Merchant Banking - basics by saylee
Transcript of Merchant Banking - basics by saylee
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Merchant
Banking
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INTRODUCTION
Refers toBritishMerchantbanking .
Concernedwith mobilising
savings of
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DEFINITION
MERCHANT BANKING is defined asan institution which covers a widerange 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 ofactivities to
domestic businessof syndication oflong-term & short-term finance, share
transfer agents,
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Merchant
Banking
In India?
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Merchant banking in
IndiaNeed for merchant banking was
felt with rapid growth in number& size of issues made in primarymarket.
Merchant banking services werestarted by foreign banks, namelyNational Grindlays in 1967 &Cit bank in 1970 .
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Merchant banking services wereoffered along with othertraditional banking services.
SBI was first Indian bank to setup Merchant banking division in1972.
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DIFFERENCE BETWEENCOMMERCIAL BANKING &
MERCHANT BANKING Deals with Debt
& Debt related
finance.
Asset oriented.
Generally avoidrisks.
Deals withEquity & Equity
related finance.
Management
oriented.
Willing to
accepts risks.
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Merchant
Banking
Services?
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SERVICES OF MERCHANT
BANKThe financial institutions in India
could not meet the demand forlong-term fund required by theever expanding industry andtrade.
Corporate sectors enterprise
meet their demand through
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Preparing projectreport for govt.approval , financialassistance
ProjectCounseling
2
Covers the entirefield of merchantbanking, Ltd togiving suggestions
CorporateCounseling1
SummaryParticularsSrNo
Services of Merchant
Banks
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Drafting, completion of
formalities, appoint
Managers to
Issue
6
Guarantee given by theunderwriter, make raisingof external resource easy
Underwriting5
Marketing corporate
securities, intermediary intransfer of capital fromone who owns to needy
Issue
Management
4
Assistance rendered toget term loan for project,
help client makeappraisal, designingcapital structure etc
LoanSyndication
3
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Provide help in betterand smooth trade toNRIs
Non-ResidentInvestment
10
Help in areas involvingforeign currency
Off ShoreFinance
9
Middlemen in setting
negotiation
Mergers
andtakeovers
8
Investment in different
kind of securities
Portfolio
Management
7
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Merchant Banker asManagers, Consultants or
Advisors Companies are free to appoint one or
more agencies as managers to the
issue. Sebi guidelines prescribe that issue
should be managed atleast by oneauthorised merchant banker.
Not more than two M.B. should beappointed as lead managers to a
public issue.
In issue over Rs.100 crores,
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Merchant Banker As lead
ManagerAppointment of a lead manager
by a companyS.
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 & Responsibilities
Of LM To enter into anagreement
Certificate of registrationwith SEBI
Work of issuemanagement
Clearly defined
responsibility
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Due care & diligenceSubmitting due diligence
certificates
Submit all particulars to SEBI
Suggestions or modifications
Collections of the amountEnsuring refund
Inform depository participants
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Qualities Required of
Merchant Bankers
Ability to analyse
Abundantknowledge
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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CATEGORY OF MERCHANT
BANKER CATEGORY
1st :-
2nd :-
3rd :-
4th :-
MINIMUMNETWORTH
1 crore
50 lacs
20 lacsNIL
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The M.B.registered with SEBIclassified according to the
category :-MERCHANT
BANKER
PUBLIC SECTOR PRIVATE SECTOR
COMMERCIAL
BANKS :- 24
INTERNATIONALBANKER :- 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
SEBI guidelines have authorisedmerchant bankers to undertakeissue related activities and madethem restrict their activities orthink of separating theseactivities from present one and
float new subsidiary and enlarge
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Minimum net worth of
Rs.1 crore SEBI guidelines
stipulate that a
minimum networth of Rs.1crore for
authorisation ofmerchantbankers.
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MERCHANT BANKERS
COMMISSIONMaximum 0.5%
Project appraisal fees
Lead Manager :-
- 0.5% upto Rs.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
- t m t
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Merchant
banking
Scope in India?
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1) Growth of new issues
market Indian market largest emerging
market
Domestic and foreign investorssetting up their biz here.
Many public and private issuescoming up
Growth in new issues market
Sco e for M.Bs. have risen
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2) Entry of FII
Indian capital market is globalised
Indian Cos. are permitted to invest ineuro issues. Similarly, FII arepermitted to invest in India.
Hence they need M.Bs to advisethem for their invt in India.
Increasing no. of JVs also require
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3) Changing policy of FI
Liberalisation of policies
FI would require expert servicesof M.Bs for project appraisal,
financial management, financialrestructuring etc.
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4) Development of debt
market Good portion of
capital can be
raised throughdebt instruments.
Tremendousopportunities toM.Bs.
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5) Innovations in Financial
InstrumentsNew 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 and functioning etc. leadingto corporate restructuring.
Good opportunity to M.Bs to extend
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7) Disinvestment It means reduction
of some kind of
asset of a firm forachieving eitherfinancial or ethicalobjectives.
Motive ofdisinvestment is to
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Conclusion
Inspite of problems popping up,merchant banking in India has
vast scope to develop because oflot of domestic as well as foreignbusinesses booming here. Indianeconomy provides an amicableenvironment for these firms toset up, flourish and expand here.
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Thank
you...