Mod 8 FMS Investment Banking

8/3/2019 Mod 8 FMS Investment Banking

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InvestmentInvestment

BankingBanking
http://www.iamee.in/index.html


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overviewoverview

IntroductionFunctions and activitiesUnderwriting

Bankers to an issueDebenture trusteesPortfolio managers

Challenges faced by investmentbankersPrivate equity-functions, strategies,

services

Recent developments in India


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IntroductionIntroduction

Investment banking is anAmerican synonym of merchantbanking.

Merchant banking originated inthe 13th century in the Europeancountries.

These are institutions whichprovide valuable services likeportfolio management, bills of

exchange etc.


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What is merchantWhat is merchant

banking?banking?The term "merchant bank" came

back into vogue in the late 1970swith the nascent private equity

business of firms like Kohlberg,Kravis & Roberts (KKR).

Merchant banking in its modern

context refers to using one's ownequity (often accompanied byexternal debt financing) in a

private transaction, as opposedto underwritin a ublic issue.


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Origin of merchantOrigin of merchant

bankingbankingMerchant banking in Britain

started in the 13th century when afew private firms engaged

themselves in foreign trade andfinance.


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Indian scenarioIndian scenario

During 19th century, the foreignmerchant bankers operated inIndia.

SBI floated its merchant bankingdivision in the year 1972

Other commercial banks followed

SBI and started merchantbanking activities in ICICI 1973

IFCI -1986

IDBI - 1991


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Functions of MerchantFunctions of Merchant

BankerBankerAct as lead manager in the public and

rights issue of new capitalAct as consultant or advisor in the public

issue of new capital

Underwriter offerings of new securitiesHelp companies to privately place issues

of new securitiesProvide venture capital for high-

technology firms and ventures promotedby unproven entrepreneurs

Provides corporate restructuringservices such as mergers andacquisitions, divestitures etc.


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Categories of MerchantCategories of Merchant

BankersBankersSEBI grants certificates in four

categories in order to perform MBactivities


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Category ICategory I

This class of merchant bankers carryon activities associated with issuemanagement such as preparation of

prospectus and other informationrelating to the issue, determinationsof the financial structure,arrangement of financiers,

allotment and refund of subscription.

They are also permitted to perform

the roles of advisor, consultant,


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Category IICategory II

This category of Merchantbankers is allowed to carry outthe roles ofadvisor, consultant,

co-manager, underwriter andportfolio manager


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Category IIICategory III

This class of merchant bankers isallowed to act as underwriters,advisor, and consultant


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Category IVCategory IV

This category of merchantbankers are only allowed to actas advisor, or consultant


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Services of MerchantServices of Merchant

BankersBankers1. Corporate counselling

2. Project counselling

3. Loan syndication

4. Management of capital issues

5. Corporate advisory services

6. Portfolio management

7. Advisory services to mergersand take overs


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8. Consultancy to sick industrialunits

9. Leasing

10.Issue management


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Qualities of MerchantQualities of Merchant

BankerBanker1. The merchant banker must have

knowledge and informationabout the capital markets,

trends in stock exchange,psychology of the investingpublic, and technological andeconomical changes in the

country2. They must have ability to

analyse and evaluate varioustechnical, financial andeconomical aspects concerning


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3 they must safeguard the interest ofthe investing public

4. The merchant banker should realizethe changing environment of capital

market and keep cordial relationshipwith the investors5. They must be able to develop

innovative capital market

instruments for satisfying thechanging needs of investors6. The merchant banker must be able

to restrict the function to be

performed and concentrate anddevelop their strength to keep costs


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Problems faced by merchantProblems faced by merchant

bankersbankersStipulation of networth of Rs 1

crore for authorisation ofmerchant bankers creates

problems for professionalMerchant bankers.

Issuing companies not

cooperating for timely allotmentof shares and refund ofapplication money to theinvestor.


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Future prospects of MerchantFuture prospects of Merchant

banking in Indiabanking in India1. Growth of primary market

2. Entry of foreign investors

3. Changing policy of financial

institutions

4. Development of debt market

5. Corporate restructuring


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Principal steps in issue ofPrincipal steps in issue of

prospectusprospectus1. Design and vetting of prospectus

2. Nature of instrument

3. Financial results

4. Risk factors

5. Pricing of the issue

6. Appointment of underwriters

7. Appointment of bankers

8. Appointment of registrars

9. Appointment of brokers and


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Filing of the prospectus with theFiling of the prospectus with the

Registrar of CompaniesRegistrar of Companies1. printing and dispatch of prospectus

and application form

2. Filing of initial listing application

3. Promotion of the issue4. Statutory announcement

5. Collection of applications

6.Processing of applications

7. Establishing the liability ofunderwriters

8. Allotment of shares

9. Listing of the issue

Mod 8 FMS Investment Banking

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