Prof.

Nijumon K John, Christ University, Bangalore

2/11/2014

 In

banking, a merchant bank is a financial institution primarily engaged in offering financial services and advice to corporations and wealthy individuals on how to use their money.

Prof. Nijumon K John, Christ University, Bangalore

2/11/2014

 Merchant

bank is a traditional term for an Investment Bank.

Prof. Nijumon K John, Christ University, Bangalore

2/11/2014

 Merchant

banks, now so called, are in fact the original "banks". were invented in the Middle Ages by Italian grain merchants

These

Prof. Nijumon K John, Christ University, Bangalore

2/11/2014

 Originated

by setting up of merchant banking division of Grindlays Bank in 1969 followed by other foreign banks SBI in 1973 ICICI Ltd in 1974

Prof. Nijumon K John, Christ University, Bangalore

2/11/2014

Management Services to act as Book Running Lead Manager/Lead Manager for the IPOs/FPOs/Right issues/Debt issues Project appraisal Corporate Advisory Services Underwriting of equity issues Banker to the Issue/Paying Banker Refund Banker Monitoring Agency
Issue
Prof. Nijumon K John, Christ University, Bangalore 2/11/2014

Mergers

and Acquisitions Buy Back Assignments Share Valuations Syndication Debenture Trustee Marketing of the issue through a strong network of QIBs/HNIs/Corporates and Retail investor
Prof. Nijumon K John, Christ University, Bangalore 2/11/2014

* ABN Amro * Commerzbank (Dresdner Kleinwort) * Banco Santander (Santander Global Banking & Markets) * Bank of America (Banc of America Securities) * BNP Paribas * Bank of Montreal (BMO Capital Markets) * Barclays (Barclays Capital) * BBH (Brown Brothers Harriman) * Calyon * CIBC (CIBC World Markets) * Citigroup * Credit Suisse * Daiwa Securities * Deutsche Bank * Eurohypo * Fortis Bank * Goldman Sachs

Prof. Nijumon K John, Christ University, Bangalore 2/11/2014

* HSBC (HSBC Global Banking and Markets) * ING Group * JPMorgan Chase (JPMorgan Securities, Inc.) * Kaupthing Bank * KBC Bank (KBC Financial Products) * KeyCorp (KeyBanc Capital Markets) * Kotak Mahindra Bank (Kotak Mahindra Investment Banking) * Landsbanki * Lehman Brothers[1] * Lloyds TSB Group Plc (Wholesale and International Banking) * Macquarie Bank * Mizuho Financial Group (Mizuho Corporate Bank) * Monte dei Paschi di Siena (MPS Finance) * Morgan Stanley * National Australia Bank (nabCapital)

Prof. Nijumon K John, Christ University, Bangalore

2/11/2014

* Natixis * Nomura Securities Co., Ltd. (Nomura Securities Co.) * Rabobank * Royal Bank of Scotland Group (RBS Global Banking & Markets) * Royal Bank of Canada (RBC Capital Markets) * Scotiabank (Scotia Capital) * Socit Gnrale (SG CIB) * Standard Chartered Bank * State Street Global Advisors * Toronto-Dominion Bank (TD Securities) * UBS AG * Unicredit (Unicredit Group) * USAA * Wachovia (Wachovia Securities) * Wells Fargo (Wells Fargo Securities)

Prof. Nijumon K John, Christ University, Bangalore

2/11/2014

 Project

counseling - Includes preparation of project reports, deciding upon the financing pattern, appraising the project relating to its technical, commercial and financial viability. Also includes forwarding of application for obtaining funds from financial institutions.
Prof. Nijumon K John, Christ University, Bangalore 2/11/2014

 Loan

syndication - Assistance is rendered to raise loans for projects after determining promoters contribution. This will be obtained from a single institution or a consortium.

Prof. Nijumon K John, Christ University, Bangalore

2/11/2014

 The

issue of securities is the core of merchant banking function. a time Merchant bankers were identified as issue houses.

At

Prof. Nijumon K John, Christ University, Bangalore

2/11/2014

The issue function may be broadly divided into

Pre-issue management and Post-issue management.

Prof. Nijumon K John, Christ University, Bangalore

2/11/2014

 Prepare

copies of prospectus and send it to SEBI and then file them to RoC. Conduct meetings with company representatives and advertising agencies to decide upon the date of opening issue, closing issue, launching publicity campaign etc. Help the companies in fixing up the prices for their issues.
Prof. Nijumon K John, Christ University, Bangalore 2/11/2014

 Collection

of application forms, screening of forms, deciding allotment procedures, mailing of allotment letters, share certificates and refund orders etc.

Prof. Nijumon K John, Christ University, Bangalore

2/11/2014

 It

is an insurance to the company which makes the public issue.

Prof. Nijumon K John, Christ University, Bangalore

2/11/2014

 SEBI

insists that all issues should be managed by atleast one authorised merchant banker but not more than two. Managers to the issue appointed by the company to manage the public issue

Prof. Nijumon K John, Christ University, Bangalore

2/11/2014

Duties Drafting the prospectus Preparing the budget of expenses related to the issue Suggesting the appropriate timings of the issue Assisting in marketing the public issue Advising the company in the appointment of underwriters, bankers to the issue, advertising agents etc. Directing the various agencies involved in the issue
Prof. Nijumon K John, Christ University, Bangalore 2/11/2014

 Portfolio

refers to investment in different kinds of securities. Portfolio management refers to maintaining proper combination of securities in a manner that they give maximum return. Merchant bankers help their investors in choosing the securities. They conduct market surveys.

Prof. Nijumon K John, Christ University, Bangalore

2/11/2014

 Merchant

bankers help NRIs in choosing the securities and offer expert advice fulfilling the government regulations

Prof. Nijumon K John, Christ University, Bangalore

2/11/2014

 Determining

the right debt-equity ratio and gearing ratio for the client. Refinancing alternatives of the client, and evaluating cheaper sources of funds Rehabilitation and turnaround management

Prof. Nijumon K John, Christ University, Bangalore

2/11/2014

 Assist

in conceptualising the project idea in the initial stage Conduct feasibility studies to examine the viability of the proposed project. Assist the client in preparing different documents like the detailed project report.

Prof. Nijumon K John, Christ University, Bangalore

2/11/2014

 Merchant

bankers help companies in obtaining venture capital financing for financing their new and innovative strategies

Prof. Nijumon K John, Christ University, Bangalore

2/11/2014

 Merger

is a combination of two or more companies into a single company where one survives and other loses its identity. Take over is the purchase by one company acquiring controlling power in share capital of another company. Merchant banker acts as middlemen between offeror and offeree, negotiates mode of payment and gets approval from government.
Prof. Nijumon K John, Christ University, Bangalore 2/11/2014

 Merchant -

bankers help their clients in Long term foreign currency loan Joint venture abroad Financing exports and imports Foreign collaboration arrangement

Prof. Nijumon K John, Christ University, Bangalore

2/11/2014

 Certificate -

from SEBI is a must. They are of four types Category 1 merchant bankers: can act as issue managers Category 2: can act only as co-managers Category 3: can act as co-managers but cannot undertake portfolio management Category 4: can merely act as consultant or advisor to issue of capital
Prof. Nijumon K John, Christ University, Bangalore 2/11/2014

 Category

1: Rs.5 Cr Category 2: Rs.50 lacs Category 3: Rs.20 lacs Category 4: Nil

Prof. Nijumon K John, Christ University, Bangalore

2/11/2014

REGISTRATION OF MERCHANT BANKERS Application for grant of certificate An application by a person for grant of a certificate shall be made to the Board in Form A. The application under sub- regulation (1) shall be made for any one of the following categories of the merchant banker namely:Category I, that is - To carry on any activity of the issue management, which will consist of

preparation of prospectus and other information relating to the issue, determining financial structure, tie-up of financiers and final allotment and refund of the subscription;

and to act as adviser, consultant, manager, underwriter, portfolio manager. Category II, that is -- to act as adviser, consultant, co-manager, underwriter, portfolio manager; Category III, that is to act as underwriter, adviser, consultant to an issue; Category IV, that is. to act only as adviser or consultant to an issue.

Prof. Nijumon K John, Christ University, Bangalore

2/11/2014

 The

applicant should be a body corporate The applicant should not carry on any business other than those connected with the securities market The applicant should have necessary infrastructure like office space, equipment, manpower etc. The applicant must have at least two employees with prior experience in merchant banking
Prof. Nijumon K John, Christ University, Bangalore 2/11/2014

 Any

associate company, group company, subsidiary or interconnected company of the applicant should not have been a registered merchant banker The applicant should not have been involved in any securities scam or proved guilt for any offence

Prof. Nijumon K John, Christ University, Bangalore

2/11/2014

Commercial banks basically deal in debt and debt related finance. On the other hand, the area of activity of merchant bankers is equity and equity related finance. Commercial banks are asset oriented and generally avoid risks. The merchant bankers are management oriented and they are willing to accept risks of business. Commercial banks are merely financiers. Merchant banking activities have impact on growth, stability and liquidity of capital market and money markets.

Prof. Nijumon K John, Christ University, Bangalore 2/11/2014

Can charge 0.5% as the maximum as commission for whole of the issue Can charge project appraisal fees As a lead manager they can claim a commission of 0.5% upto Rs.25 Cr and 0.2% in excess of Rs.25 Cr Underwriting commission - Equity shares 2.5% - Preference shares/debentures (a) upto 5 lacs 2.5 % and 1.5% (b) excess of 5 lacs2% and 1% Brokerage commission 1.5% Other expenses like advertising, printing, stamp duty etc. in connection with the issue can be reimbursed from its clients

Prof. Nijumon K John, Christ University, Bangalore

2/11/2014

Appointment of market maker Any member of the stock exchange, along with one merchant banker registered with SEBI can act as a market maker. Company where the paid up capital is Rs.3 Cr but not more than Rs.5 Cr and having commercial operation for less than two years should appoint a market maker. The market maker provide two way quotes for a minimum period of 18 months from the first trading day.
Prof. Nijumon K John, Christ University, Bangalore 2/11/2014

 SBI

& ICICI Ltd started merchant banking activities in early 1970s. Commercial banks set up their subsidiaries to perform merchant banking operations in 1980s In addition, a number of large broking firms and financial consultants also entered into merchant banking By the end of 1980s there were 33 merchant bankers
Prof. Nijumon K John, Christ University, Bangalore 2/11/2014

 Number

of merchant bankers increased to 115 by end of 1992 and 300 by 1994 Further a large number of reputed foreign merchant bankers are operating in India Merchant bankers in India can be classified as: - Public sector: Commercial banks & Financial institutions - Private sector - International banks
Prof. Nijumon K John, Christ University, Bangalore 2/11/2014

 SEBI

guidelines authorises merchant bankers to undertake activities with some exceptions. SEBI guidelines stipulate for minimum net worth requirement. The entry is denied to young and specialised professionals into this business Non-co-operation of the issuing companies in timely allotment of securities and refund of application money is another problem of merchant bankers.
Prof. Nijumon K John, Christ University, Bangalore 2/11/2014

Growth of new issue market the number of capital issues has increased from 516 in 1991-92 to 1211 in 2005-06. Entry of foreign investors and increase in NRI investment Increasing number of joint ventures abroad by Indian companies Changing policy of financial institutions- from security orientation to project orientation Innovations in financial instruments market makers Corporate restructuring Disinvestment

Prof. Nijumon K John, Christ University, Bangalore

2/11/2014