Merchant Banking

Definition: Merchant banking can be defined as a skill-oriented professional service provided by

merchant banks to their clients, concerning their financial needs, for adequate consideration, in
the form of fee.

Merchant banks are a specialist in international trade and thus, excel in transacting with large
enterprises.

Services offered by Merchant Banks

Merchant Banks offers a range of financial and consultancy services, to the customers, which
are related to:

 Marketing and underwriting of the new issue.

 Merger and acquisition related services.
 Advisory services, for raising funds.
 Management of customer security.
 Project promotion and project finance.
 Investment banking
 Portfolio Services
 Insurance Services.
Merchant banking helps in reinforcing the economic development of the country, by acting as a
source of funds and information to the business entities.

Merchant Banker
Any person, indulged in issue management business by making arrangements with respect to
trade and subscription of securities or by playing the role of manager/consultant or by
providing advisory services, is known as a merchant banker. The activities carried out by
merchant bankers are:

 Private placement of securities.

 Managing public issue of securities
 Satellite dealership of government securities
 Management of international offerings like Depository Receipts, bonds, etc.
 Syndication of rupee term loans
 Stock broking
 International financial advisory services.
 In India, the functions of the merchant bankers are governed by the Securities and Exchange
Board of India (SEBI) Regulations, 1992.

Functions of Merchant Banking Organization

1. Portfolio Management: Merchant banks provides advisory services to the institutional

investors, on account of investment decisions. They trade in securities, on behalf of the clients,
with the aim of providing them with portfolio management services.
2. Raising funds for clients: Merchant banking organisation assist the clients in raising
funds from the domestic and international market, by issuing securities like shares, debentures,
etc., which can be deployed for starting a new project or business or expansion activities.
3. Promotional Activities: One of the most important activities of merchant banking is the
promotion of business enterprise, during its initial stage, right from conceiving the idea to
obtaining government approval. There is some organisation, which even provide financial and
technical assistance to the business enterprise.
4. Loan Syndication: Loan Syndication means service provided by the merchant bankers, in
raising credit from banks and financial institutions, to finance the project cost or working capital
of the client’s project, also termed as project finance service.
5. Leasing Services: Merchant Banking organisations renders leasing services to their
customers. There are some banks which maintain venture capital funds to help entrepreneurs.

Merchant Banking helps in coordinating the operations of intermediaries, with respect to the
issue of shares like registrar, advertising agency, bankers, underwriters, brokers, printers and so
on. Further, it ensures compliance with the rules and regulations, of the capital market.

We provide issue management - services:

The administration of corporate securities offered to open on consistent premise and winning

investors on amend premise is called as open issue administration.

Open issue administration is a critical part of administration with respect to the lead

supervisors and trader investors.

The different methods for raising asset from people in general by the administration are

concluded as issue administration. The obligation of capital issues administration particularly in

India is completed by vendor brokers who have the expert expertise and capability. One of their

fundamental capacities is issue administration.

What is Issue Management in Merchant Banking:

A merchant bank is a company that deals mostly in international finance, business loans for

companies and underwriting. These banks are experts in international trade, which makes them

specialists in dealing with multinational corporations. A merchant bank may perform some of

the same services as an investment bank, but it does not provide regular banking services to

the general public. One role of a merchant bank is to provide financing to large corporations

that do business overseas. Assume, for example, that XYZ Company is based in the United

States and decides to purchase a supplier that is based in Germany. Merchant banker is any

person who is engaged in the business of issue management either by making arrangements

regarding selling, buying or subscribing to securities as manager -consultant, advisor or

rendering corporate advisory services in relation to such issue management in merchant

banking.

Pre & Post issue management:

Pre issue management is time bound programme and concerned with following:

1) Issue of shares

2) Marketing,Coordination and underwriting of the issue.

3) Pricing of issues

Post issue management is concerned with following:

1) Collection of application forms and amount received

2) Scrutinising application

3) Deciding allotment procedure

4) Mailing of share certificates/refund or allotment orders

Purpose behind issue administration:
 The lifting development in the quantity of open recorded organization
 Capacity of open recorded organizations
 The troubles emerging due to the regularly expanding SEBI prerequisite.
A developing economy like India offers colossal extension for issue administration and the

shipper financiers give their abilities and aptitude to organizations in the administration of

capital issues. This basically goes for using family unit reserve funds into the corporate division

through the issue of corporate securities. Organizations raise stores for the motivations behind

financing new undertakings, extension/modernization/enhancement of existing units and lifting

long haul assets for working capital purposes.

Pre issue structuring:

Pre issue organizing is one of the elements of issue administration which incorporates the

accompanying capacities:
 Issue of offers.
 Marketing and Coordination.
 Underwriting of the issue.
 Pricing of issue.

First sale of stock:

A first sale of stock is the primary offer of stock issued by an organization to the general

population. With a generally modest number of investors made up fundamentally of early

financial specialists, (for example, the originators, their families and companions) and expert

speculators.

General society, then again, comprises of every other person – any individual or institutional

financial specialist who wasn't required in the beginning of the organization and who is keen on

purchasing offers of the organization. Until the point that an organization's stock is offered

available to be purchased to people in general, the general population can't put resources into

it. You can possibly approach the proprietors of a privately owned business about contributing,

however they're not committed to offer you anything.

Subsequently IPO is a method for giving without end a piece of the organization to the general

population, where people in general get possession in the organization by putting resources
into the type of offers in such organizations. The IPO alternative raises the biggest entireties of

cash for the organization and its initial financial specialists.

How to raise capital with IPO:

Opening up to the world raises a lot of cash for the organization with the goal for it to develop

and extend. Privately owned businesses have numerous alternatives to raise capital –, for

example,
 Borrowing
 finding extra private speculators
 Being gained by another organization.

Take after on open issue:

Corporate firms may raise capital by at first offering offers to the general population. The

corporate firms bring capital by issuing up in the essential market.

The issue of stock in an open market as opposed to being secretly subsidized by the

organization's proprietors. Which won’t be sufficient because of the accompanying reasons?

 The business to fire up.
 To deliver
 Continue running.

By issuing stock publically the investors being open acquire the proprietorship in the

organization however not the controlling element.

Fundamentally it implies people in general claims the organization however don't have control.

The process of open issue:

On the off chance that an organization intends to raise capital by issuing stock, it must

propose/document a formal enlistment articulation with the Securities and Exchange

Commission (SEC) that gives insights about

 The business' money related history,
 Current money related circumstance,
 The proposed open issue
 Future projections.
 The organization is additionally required to set up a preparatory plan that contains data
indistinct to that of the enlistment articulation for potential financial specialists.

Offer Available to be Purchased and Divestment:

Divestment, additionally called as divestiture, is the antonym of a venture, and it is the way

toward offering an advantage for monetary, social or political objectives. Resources that can be

stripped incorporate an auxiliary, business division, land, gear and other property. Divestment

can be a piece of following either a corporate enhancement methodology or political plan,

when speculations are lessened and firms pull back from a specific geographic area or industry

because of political or social weight.

The most well-known purpose behind divestment is the offering of non-center organizations.

Organizations may claim diverse specialty units that work in various businesses that can be

exceptionally diverting for their administration groups. Stipping an unnecessary specialty unit

can free up time for a parent organization's administration to concentrate on its center

operations and capabilities

Divestment essentially implies offer of an advantage controlled by an association or firm. Deal

then again identifies with offering of anything in return of cash.

 The expectation is that the stock cost will go down,
 The organization is settling on money related or moral choices that you don't bolster,
 And any number of reasons.

Right issue management:

rights issue is a profit of membership rights to purchase extra securities in an organization

made to the organization's current security holders. At the point when the rights are for value

securities, for example, shares, in an open organization, it is a non-dilutive ace rate approach to

raise capital. Rights issues are regularly sold through an outline or plan supplement. With the
issued rights, existing security-holders have the benefit to purchase a predefined number of

new securities from the guarantor at a predetermined cost inside a membership period.

Rights issues are helpful for all traded on an open market organizations rather than other more

dilutive financing choices.

In rights issue the budgetary chief needs to consider the accompanying:

 Appoint a merchant chief or intermediary merchant to deal with the offering procedure.
 Selling gathering and intermediary merchant support.
 Subscription cost per new offer.
 Number of new offers to be sold.
 The estimation of rights versus exchanging cost of the membership rights.
 The impact of rights on the estimation of the present offer.
 The impact of rights to investors of record and new investors and rights holders.

Endorsing of issue:

Rights issues might be endorsed. The part of the guarantor is to ensure and guarantee that the

assets sought after by the organization will be raised. The agreement between the financier and

the organization is set out in a formal endorsing understanding. Commonplace terms of an

endorsing require the financier to subscribe for any offers offered yet not taken up by investors.

The endorsing understanding will regularly enable the financier to end its commitments in

characterized conditions. A sub-financier thus sub-guarantees a few or the majority of the

commitments of the primary guarantor; the guarantor passes its hazard to the sub-financier by

requiring the sub-guarantor to subscribe for or buy a bit of the offers for which the guarantor

should subscribe in case of a deficit. Guarantors and sub- guarantors are budgetary

establishments, stock-intermediaries, real investors of the organization or other related or

random gatherings.

Financiers additionally research and help the hazard every candidate presents. This creates the

market for securities by consummately valuing danger and setting reasonable premium rates

that acceptably take care of the genuine expense of guaranteeing arrangement holders. On the
off chance that a particular candidate's risk3 is reasoned to be too high, guarantors may abstain

from covering it.

ADR / GDR / FCCB - Issue Management:

Indian organizations are given the recompense to issue share to non-inhabitant Indians under

FDI (outside direct speculation) to raise value capital. In the worldwide market by issuing rupee

named offers to a non-occupant store with the end goal of issuing of GDRs/ADRs.

This is realized by the endorsement of the service of back and with reference to the plan for

issue of ( FCCB ) Foreign Currency Convertible Bonds and Ordinary Shares (Through Deposit

Receipt Mechanism ) Scheme and in connection with the directions issued by the Central

Government in such manner.

An organization which does not have the qualification to bring capital up in the Indian market

including organizations perceived by SEBI doesn't pick up qualification towards ADR and GDR.

ADR / GDR / FCCB (Foreign Currency Convertible Bonds ) grow extent of speculations for a firm

since, now there are financial specialists from the remote market. This upgrades the capital

market and builds the organization's capital which additionally helps in extension.

Global listing – Aim and plus listing:

Point is the world's driving business sector for growing organizations from over the globe. Since

its dispatch in 1995, more than 3,000 organizations have picked to join AIM, setting up an

interesting group of inventive, innovative and entrepreneurial organizations covering youthful,

investment supported organizations to all the more ace discovered organizations hoping to

grow.

The PLUS Market is London's most recent, free stock trade that is hoping to make a variety of

little and mid-top liquidity in Europe. The PLUS market is committed to the prerequisites of

organizations going from expansive, little and medium estimated particularly with regards to

direction.
The Isle of Man is by a long shot the main locale for outside exchanging organizations looking to

get to London's Capital Markets because of a considerable number of unmistakable focal

points.

Between Continental Management Limited has framed an organization together of Isle of Man

based guides that can propose a bespoke, productive and financially savvy answer for

worldwide AIM and PLUS Market postings, changed and resulting organization.

Institutional placement program services:

Qualified institutional situations is a capital bringing device used fundamentally up in South-

Asian nations including India where a perceived organization can issue value shares, completely

and halfway convertible debentures or some other securities other than warrants at that point

are changed over to value to qualified institutional purchasers

This is the main other quick method for private situation, aside from special apportioning; in

this a perceived organization can issue offers or convertible securities to a chose gathering of

individuals. QIP scores are favored over different techniques on the grounds that the issuing

firm does not need to experience expounded and long procedural necessities to raise this

capital.