17159027 merchant banking basics by saylee 090922012045 phpapp02

8/8/2019 17159027 Merchant Banking Basics by Saylee 090922012045 Phpapp02

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Merchant Banking


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DEFINITION

MERCHANTBANKINGis defined as aninstitution which covers a wide range of activities

such as management of customer services, portfolio

mgmt, credit syndication, acceptance credit,counselling, insurance etc.


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ORIGIN Originated through London

merchants.

Extension of activities todomestic business of

syndication of long-term &short-term finance, sharetransfer agents, debenturetrustees, takeover etc.


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Merchant Banking

InIndia?


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Merchant banking inIndiaNeed for merchant banking was felt with rapid

growth in number & size of issues made inprimary market.

Merchant banking services were started byforeign banks, namelyNationalGrindlaysin1967 &City bankin 1970.


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Merchant banking services were offered along

with other traditional banking services.

SBIwas firstIndian bank to set up Merchant

banking division in 1972.


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DIFFERENCEBETWEENCOMMERCIAL

BANKING& MERCHANTBANKING

Deals withDebt &

Debt related finance.

Asset oriented.

Generally avoid risks.

Deals withEquity &

Equity related finance.

Management oriented.

Willing to accepts risks.


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Merchant Banking

Services?


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SERVICESOFMERCHANTBANK The financial institutions inIndia could not

meet the demand for long-term fund required

by the ever expanding industry and trade.

Corporate sectors enterprise meet their demandthrough issuing share and debenture in capital

market.


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Sr

No

Particulars Summary

1 CorporateCounseling Covers the entire field ofmerchant banking, Ltd to

giving suggestions

2 Project Counseling Preparing project report forgovt. approval , financial

assistance

Services of Merchant Banks


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3 Loan Syndication Assistance rendered to get term loan

for project, help client make appraisal,

designing capital structure etc

4 Issue Management Marketing corporate securities,

intermediary in transfer of capitalfrom one who owns to needy

5 Underwriting Guarantee given by the underwriter,

make raising of external resource easy

6 Managers toIssue Drafting, completion of formalities,

appointRegistrar etc


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7 Portfolio

Management

Investment in different kind of

securities

8 Mergers and

takeovers

Middlemen in setting negotiation

9 Off ShoreFinance Help in areas involving foreign

currency

10 Non-Resident

Investment

Provide help in better and

smooth trade toNRIs


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Merchant Banker as Managers, Consultants

orAdvisors Companies are free to appoint one or more agencies as

managers to the issue.

Sebi guidelines prescribe that issue should be managedatleast by one authorised merchant banker.

Not more than two M.B. should be appointed as lead

managers to a public issue. In issue overRs.100 crores, maximum upto four M.B.

could be associated as managers.


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Merchant BankerAs lead ManagerAppointment of a lead manager by a company

S.

No

Size of the issue Maximum

Number Of

Lead Manager

1. Less than Rs.50 crores 2

2. Rs.50 crores to Rs.100 crores 33. Rs.100 crores to Rs.200 crores 4

4. Rs.200 crores to Rs.400 crores 5

5. Above Rs.400 crores 5 or more as

prescribed by

SEBI


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Duties &ResponsibilitiesOf LM To enter into an agreement

Certificate of registration with SEBI

Work of issue management

Clearly defined responsibility

Minimum underwriting obligation


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Due care & diligence

Submitting due diligence certificates

Submit all particulars to SEBI

Suggestions or modifications

Collections of the amount

Ensuring refund Inform depository participants


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QualitiesRequired of Merchant Bankers

Ability to analyse

Abundant knowledge

Ability to built up

relationship

Innovative approach

Integrity

(left) Rashesh Shah

Chairman & CEO, Edelweiss

(right) Nimesh Kampani

Chairman & MD, JM Financial

(Best merchant bankers)


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CATEGORYOFMERCHANT

BANKERCATEGORY

1st :-

2nd :-

3rd :-

4th :-

MINIMUMNETWORTH

1 crore

50 lacs

20 lacs

NIL


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The M.B.registered with SEBIclassified

according to the category :-

MERCHANT

BANKER

PUBLIC SECTOR PRIVATE SECTOR

COMMERCIAL

BANKS :- 24

INTERNATIONAL

BANKER :- 10

FINANCIAL

INSTITUTION :- 6

STATE

INSTITUTION :- 4

BANKS :- 10

FINANCE &

INVESTMENT :- 231

LEASING


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Merchant banking

Problems.?


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Restriction of merchant banking

activities

SEBIguidelines have authorised merchant

bankers to undertake issue related activities

and made them restrict their activities or think

of separating these activities from present one

and float new subsidiary and enlarge the scope

of its activities.


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Minimum net worth ofRs.1 crore

SEBIguidelines

stipulate that a

minimum net worth ofRs.1 crore for

authorisation of

merchant bankers.


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Non co-operation of issuing companies

Non co-operation of the issuing companiesin timely allotment of securities and refund

of application money is another problem

faced by merchant bankers.


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MERCHANTBANKERSCOMMISSION

Maximum 0.5%

Project appraisal fees Lead Manager :-

- 0.5% uptoRs.25 crores

- 0.2% more in excess ofRs.25 crores


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Underwriting fees Brokerage commission 1.5%

Other expenses :-

-Advertising

- Printing

-Registrars expenses- Stamp duty


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Merchant banking

Scope inIndia?


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1)Growth of new issues market

Indian market largest emerging market

Domestic and foreign investors setting up theirbiz here.

Many public and private issues coming up

Growth in new issues market Scope for M.Bs. have risen


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2)Entry ofFII

Indian capital market is globalised

IndianCos. are permitted to invest in euro issues.Similarly, FIIare permitted to invest inIndia.

Hence they need M.Bs to advise them for their invt inIndia.

Increasing no. of JVs also require expert services of

M.Bs.


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4)Development of debt market

Good portion of capital

can be raised through debt

instruments.

Tremendous opportunities

to M.Bs.


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5)Innovations inFinancialInstruments

New financial instruments have come up.

M.Bs are market makers for these instruments.


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6)CorporateRestructuring

Liberalisation and globalisation

Competition in corporate sector becoming intense.

Cos. reviewing their strategies, structure andfunctioning etc. leading to corporate restructuring.

Good opportunity to M.Bs to extend their area ofoperation.


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7)Disinvestment It means reduction of some

kind of asset of a firm for

achieving either financial orethical objectives.

Motive of disinvestment is toobtain funds.


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Conclusion Inspite of problems popping up, merchant

banking inIndia has vast scope to develop

because of lot of domestic as well as foreign

businesses booming here. Indian economy

provides an amicable environment for these

firms to set up, flourish and expand here.


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Thank you...

17159027 merchant banking basics by saylee 090922012045 phpapp02

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