Professional Documents
Culture Documents
Unit 1
Merchant Banker
Engaged in the business of issue management Arranges for selling, buying or subscribing to securities Acts as manager, consultant or advisor in relation to issue management Makes open offers in takeover
MB
Registered as body corporate Governed by Merchant Bankers Rules (Min of Fin) & Merchant Bankers Regulations (SEBI)
MB in India
MB in India
Citibank 1970
Evaluating new projects Raising funds through borrowing Issue of equity Management Consultancy
MB in India
SBI 1972
Corporate advice Financing Assisting in Financial Management Raising forex loans Issue of foreign currency bonds Financing export of capital goods Financing, M&A, leasing Investment management
Regulation
Guidelines of SEBI and Ministry of Finance Companies Act, 1956 Listing guidelines of Stock Exchanges Securities Contracts (Regulation) Act
Authorised activities
Prospectus preparation, other information relating to the issue Determining finance structure Allotment / refund of subscription Corporate advisor Manager, consultant or advisor to issue Portfolio management
Public sector
Commercial banks FI State institutions Banks Finance / investment companies Leasing companies
Private sector
International banks
Indian scenario
Growth of new issue market Entry of foreign investors Changing policy of FIs Development of debt market Innovation in financial instruments Corporate restructuring Disinvestments
Terms
Must have minimum NW 5 crores Authorisation valid for initial 3 years Initial authorisation fee, annual fee and renewal fee collected by SEBI All issues must be managed by atleast one MB acting as sole manager or lead manager Specific responsibility of each lead manager must be submitted to SEBI
Terms
MB must verify the contents of prospectus Issue management is integrated with underwriting MB is involved in post issue management MB should submit information / documents as required by SEBI MB should adhere to code of conduct prescribed by SEBI
Min NW 5 crores Issue management Advisor Consultant Manager Underwriter Portfolio manager
Category II
Category III
Category IV
Advisor Consultant
Integrity Fairness High standard of service No price rigging / manipulation Diligence Professionalism Should not exaggerate
Responsibilities
Agree upon mutual rights, liabilities and obligation relating to disclosure, allotment and refund Minimum 5% underwriting obligation or 25 lakhs whichever is less
Disclosure to SEBI
Responsibilities Change in particulars provided Name of the company Capital adequacy breach Activities whether manager, underwriter, consultant or advisor to issue
Underwriter
Commitment to take up unsubscribed securities Agreement MB and stock brokers need not register separately Commission
Bankers to an issue
Accept application and application money Refund Must be a scheduled bank Applicant / director no litigation Necessary infrastructure Maintain books of account
Brokers
Registrars
Collecting application Finalising allotment Category I (R & STA) / Category II (R or STA) MB Maintain records
Debenture trustees
Trustee for securing Commercial banks, public FI, Insurance companies, companies etc Call for reports from companies Inspect the books Protect interest of debenture holders
Regulation
Buy / sell Market manipulation Misleading statements Unfair trade practices Insider trading
Summary
Registration with SEBI SEBI empowered to make regulations Regulates new issues Framework for operation of intermediaries Lead managers responsibilities Submit documents Inspection Punitive action Prevent unfair and fraudulent trade practices Insider trading
Obligations
Maintain books of a/c, b/s, auditors report Submit half-yearly working results Min underwriting 5% or 25 lakhs Diligence certificate about prospectus Lead managers to submit draft prospectus Subscription done by the MB to be indicated to SEBI
Defaults
General 1 point
Minor 2 points
Major 3 points
Serious
Defaults in prospectus
Points Rating
>8
<8 but 6
A+
A
<6 but 4
<4
B
C
If deficiencies like absence of risk factors are there, negative points are awarded. The maximum point for prospectus is 10
Sources of Finance
Sources of Finance
Business Growth
Organic growth growth generated through the development and expansion of the business itself. Can be achieved through: Generating increasing sales increasing revenue to impact on overall profit levels Use of retained profit used to reinvest in the business Sale of assets can be a double edged sword reduces
Selling more goods and services to consumers is one way to grow the business.
capacity?
Long Term may be paid back after many years or not at all! Short Term used to cover fluctuations in cash flow Inorganic Growth growth generated by acquisition
The existence of capital markets enable firms to raise long term loans and share capital.
Long Term
Ordinary shareholders have voting rights Dividend can vary Last to be paid back in event of collapse Share price varies with trade on stock exchange Paid before ordinary shareholders Fixed rate of return Cumulative preference shareholders have right to dividend carried over to next year in event of non-payment
Preference Shares:
New Share Issues arranged by merchant or investment banks Rights Issue existing shareholders given right to buy new shares at discounted rate Bonus or Scrip Issue change to the share structure increases number of shares and reduces value but market capitalisation stays the same.
Long term
Debentures fixed rate of return, first to be paid Bank loans and mortgages suitable for small to medium sized firms where property or some other asset acts as security for the loan Merchant or Investment Banks act on behalf of clients to organise and underwrite raising finance Government may offer loans in certain circumstances
Grants
Short Term
Bank loans necessity of paying interest on the payment, repayment periods from 1 year upwards but generally no longer than 5 or 10 years at most Overdraft facilities the right to be able to withdraw funds you do not currently have.
Provides flexibility for a firm Interest only paid on the amount overdrawn Overdraft limit the maximum amount allowed to be drawn - the firm does not have to use all of this limit
Trade credit Careful management of trade credit can help ease cash flow usually between 28 and 90 days to pay Factoring the sale of debt to a specialist firm who secures payment and charges a commission for the service. Leasing provides the opportunity to secure the use of capital without ownership effectively a hire agreement.
'Inorganic Growth'
Merger:
Firms agree to join together both may retain some form of identity One firm secures control of the other, the firm taken over may lose its identity
Takeover:
Business Angels
Business Angels
Individuals looking for investment opportunities Generally small sums Could be an individual or a small group Generally have some say in the running of the company
Venture Capital
Venture Capital
Pooling of capital in the form of limited companies Venture Capital Companies Looking for investment opportunities in fast growing businesses or businesses with highly rated prospects May also buy out firms in administration who are going concerns May also provide advice, contacts and experience
Classification
New companies Existing unlisted companies Existing listed companies New companies IPO < 12 months of existence
Category A
Category B
First issue by new companies set up by existing companies with 5 years consistent track record of profit
Category
First issue of existing pvt/ CH / UL co with 3 years continuous track record in profit in the last 5 years
First issue of existing P/CH/UL companies without 3 year track record Existing P/CH/UL companies with no track record, but promoted by co with 5 years profit record
Category
Public issue by an existing listing co Existing P/CH/UL company with 3 year track record seeking disinvestment not fresh capital Existing P/CH/UL co without 3 year track record seeking disinvestment
Prospectus
General information name, address, auditors Capital structure authorised, issued Terms of present issue Particulars of the issue Company management & project business, products Particulars of issue by the company and other listed companies under the same management Outstanding litigation, criminal prosecution
Prospectus
Part II
General information consent of directors, expert opinion Financial information auditors report Statutory and other information min subscription, expense details, voting rights Report by accountants Declaration by directors Application with prosepctus
Prospectus
General information Capital structure Terms of issue Particulars Co, mgt and project Financial performance for last 5 years Payments / refunds Particulars of companies under same management
Doubts?
Eligibility for public issue Pricing restrictions Promoters contribution Reservation norms Min application size Tradable lot size
NBFC
Demand deposits / public deposits Not part of clearing system no cheques Deposits not insured
NBFC
Types
NBFC
Requirements
Registered with RBI Net owned fund 2 crores Deposit cap 11% Deposits 1.5 times of NOF or 10 crores whichever is less
NBFC
Rating
Default
NBFC
Presentation