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    Issue Management

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    mohanbkp
    This document discusses issue management and the role of merchant bankers. It defines a merchant banker as an entity that raises capital from investors and provides it to companies in need of funding. Merchant banking started growing in India in the 1960s and was further encouraged by market reforms in the 1970s. The Securities and Exchange Board of India (SEBI) now regulates merchant bankers and sets criteria for authorization, capital adequacy, and compliance. Merchant bankers play an important role in managing public issues by undertaking activities like arranging underwriting, due diligence, and coordinating with intermediaries. They must prepare proper documentation like prospectuses and appraisal reports and ensure regulatory compliance when managing capital raising.

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    Issue Management

    Uploaded by

    mohanbkp
    3K views30 pages
    This document discusses issue management and the role of merchant bankers. It defines a merchant banker as an entity that raises capital from investors and provides it to companies in need of funding. Merchant banking started growing in India in the 1960s and was further encouraged by market reforms in the 1970s. The Securities and Exchange Board of India (SEBI) now regulates merchant bankers and sets criteria for authorization, capital adequacy, and compliance. Merchant bankers play an important role in managing public issues by undertaking activities like arranging underwriting, due diligence, and coordinating with intermediaries. They must prepare proper documentation like prospectuses and appraisal reports and ensure regulatory compliance when managing capital raising.

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    This document discusses issue management and the role of merchant bankers. It defines a merchant banker as an entity that raises capital from investors and provides it to companies in need of funding. Merchant banking started growing in India in the 1960s and was further encouraged by market reforms in the 1970s. The Securities and Exchange Board of India (SEBI) now regulates merchant bankers and sets criteria for authorization, capital adequacy, and compliance. Merchant bankers play an important role in managing public issues by undertaking activities like arranging underwriting, due diligence, and coordinating with intermediaries. They must prepare proper documentation like prospectuses and appraisal reports and ensure regulatory compliance when managing capital raising.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    3K views30 pages

    Issue Management

    Uploaded by

    mohanbkp
    This document discusses issue management and the role of merchant bankers. It defines a merchant banker as an entity that raises capital from investors and provides it to companies in need of funding. Merchant banking started growing in India in the 1960s and was further encouraged by market reforms in the 1970s. The Securities and Exchange Board of India (SEBI) now regulates merchant bankers and sets criteria for authorization, capital adequacy, and compliance. Merchant bankers play an important role in managing public issues by undertaking activities like arranging underwriting, due diligence, and coordinating with intermediaries. They must prepare proper documentation like prospectuses and appraisal reports and ensure regulatory compliance when managing capital raising.

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    The key takeaways are that merchant bankers link investors and entrepreneurs by raising capital from public investors and providing it to companies in need. They engage in issue management activities like arranging for selling, buying or subscribing to securities.

    The main functions of a merchant banker are to raise capital from public investors and provide it to companies in need. They also engage in issue management activities like arranging for selling, buying or subscribing to securities and providing corporate advisory services related to such issue management.

    Merchant banking first started in India in 1967 with Grindlays Bank providing such services. Others like Citibank and SBI followed in the late 1960s and early 1970s. The capital market boom in the mid-1970s further encouraged banks and financial institutions to set up merchant banking divisions.

    ISSUE

    MANAGEMENT
    Merchant Banker:
     The organization merchant banker came into existence to
    link the investors on one side and cater to the needs of the
    entrepreneurs on the other .

     A “Merchant Banker” is able to raise capital from the


    investing public and provide the same to the companies which
    are in need of them.
    Definition
     Rule 2(e) of SEBI (merchant bankers) Rules 1992, defines who
    a merchant banker is.

    “merchant banker means 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”
    Merchant Banking in India
     Till early 1960s there was no merchant banking in the Indian banking
    system.

     It was the Grindlays Bank which started merchant banking services as far
    back as 1967 in India. Others to follow were Citibank (1970), SBI (1972)

     The boom in the capital market in mid 1970s with the introduction of FERA
    – 1973 encouraged other banks and financial institutions to set up MB
    divisions.

     Private financial brokers also started private MB organizations


    REGULATIONS OF SEBI
    SEBI REFORMS:

     One equity merchant banker


     Allowed to perform underwriting
     To perform portfolio Manager ,separate registration
    from SEBI
     Cannot undertake function of non-banking
    financial company.
     confine only to capital market activities.
    GUIDELINES FOR MERCHANT BANKERS :

    Authorization criteria include


     Professional qualification in finance, law or business management
     Infrastructure like office space, equipment and man power
     Capital adequacy
     Past track of record,experience,general reputation and fairness in
    all

    transactions
    Conditions by SEBI:
     Every merchant banker should maintain copies of balance
    sheet,Profit and loss account,statement of financial position

     Half-yearly unaudited result should be submitted to SEBI

     Merchant bankers are prohibited from buying securities based


    on the unpublished price sensitive information of their clients
    SEBI has been vested with the power to suspend or cancel
    the authorization in case of violation of the guidelines

    Every merchant banker shall appoint a ‘Compliance Officer‘


    to monitor compliance of the Act

    SEBI has the right to send inspecting authority to inspect


    books of accounts, records etc… of merchant bankers
    Inspections will be conducted by SEBI to ensure that
    provisions of the regulations are properly complied

    An initial authorization fee, an annual fee and renewal


    fee may be collected by SEBI

    A lead manager holding a certificate under category I


    shall accept a minimum underwriting obligation of
    5% of size of issue or Rs.25 lakhs whichever is less
    MECHANISM OF PUBLIC ISSUE
    MANAGEMENT

    Decision to raise Capital funds

    Obtaining SEBI approval

    Arranging Underwriting

    Preparation and finalization of


    prospectus
    Selection of
    Registrars,Brokers,Bankers,etc
    Arranging Press and investor
    conference
    Printing and publicity of Public issue
    Documents
    SEBI Compliance

    ISSUE
    LAUNCH
    CATEGORIES OF SECURITIES
    ISSUE
    2. Public issue

    4. Right issue

    6. Private placement
    ISSUE MANAGER
     Requirements‘

     Categories of Issue Mangers


    I. (I + A + C + U + P Mgr)
    II. (A + C + U + P Mgr)
    III. (A + C + U)
    IV. (A or C)

     Restriction on Issue managers


    ROLE OF ISSUE
    MANAGER
    2.Easy floatation
    3.Financial consultant
    4.Underwriting
    5.Market makers
    6.Due diligence
    7.Coordination
    8.Liaison with SEBI
    PRE ISSUE ACTIVITIES
    2. Signing of MoU
    3. Obtaining appraisal note
    4. Optimum Capital structure
    5. Convening meeting
    6. Appointment of financial intermediary
    7. Preparing documents
    8. Due diligence certificate
    9. Submission of offer doc
    10.Finalization of collection centres
    11.Filing with RoC
    12.Launching the issue
    13.Promoters contribution
    14.Issue closure
    PROJECT APPRAISAL
    1. Technical appraisal
    2. Ecological appraisal
    3. Financial appraisal
    4. Financial tools
    5. Promoters contribution
    6. Economical appraisal
    7. Commercial appraisal
    8. Managerial appraisal
    CAPITAL STRUCTURE
    DECISIONS
    “ Proportionate claims of DEBT AND EQUITY ”

    OPTIMAL CAPITAL STUCTURE:


    4.Simplicity
    5.Low cost Maximum return & Minimum risk
    6.Maximum control
    7.Liquidity
    8.Flexibility
    9.equitable capitalization
    10.Optimal leverage
    PATTERN
    2.Exclusively (E)
    3.( E + P S )
    4.( E+ D )
    5.( E + D + PS )
    TAKING DECISIONS ON
    Cap Str..
    2.Cost principle
    3.Control principle
    4.Return principle
    5.Flexibility principle
    6.Timing principle
    Capital Structure Decisions – FACTORS

    Economy Industry Company


    Characteristic Characteristics Characteristics
    Size of business
    Age of company
    Business Activity Form of
    Stock Market organization
    Cyclical Fluctuations
    Taxation Stability of
    Levels of Competition
    Regulations earnings
    Life cycle of Industry
    Credit Policy Credit standing
    FIs Management
    philosophy
    CAPITAL MARKET
    ISTRUMENTS
    “Financial instruments used for raising capital r/s
    in Capital Markets”

    TYPES:
    Preference Shares
    Equity Shares
    Non – voting E S
    CCPS
    Company Fixed Deposits
    Warrants
    Debentures and Bonds
    PRICING OF ISSUES
    Factor to be considered:

    3.Qualitative factors

    5.Quantitative factors
    CCI MODELS:
    NAV
    NAV= total net worth / Total no. of
    outstanding
    (tot net worth={ E Cap + Free reserves – Contingent Liability} +
    Fresh capital)

    Profit Earning Capacity Value(PECV)

    Share price = ___EPS * 100____


    Capitalization rate

    Average Market Price


    SAFETY NET SCHEME:
    This method aims at affording a measure of
    protection while the pricing.

    Here merchant banker provide a buy–back


    facility to the individual investors.
    PROSPECTUS
    “ A document through which publicc are
    solicited to subscribe to the share capital of a
    corparate entity is called PROSPECTUS”
    CONTENTS
    PART I:
    General information
    Capital structure
    Terms of issue
    Particulars of the issue
    Company ,management and project
    Disclosure of public issues made by the
    company
    Disclosure of o/s litigation, criminal prosecution
    and defaults
    Perception of risk factors
    PART II

    General information
    Financial information
    Statutory information

    PART III

    Declaration
    Application with prospectus
    ABRIDGED PROSPECTUS
    “ A memorandum containing such salient
    features of a prospectus as may be prescribed
    is called ABRIDGED PROSPECTUS”
    SELECTION OF BANKERS
    Short term source

    Medium term source

    Long term source


    BIBILOGRAPHY
    1.Merchant banking and financial services
    – Dr S
    Gurusamy
    2.www.scribd.com
    PREPARED & PRESENTED BY

    B.MOHAN KUMAR.

    THANK YOU

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