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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    -THANK YOU-