Merchant Banking (2)
Transcript of Merchant Banking (2)
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MERCHANT BANKING
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What is a Merchant Bank?
A merchant bank is a financial institution primarilyengaged in offering financial services and advice tocorporations and to wealthy individuals.
Companies raise capital by issuing securities in themarket. Merchant bankers act as intermediaries betweenthe issuers of capital and the ultimate investors whopurchase these securities.
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A set of financial institution that are engaged in providingspecialist services, which generally include theacceptance of:
Bills of Exchange
Hire Purchase
Installment Buying
International Trade Financing
Long Term Loans
Investment and Portfolio Management.
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ORIGIN
The term merchant banking originated from Londonwhere they started financing foreign trade throughacceptance of bills
Later they helped government of under developedcountries to raise long term funds
Later these merchants formed an association which isnow called Merchant Banking and Securities House
Association
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Role of Merchant Bankers
Project Counselling.
Corporate Counselling
Loan Syndication.
Issue Management.
Portfolio Management.
Working Capital Finance
NRI Investment
Advisory Service Relating to Mergers & AcquisitionsOff- Shore Finance.
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Project Counselling
Includes preparation of Project Reports
Deciding upon the Financing Pattern.
Appraising the Project relating to its Technical
Commercial and Financial viability.
Includes filling up forms for obtaining funds fromFinancial Institutions.
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Corporate Counselling
Providing guidance in the area of diversification
Undertaking appraisal of product lines, forecastingfutures
Providing assistance in getting soft loans fro financialinstitution for capital expenditure
Exploring possibilities for takeover of sick units andmaking consequential arrangement and negotiation
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Loan Syndication
Activities connected with credit procurement and projectfinancing, aimed at raising currency loans from banksand financial institution.
Activities covered are:
Drawing up a financial plans for the total project cost tothe requirement of promoter.
Preparing loan application for financial assistance fromterm lender.
Arranging bridge finance
Assessing working capital
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Issue Management
It involves management of the public issues of corporateSecurities i.e. Equity Shares, Preference Shares, andDebentures.
Preparation of budget for the total expense for the issue Selection of institutional and broker underwriter for
underwriting arrangement
Arranging for stocks exchange clearances and listing of
securities. Determine the quantum, terms and timing of public
issues of different form of securities.
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Portfolio Management
Making decision relating to the investment of the cashresources of a corporate enterprise in marketable
securities by deciding the timing and the type of securityto bebought
Undertaking investment in securities.
Safe custody of securities
Providing advice on selection of investment
Collecting and remitting interest on dividend oninvestment
Carrying out critical evaluation of portfolio investment
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Working Capital Finance
The finance required to meet day to dayexpenses
Assessment of working capital requirement
Preparing the necessary application for the sanction of
appropriate credit facilities.
Assisting coordination and expediting documents fordisbursement
Suggesting a sharing pattern of credit limit among
participating banks
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Managers Consultants or Advisers
to the Issue SEBI insists that all issues be managed by at least one
authorized Merchant Banker.
For an Issue of 100 crores a max. of Four MerchantBanks are appointed.
They help in Listing of Shares in Stock Exchange,Completion of Formalities under Companies Act etc.
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Advisory Services Relating to
Mergers & Takeovers
Merger means combination of two or morecompanies. Here one survives, while other losesits existence.
Takeover is the purchase by one Company &acquiring controlling Interest in the Share Capital
of another Company.
Merchant Banks act as Middlemen between
the Offeror & the 'Offeree.
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Foreign Currency Financing
Finance provided to fund foreign trade transaction
Providing guidance on forward cover for exchange risk
Assisting in arranging foreign currency guarantees andperformance bonds for exporters.
Providing assistance in opening and operating bankaccounts abroad
Arranging foreign currency loans for importing goods
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NRI Investment
NRIs have to follow lot of complicated Rules for Investingin Shares in India.
Merchant Bankers help them in choosing the Shares.
Also provide Expert Advice fulfilling Govt. Norms. &Regulations.
Thus they provide more resources for Corporate Sector.
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Brokering Fixed Deposit
Following are the service rendered by merchant banks:
Drafting of advertisement
Making arrangements for the collection of deposit at thebankers branches.
Making arrangements for the payments of interest.
Drafting and printing of application forms.
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Merchant Banking Institutes
Commercial Banks.
Foreign Banks like National Grindlays Bank,CitiBank, HSBC Bank etc.
Development Banks like ICICI, IFCI, IDBI etc. SFC, SIDCs.
Pvt. Firms like JM Financial & In vestment Services,DSP Financial Consultants, CEA7 Kotak Mahindra,
Morgan-Stanley etc.
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Problems of Merchant Bankers
SEBI stipulates high capital adequacy norms for
authorization.
Non co-operation of issuing companies in timelyallotment of securities and refund of application ofmoney etc.Is vast, but should develop adequateexpertise to provide a full range of merchant banking
services.
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