Download - Special Studies in Finance
-
7/27/2019 Special Studies in Finance
1/32
Merchant banking
-
7/27/2019 Special Studies in Finance
2/32
Members:
-
7/27/2019 Special Studies in Finance
3/32
INTRODUCTION Refers to British Merchant banking.
Concerned with mobilising savings of
people.
DEFINITIONMERCHANT BANKING is defined as an
institution which covers a wide range of
activities such as management of
customer services, portfolio mgmt, creditsyndication, acceptance credit, counseling,
insurance etc
-
7/27/2019 Special Studies in Finance
4/32
ORIGIN Originated through London
merchants.
Extension of activities to domesticbusiness of syndication of long-term& short-term finance, share transferagents, debenture trustees,takeover etc.
-
7/27/2019 Special Studies in Finance
5/32
Merchant banking in India
Need for merchant banking was felt with rapid growth in number &size of issues made in primary market.
Merchant banking services were started by foreign banks, namelyNational Grindlays in 1967 & City bank in 1970 .
Merchant banking services were offered along with other traditional
banking services.
SBI was first Indian bank to set up Merchant banking division in
1972.
-
7/27/2019 Special Studies in Finance
6/32
SERVICES OF MERCHANT BANK The financial institutions in India could not meet the
demand for long-term fund required by the ever expanding
industry and trade.
Corporate sectors enterprise meet their demand through
issuing share and debenture in capital market.
-
7/27/2019 Special Studies in Finance
7/32
Services of Merchant Banks
Consultancy Services.
Government Consent.
Project Planning and Feasibility Study.
Raising Financial Resources.
Issue Management.
-
7/27/2019 Special Studies in Finance
8/32
Portfolio Management.
Advice on Expansion Programme.
Loan Syndication.
Corporate Restructuring.
Revival Packages for Sick Units.
Miscellaneous Services.
-
7/27/2019 Special Studies in Finance
9/32
Role of Merchant Banker s-Managers,-Consultants-Advisors
Companies are free to appoint one or more agenciesas managers to the issue.
SEBI guidelines prescribe that issue should bemanaged at least by one authorized merchantbanker.
Not more than two M.B. should be appointed as leadmanagers to a public issue.
In issue over Rs.100 Corers, maximum up to fourM.B. could be associated as managers.
-
7/27/2019 Special Studies in Finance
10/32
Duties & Responsibilities Of Lead Manager To enter into an agreement
Certificate of registration with SEBI
Work of issue management
Clearly defined responsibility
Minimum underwriting obligationDue care & diligence
Submitting due diligence certificates
Submit all particulars to SEBI
Suggestions or modifications Collections of the amount
Ensuring refund
Inform depository participants
-
7/27/2019 Special Studies in Finance
11/32
Qualities Required of Merchant Bankers Ability to analyze
Abundant knowledge
Ability to built uprelationship
Innovative approach
Integrity(left) Rashesh Shah
Chairman & CEO, Edelweiss
(right)Nimesh KampaniChairman & MD, JM Financial
(Best merchant bankers)
-
7/27/2019 Special Studies in Finance
12/32
1) Growth of new issues market Indian market largest emerging market
Domestic and foreign investors setting up their biz here.
Many public and private issues coming up
Growth in new issues market
Scope for M.Bs. have risen
2) Entry of FII
Indian capital market is globalised Indian Cos. are permitted to invest in euro issues. Similarly, FII
are permitted to invest in India.
Hence they need M.Bs to advise them for their investment in
India.
Scope of merchant banking
-
7/27/2019 Special Studies in Finance
13/32
3) Changing policy of FI Liberalisation of policies
FI would require expert services of M.Bs for project appraisal,financial management, financial restructuring etc.
Good portion of capital can be raised
through debt instruments.
Tremendous opportunities to M.Bs.
4) Development of debt market
-
7/27/2019 Special Studies in Finance
14/32
5) Innovations in Financial Instruments New financial instruments have come up.
M.Bs are market makers for these instruments.
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.
6) Corporate Restructuring
-
7/27/2019 Special Studies in Finance
15/32
INVE$TMENTBANKING
-
7/27/2019 Special Studies in Finance
16/32
History
Modern banking finds its roots in Italy inthe 13th century.
The cities financed its developmentalactivities and wars through issuance ofbonds or from borrowing through public.
Worlds oldest known bank has its roots in
Italy. Its The Monte di Piet, or Monte Pioset up in 1472.
-
7/27/2019 Special Studies in Finance
17/32
The Need for Investment Banks
Investment banks help companies andgovernments and their agencies to raise
money by issuing and selling securities in theprimary market.
They assist public and private corporations inraising funds in the capital markets (bothequity and debt),as well as in providingstrategic and advisory services for mergers,acquisitions and other types of financialtransactions.
-
7/27/2019 Special Studies in Finance
18/32
Investment Banking In India SBI was the first Indian public sector bank to
set up its investment banking division in 1972. SBI Caps and IDBI Caps are two prime
examples of investment banks in India today. Currently, there are 300 investment banks
registered with SEBI. Currently, without holding a certificate of
registration
granted by the Securities and ExchangeBoard of India,no person can act as a investment banker.
-
7/27/2019 Special Studies in Finance
19/32
Trends in Investments in India
0
2000
4000
6000
800010000
12000
14000
16000
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Deal Value in Million
Sourcewww.livemint.com
-
7/27/2019 Special Studies in Finance
20/32
FRONT OFFICE
FRONT OFFICE
-
7/27/2019 Special Studies in Finance
21/32
Front Office Pitching to various clients and institutions
Setting the terms and conditions for any form of
deal Trading of securities on behalf of clients
In the process of market making, traders will buyand sell financial products with the goal of makingan incremental amount of money on each trade.
Sales desks communicate their clients' orders tothe appropriate trading desks, who can price andexecute trades, or structure new products that fit aspecific need.
-
7/27/2019 Special Studies in Finance
22/32
Research is the division which reviewscompanies and writes reports about their
prospects, often with "buy" or "sell" ratings. Structuring has been a relatively recent
division as derivatives have come intoplay, which involves creating complex
structured products which typically offermuch greater margins and returns thanunderlying cash securities.
-
7/27/2019 Special Studies in Finance
23/32
MIDDLE OFFICE
-
7/27/2019 Special Studies in Finance
24/32
Middle Office
Middle office usually consists of traders, analysts,and managers who are knowledgeable of trading
activities but usually dont engage in marketactivities themselves. ( Chinese Wall Policy)
Risk Management involves analyzing the market and credit risk that traders
are taking onto the balance sheet in conductingtheir daily trades,
setting limits on the amount of capital that theyare able to trade in order to prevent 'bad' tradeshaving a detrimental effect to a desk overall.
-
7/27/2019 Special Studies in Finance
25/32
Another key Middle Office role is to ensurethat the above mentioned economic risks
are captured accurately (as peragreement of commercial terms with theclient) correctly and on time (typicallywithin 30 minutes of trade execution).
-
7/27/2019 Special Studies in Finance
26/32
BACK OFFICE
-
7/27/2019 Special Studies in Finance
27/32
Back OfficeOperations involves data-checking trades
that have been conducted, ensuring that
they are not erroneous, and transactingthe required transfers.
Every major investment bank hasconsiderable amounts of in-housesoftware, created by the Technology
team, who are also responsible forComputer and Telecommunications-based support.
-
7/27/2019 Special Studies in Finance
28/32
Front End Process (IPO)1. Company asks for bids2. Selecting lead managers as per bids3. Prepare draft offer prospectus document for IPO.4. Road shows for the IPO5. Decide the issue date & issue price band with
the help of Issuer Company6. RHP & IPO Application Forms are printed and
posted to syndicate members; through whichthey are distributed to investors
7. InvestorBidding for the public issue8. Allocation of shares as per demand9. Stocks listed on the market
-
7/27/2019 Special Studies in Finance
29/32
Institutions/Individuals in IPO process
Lead managers,also known as Book Running LeadManager and Co Book Running Lead Managers.
Registrars.
Legal advisors.
Auditors.
SEBI.
Credit rating agencies.
Syndicate members.( generally banks )
Investors (Retail Individual Investor (RII), High Net worth
Individual (HNI), Non-institutional bidders, QualifiedInstitutional Bidders (QIB's).)
Advertising agencies.
-
7/27/2019 Special Studies in Finance
30/32
Back-end process of an IPO1) Issuer Company - IPO Process Initialization
Appoints lead manager as book runner.
Appoints registrar of the issue.
Appoints syndicate members.
2) Lead Manager's - Pre Issue Role3) SEBIProspectus Review
SEBI reviews draft offer prospectus.
Reverts it back to Lead Manager if needs clarificationor changes.
SEBI approve the draft offer prospectus, the draft offerprospectus has now become Offer Prospectus.
-
7/27/2019 Special Studies in Finance
31/32
4) IPO should be graded by a CRA
5) InvestorBidding for the public issue
6) Lead ManagerPrice Fixing
7) Registrar - Processing IPO Applications
8) Lead managerStock Listing
Back end process of an IPO
cont.
-
7/27/2019 Special Studies in Finance
32/32