emerged and some of them having international
reputation. Till the end of 1990, the merchant banking sector was almost
monopoly public sector institution and commercial banks, however since
1991 considerable number of private merchant banker have emerged on
same. Various existing corporate entities and non-banking finance
companies have also focused their activities in merchant banking business.
Before 1990 there were less than 40 merchant banking concerns while in 199
this number has exceeded to more than 400 firms.
Failing to pay
registration
fees
Cancellation
of certificate
The capital requirement depends upon the category. The minimum net
worth requirement for acting as merchant banker is given below:
The categories for which registration may be granted are given below
Code of conduct:-
Every merchant banker has to abide by the code of conduct as
specified below. A merchant banker in the conduct of his business has to
observe standards of integrity and fairness of all his dealings with the clients
and other merchant bankers. He ought to render at all times high standards
of service, exercise due diligence, ensure proper care and exercise
independent professional judgment. He has to, wherever necessary, disclose
to his clients, the possible sources of conflict of duties and interest, while
providing services. He cannot made any statement or become privy to any
act, practice unfair competition, which is likely to be harmful to interest of
other merchant bankers or is likely to place such other merchant banker in a
disadvantageous position in relation to him, while competing for, or
executing, any assignment. He should not make any exaggerated statement,
whether oral or written, to the client either about his qualification or his
capability to other clients. A merchant banker always to endeavors to:
1) Render the best possible advice to the clients regarding clients the
needs and requirements, and his own professional skill; and
2) Ensure that all professional dealing are affected in prompt, efficient
and cost effective manner
He should not:-
1) Divulge to other clients, press or any other party any other party
confidential information about his client, which has come to his
knowledge; and
3) Adequate steps are taken for the fair allotment of securities and
refund of application money without delay; and
A merchant banker should not generally and particularly
in respect of the issue of any securities be part to
a) Creation of false market;
b) Price rigging or manipulations; and
c) Passing of price sensitive information to brokers, members of
stock exchanges and other players in the capital market or take any
other action which is unethical or unfair to the investors.
Finally, he has to avoid by the provisions of the SEBI Act,
its rules and regulations which may be applicable and relevant to the
activities carried on by the merchant banker.
Restriction on Business:-
Submission of Documents:-
Disclosures to SEBI:-
Suspension of Registration:-
General defaults for the purpose of penalty points, the following activities
are classified under general defaults and attract one penalty point.
1) Non-receipt of draft prospectus/letter of offer from the lead manager by
SEBI, before filing with the registrar of companies/stock exchange
2) Non-receipt of interse allocation of responsibilities of lead managers in an
issue by SEBI prior to the opening of issue.
3) Non-receipt of due diligence certificate in the prescribed manner by SEBI,
before opening of the issue.
4) Failure to ensue the submission of certificate of minimum 90%
subscription to the issue.
5) Failure to ensure expediting of dispatch of refund orders,
shares/debentures certificate, filing of listing application by the issuer.
Minor Defaults:-
The following activities are categorized under minor defaults and attract two
penalty points.
a. Advertisement, circular, brochure, press release and other issue related
materials not being in conformity with the contents of prospectus.
b. Exaggerated information or information extraneous to the prospectus is
given by issuer or associated merchant baker in any press conference,
investor’s conference, broker’s conference or other such conference/meet
prior to the issue for marketing of the issue for marketing of the issue
arranged/participated by the merchant banker.
c. Failure to substantiate matters contained in highlights to the prospectus.
d. Violation of regulations relating to advertisement on capital issues.
e. Failure to exercise due diligence in verifying the contents of prospectus
letter of offer.
f. Failure to provide adequate and fair disclosure to investors and objective
information about risk factors in the prospectus and other issue literature.
g. Delay in refund/allurement of securities.
h. Non-handling of investors grievances promptly
Major Defaults:-
The following activities are categorized under major defaults and
attract three penalty points.
a) Mandatory underwriting not takes up by the managers
b) Excess number of lead managers than permissible.
c) Association of unauthorized merchant banker in an issue.
Serious Defaults:-
Defaults in Prospectus:-
a) Institutional Base:-
Where merchant banks function as an independent wing or as
subsidiary of various Private/ Central Governments/State Governments
Financial institutions. Most of the financial institutions in India are in public
sector and therefore such set up plays a role on the lines of governmental
priorities and policies.
b) Banker Base:-
These merchant bankers function as division/ subsidiary of banking
organization. The parent banks are either nationalized commercial banks
or the foreign banks operating in India. These organizations have brought
professionalism in merchant banking sector and they help their parent
organization to make a presence in capital market.
c) Broker Base:-
In the recent past there has been an inflow of Qualified and
professionally skilled brokers in various Stock Exchanges of India. These
brokers undertake merchant baking related operating also like providing
investment and portfolio management services.
d) Private Base:-
These merchant banking firms are originated in private sectors.
These organizations are the outcome of opportunities and scope in
merchant banking business and they are providing skill oriented
specialized services to their clients. Some foreign merchant bankers
are also entering either independently or through some collaboration
with their Indian counterparts. Private Sectors merchant banking firms
have come up either as sole proprietorship, partnership, private limited
or public limited companies. Many of these firms were in existence for
quite some time before they added a new activity in the form of
merchant banking services by opening new division on the lines of
commercial banks and All India Financial Institution (AIFI).
Scope of merchant banking services in India
Merchant banking is a service oriented industry. The services rendered
by merchant banks to the corporate client in India are more or less the same
which are, being rendered traditionally in U.K and other European countries
by the merchant banks in U.S.A by the investment bankers to carter to the
needs of the business enterprises. India’s economy is in the state of
transition facing an entirely different environment than that faced by the
developed nations of the world. In view of these circumstances, a mark of
distinction is apt to be noted in the nature and the type of services being
offered by the merchant banks in India.
1. Corporate Counseling
2. Project Counseling
3. Loan Syndication
4. Management Of Capital Issues
5. Dealing In Secondary Market
6. Mutual Funds
7. Portfolio Management
8. Underwriters
9. Mergers / Amalgamations
Corporate Counseling:-
Corporate counseling denotes the advice provided by the Merchant
Banking to the corporate unit to ensure better corporate performance in
terms of image building among investors, steady growth through good
working and appreciation in market value of its equity shares. The scope
of corporate counseling, capital restructuring and, portfolio management
and the full range of financial engineering includes venture capital, public
issue management, and loan syndication, working capital, fixed deposit,
lease financing, acceptance credit, etc. However counseling is limited to
only opinions and suggestions and any detailed analysis would form part
of a specific service.
The scope of corporate counseling is restricted to the explanations
of concepts, procedures and laws to be observed by the client company.
Requirement of any action to be taken or compliance of statutory
formalities to be made for implementation of those suggestions would
mean the demand for a specific type of service other than corporate
counseling being offered by the merchant bankers. An academic analysis
of corporate counseling present a different picture than that transpires
from the literature of the merchant bankers Firstly corporate counseling is
the beginning of the merchant banking service which every clients
whether new or existing has got to avail a different matter whether a
merchant bank charges its client separately for rendering the corporate
counseling service or includes the element of fee in the other heads of
services but fro the angle of priority. Corporate counseling is first in line of
the services which a merchant banker offers and than other services.
Secondly the scope of the corporate counseling is very vast. Its
coverage ranges from the managerial economies, investments and
financial management to Corporate Laws and the related legal aspects of
the organizational goals, locations factors, organizational size and
operational scale, choice of product and market survey, forecasting of
product, cost reduction and cost analysis, allocation of resources,
investment decisions, capital management and expenditure control,
pricing methods and marketing strategy, etc. As financial and liivestment
experts, a merchant banker has to guide the corporate clients in areas
covering financial reporting, project measurements, working capital
management, financial requirements and the sources of finance,
evaluating financial alternatives, rate of returns and cost of capital
besides basic corporate changes of financial rearrangement,
Reorganization, mergers and acquisitions, etc. are the areas to be
covered.
LOAN SYNDICATION:-
Credit syndication also known as credit procurement and project
finance services. The main task involved in credit syndication is to raise to
rupee and foreign currency loans with the banks and financial institutions
both in India and abroad. It also arranges the bridge finance and the
resources for cost escalations or cost Overruns.
Broadly, the credit syndications include the following acts;
(a) Estimating the total costs
(b) Drawing a financing plan for the total project cost-conforming to the
requirements of the promoters and their collaborators. Financial institutions
and banks, government agencies and underwriters.
(c) Preparing loan application for financial assistance from term
lenders/financial institutions/banks and monitoring their progress including
the pre-sanction negotiations.
(d) Selecting the institutions and banks for participation in financing.
(e) Follow-up of the term loan application with the financial institutions and
banks and obtaining the satisfaction for their respective share of
participation.
(f) Arranging bridge finance.
(g) Assisting in completion of formalities for drawl of term finance sanctioned
by institution expediting legal documentation formalities drawing up inter-
se agreements etc. prescribed by the participating financial institutions and
banks.
(h) Assessing the working capital requirements.
Preparing the necessary application for a successful issue management the
close liaison and coordination with the various constituents of the public
issue is an essential condition that warrants full cooperation of all the parties
affecting the cost and prospects f the issue. Merchant banks, acting as
‘Manager’ to the issue has to settle the fee for Advocate/solicitors’ advice,
accountants certification, broker’s and banks charges, underwriters’
commission, printers’ charges and advertising and publicity expenses and
coordinates with syndicated merchant bankers and principal brokers, stock
exchanges, etc. The responsibility for all this rests upon the merchant
banker. If proper coordination is not done, the success of the issue may be
rendered unassured.
The capital issue are managed are category-1 merchant banker and
constitutes the most important aspects of their services. The public issue
of corporate securities involves marketing of capital issues of new and
existing companies, additional issues of existing companies including
rights issue and dilution of shares by letter of offer,. The public issues are
managed by the involvement of various agencies i.e. underwriters,
brokers, bankers, advertising agency, printers, auditors, legal advisers,
registrar to the issue and merchant bankers providing specialized services
to make the issue of the success. However merchant banker is the agency
at the apex level than that plan, coordinate and control the entire issue
activity and direct different agencies to contribute to the successful
marketing of securities. The procedure of the managing a public issue by
a merchant banker is divided into two phases, viz;
(A) Pre-issue management
(B) Post-issue management
(4) Advise the company to appoint auditors, legal advisers and broad
base Board of Directors
(5) Drafting of prospectus
(6) Obtaining approvals of draft prospectus from the company’s legal
advisers, underwriting financial institutions/Banks
(7) Obtaining consent from parties and agencies acting for the issue to
be enclosed with the prospectus.
(8) Approval of prospectus from Securities and Exchange Board of
India.
(9) Filing of the prospectus with Registrar of Companies.
(10) Making an application for enlistment with Stock Exchange along,
with copy of the prospectus.
(11) Publicity of the issue with advertisement and conferences.
(12) Open subscription list.
The Merchant Bankers for managing public issue can negotiate a fee
subject to a ceiling. This fee is to be shared by all lead managers,
advisers etc.
0.5% of the amount of public issues up to Rs.25 crores 0.2% of the
amount exceeding Rs.25crores, if more than one Merchant bankers are
managing the issue.
MUTUAL FUNDS
A Mutual Fund is a special type of investment institution which
collects or pools the savings of the community and invests large funds in
variety of Blue-chip Companies which are selected from a wide range of
industries with the objects of maximizing returns/incomes on
investments. E.g. Unit Trust of India (UTI), Sri Ram Mutual Fund, Morgan
Stanley Growth Fund (foreign mutual fund), etc. Mutual Funds are
basically a trust which mobilize savings from the people and invest them
in a mix of corporate and government securities. Money collected by the
investors is invested in various issues of primary and secondary markets
in order to gain profits on such investments
It is a Trust, which combines the investments of various investors
having similar financial goals. The Trust issues units to the investors in
the proportion of their investments. A fund manager then invests these
funds in different types of assets, which provide returns in the form of
dividends, interests, and capital appreciation. This is distributed to the
various investors in the proportion of their contribution to the pool funds.
Ordinary investors, who want to invest their savings, neither
understand the complexities of financial markets nor have the time to
watch, research, and analyse different equities, securities or any other
investments opportunities that are available in the market.
At present, all the markets viz. the debt market, the equity market,
the money market, real estates, derivatives, and the market dealing with
the other assets have now reached a stage where a minimal information
affect the markets. Besides this, the economy has opened up and global
events influence their performance.
It is very difficult for a lay person to keep track of various
investments, transactions, brokerages etc.
In the present scenario mutual funds are some of the most efficient
financial instruments as it offers above services like managing
investments at a very low cost.
What is NAV?
NAV of the Fund is the market value of all the assets of the Fund
subtracting the Liabilities. NAV reflects the Fund that will be available to
the shareholders if the Fund is liquidated and all the liabilities are paid. In
the mutual fund industry NAV refers to Net Asset Value per unit holder,
which NAV of the Fund divided by the outstanding number of the units. It
shows the performance of the Fund.
3) Diversification :-
A common investor has limited money, which he can invest only
in a few securities and faces a great risk. If their values go down, the
investor loses all his money. Since Mutual Funds have huge amounts of
funds to invest, the Fund manager invests in the securities of many
industries and sectors; ( called diversifying the risk ). This
diversification reduces the risk involved because all the sectors and
industries will never go down at the same time. Investors get this
diversification by investing a small amount in Mutual Funds.
4) Convenient record keeping and administration: -
Mutual funds take care of all record keeping including
paperwork. It also deals with the problem of bad deliveries, broker’s
commission etc.
6) Flexibility:
mutual funds offers various schemes, giving the investor the
option to shift from one scheme to another at various times depending
on his needs, the risk he is willing to take, and the type of return the
wants.
Code of Conduct:-
A portfolio manger has to, in the conduct of business; observe high
standards of integrity and fairness in all his dealing with his clients and other
portfolio managers. The money received by him from a client for an
investment purpose should be deployed as soon as possible and money due
and payable to a client should be paid forthwith.
v. Amount to be invested;
General Responsibilities;-
The discretionary portfolio manager should individually and
independently manage the funds of each client in accordance with the
need of the client in a manner, which does not partake the character of a
mutual fund, whereas the non-discretionary portfolio manager should
manage the funds in accordance with the direction of client. He should act
in a fiduciary capacity with regard to the client funds and transact in
securities in within the limitation placed by the client himself with regard
to dealing to securities under the provisions of the reserve bank of India
act, 1934. He should not derive any direct or indirect benefit out of the
client funds or securities. he cannot pledge or give on loan securities held
on behalf of client to a third person, without obtaining a written
permission from his client. He should ensure proper timely handling of
complaints from his client and take appropriate action immediately.
Disclosure to SEBI :
A portfolio manager must disclose to SEBI a and when required the
following information.
• Particulars regarding the management of a portfolio.
• Any information or particulars previously furnished, which have a
bearing on the certificate granted to him.
• The name of the clients whose portfolio he has managed and
• Particulars relating to the capital adequacy requirement
Underwriters
Another important intermediary in the new issue/primary market is
the underwriters to the issues of capital who agree to take u securities
which are not fully, subscribed. They make a commitment to get the issue
subscribed either by other or by them. Through underwriting is not
mandatory after April 1995, its organization is an important element of
the primary market. Are appointed by the issuing companies in
consultation with the lead manager/ merchant banker to the issues. A
statement to the effect that in the opinion of the lead manager, the
underwriters asset are adequate to meet their obligation should be
incorporated in the prospectus certificate.
Registration
To act as underwriter, a certificate of registration must be obtained
from the SEBI in granting the registration, the SEBI considers all matters
relevant relating to the underwriting and in particular,
a. The necessary infrastructural like adequate office space, equipment and
manpower to effectively discharged the activity:
b. Past experience in underwriting/ employment of at least two persons with
experience in underwriting:
c. Any person directly/ indirectly connect with the applicant is not registered
with the SEBI as underwriter or previous application of any such person
has been rejected or any disciplinary action has been taken against such
person under the SEBI act/rules/regulation.
d. Capital adequacy requirement of not less than the net worth ( CAPITAL +
free reserve) of Rs. 20 lakh: and
e. The applicant/ director/ principle officer/ partner has been convicted of
offence involving moral turpitude or found guilty of any economic offence.
Fee underwriters, had to, for grant or renewal of registration, pay a fee to
the SEBI from the date of initial grant of certificate, Rs 2 lakh for the first
and second year and Rs 1 lakh for the third year. A fee of Rs 20,000 was
payable every year to keep the certificate in force or for its renewal. Since
1999 the registration fee has been raised to Rs 5 lakh. To keep the
registration in force, renewal fee of Rs 1 lakh. Every three years from the
forth year the date of initial registration is payable. Failure to pay the fee
would result in the suspension of the certificate of registration.
General obligations and responsibilities:
1) Code of conduct :
MERGERS /AMALGAMATION:
The terms merger and amalgamation are used interchangeably as a
form of business organization to seek external growth of business. A merger
is a combination of two or more firms in which only one firm would survive
and the other would cease to exist, its asset/ liabilities being taken over by
surviving firm. And amalgamation is an arrangement in which the
asset/liability of to or more firm to form a new entity or absorption of
one/more firm with another. The out come of this arrangement is that the
amalgamating firm is dissolved/wound-up and losses it identity and its
shareholders become shareholders of the amalgeted firm. Although the
merger/amalgamation of firm in India is governed by he provision of the
companies act, 1956, it does not defined this term. The income tax act ,
1961, stipulates to pre-requisite for amalgamation through which the
amalgeted company seeks to avail the benefit of set of / carry forward of
losses and unabsorbed depreciation of the amalgamating company against
its future profits u/s 72A ,namely,
1. All the property and liabilities of the amalgamated company / companies
immediately before amalgamation should vest with/ become the liabilities
of the amalgamated company and
2. The shareholders other than amalgamated company/its subsidiary holding
at list 90% value of shares/ voting power in the amalgamating company
should become shareholders of the amalgamated company by virtue of
amalgamation. The scheme of merger, income tax implications of
amalgamation and financial evaluation are discussed in the section.
Following the economic reforms in India in the post-1991 period, there
is a discernible trend among promoters and established corporate group
towards consolidation of market share and diversification into new areas
through acquisition/takeover of companies but in a more pronounced
manner through mergers/amalgamation. Although the economic
consideration in terms of motive and effect of these are similar, the legal
procedure involved are difficult. The merger and amalgamation of corporate
constitute a subject matter of the companies act, the courts and law and
there are well-laid down procedure for valuation of share and right of
investor. The acquisition/takeover bids fall under the purview of SEBI. The
terms merger and amalgamation on the one hand and acquisition and
takeover on the other are treated here synonymously. Section one of the
chapter covers the framework of merger/amalgamation including financial
evaluation. The regulatory framework governing acquisition/takeover is
described in section two.
Scheme of merger/amalgamation:
Whenever two or more companies agree to merge with each other,
they have to prepare a scheme of amalgamation. The acquiring company
should prepare the scheme in consultation with its merchant banker/
financial consultant. The main contents of a model scheme, are listed below
• Description of the transfer and the transfer company and the business
of transferor.
• Their authorized, issue and subscribed/ paid-up capital
• Basis of scheme; the main terms, of the scheme in self’-contained
paragraph on the recommendation of valuation report, covering
transfer of asset/liabilities, transfer date, reduction or consolidation of
capital, application to financial institution as lead institution for
permission and so on.
• Change of name, object clause and accounting year .
• Protection of employment
• Dividend position and prospectus
• Management: board of director banking their number and participation
and transfer company’s director on the board
• Application under section 391and 394 of the companies act, 1956, to
obtain high course approval
• Expenses of amalgamation
• Condition of the scheme to become effective and operative, effective
date of amalgamation
The basis of merger/ amalgamation in the scheme should be the
report of the value’s of asset of both the merger partner companies.
The scheme should be prepared on the basis of the values report;
reports of the charter accountant engaged for financial analysis and
fixation of exchange ratio, report of auditors and audited account of
both the companies prepared up to the appointed date. It should be
ensured that the scheme is just and equitable to the shareholders,
employees of each of the amalgamating company and to the public.
1) Leadership:-
In order to interact with their clients and communicate
effectively merchant bankers should possess all relevant skills and update
knowledge.
2) Aggressive action:-
Merchant bankers always looking for new business
opportunities. On locating a business opportunity and after obtaining
the assignment from the clients, a merchant banker has to be prompt
in grasping the client’s problems and to provide a better choice
amongst alternative solutions. A good merchant banker is one who
does not allow his clients to think anything outside except what has
been advised and thus holding the clients interest for the present as
well as for the future.
4) Contacts:-
A merchant banking business mainly depends upon the
sociable nature and wider contacts. The scope of contact of a merchant
banker covers:
(a) His own organization
(b) Central and State Government Offices (c) Banks,
(c) Financial Institutions,
(d) Promoters/Directors/Owners/Chief Executives of the public and
private
enterprises,
(e) Printers,
(f) Advertising Agencies,
(g) Brokers and Stock Exchange Dealers,
(h) Advocates and Solicitors
(i) Members of the press, etc.
Merchant bankers have to widen the contacts and continue to maintain
them by meeting people in personal, in special gatherings and through
writing to them.
Principal financing
Stages in development
Unit Organizational setup source
of merchant banking
ENVIRONMENTAL FACTORS
-Open for change-
Merchant Banking Services
Conclusion
The merchant banking business has increased
over a short period of time and with continued economic
reforms. However, a stiff competition exists in this line and
survival will depend upon the financial skills and spectrum of
financial services and instruments offered by the Merchant
Banker. Hence, Merchant Banking Service is taking shape for
turbulent times.
Merchant banking is an activity initially
undertaken by a few large commercial banks in India, and it is
now being adopted or undertaken by a few large commercial
banks in India, and it is now being adopted or undertaken by
practically every commercial bank through its Merchant
Banking Department. The range of activities covered under
merchant banking very wide indeed. The merchant banks offer
a package of financial services. Unlike in the past, their
activities are now primarily non-fund based. Therefore, they do
not require much capital. One of the basic requirements of
merchant banking is a highly professional staff and worldwide
contacts. Merchant banking is usually international in
character.
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Mandar