Professional Documents
Culture Documents
Merchant Banking
Merchant Banking
History
In the UK, merchant bankers started with bill discounting for their
customers, even though they were more of merchants than bankers.
Baring Brothers was the oldest merchant banker in the UK while in the
US indigenous merchant bankers started operating by 1880 and
started helping the conversion of privately held companies into public
companies. Kidder Peabody, Drexel, Brown Brothers and Morgan & Co.
were the major merchant bankers at the beginning of the twentieth
century.
Importance:
Grant of Certificate:
Registration Fee :
(i) Category I: Rs.2.5 lakh, annually, for the first two years and
Rs.1 lakh for the third year,
(ii) Category II: Rs. 1.5 lakh, annually, for the first two years
and Rs.50, 000 for the third year,
(iii) Category III: Rs.1 lakh, annually, for the first two years
and Rs.25, 000 for the third year, and
(iv) Category IV: Rs.5, 000 annually, for the first two years
and Rs.1, 000 for the third year. Since 1999, the registration fee
was raised to Rs.5 lakh.
Renewal fee: The original registration of merchant bankers was
for three years and it could be renewed for further period of three
years each. The merchant banker had to apply for renewal of his
registration three months before the expiry of the period of
registration. The schedule of renewal fees was as detailed as
follows:
With effect from 1999, the renewal fee is Rs.2.5 lakh every three
years from the fourth year, from the date of initial registration. If a
merchant banker fails to pay the annual fees, his registration may
be suspended by the SEBI.
Fees charged by a Merchant banker at the time of
Public Issue:
Public Issues:
Size of the issue, Amount / Rate of fees
including intended
retention of
oversubscription
Less than or equal to one A flat charge of ten thousand
crore rupees. rupees (Rs.10, 000/-).
More than one crore 0.1 per cent. Of the issue size.
rupees, but less than or
equal to five thousand
crore rupees.
More than five thousand Five crore rupees
crore rupees, but less than
(Rs.5, 00,00,000/-)
or equal to twenty five
thousand crore rupees. plus 0.025 per cent of the portion
of the issue size in excess of five
thousand crore rupees
(Rs.5000, 00, 00,000/-).
More than twenty five A flat charge of ten crore
thousand crore rupees. rupees (Rs.10, 00, 00,000/-).
Rights Issues:
Size of the issue, Amount / Rate of fees
including intended
retention of
oversubscription
Less than or equal to two A flat charge of ten thousand
crores rupees. rupees (Rs.10, 000/-).
More than two crores 0.05 per cent. Of the issue size.
rupees and less than or
equal to five hundreds
crores rupees.
More than five hundreds A flat charge of twenty five
crores rupees. lakhs rupees (Rs.25,
00,000/-).”
BY M. Damodaran,
Chairman,
SEBI
(Source: sebi.com)
Along with the fact that for both right issues and public
issues Merchant banker charges different rates, he also
charges different rates for equity shares and debentures. For
debenture issues he charges lower rates than equity issues.
Process of Merchant Banking
SECURITIES
MERCHANT
ISSUER BANKING INVESTOR
CASH
The Merchant Banker has to ensure the compliance of all the laws and
regulations governing the securities market. He may also be called
upon to assist the statutory authorities in developing a regulatory
framework for orderly growth of capital market.
Major Areas to perform the Role
SEBI
Regulatory Compliance
Framework
Guidance Coordination
INTERMEDIARIES
This is the traditional ‘bread and butter’ operation for most of the
merchant bankers in India. The role of the Merchant Bankers is
dynamic and he has to be nimble footed to capitalize on available
opportunities. He has to assist his corporate clients in raising funds
from the market. He may also be required to counsel them on various
issues that affect their finances. The main area of his role includes:
Instrument Designing
Merchant Banker designs the structure of the issue that is size of
equity issue and debenture issue.
Project Advisory
Merchant bankers assist the companies in conceptualizing the
project idea. Merchant bankers provide inputs to their clients in
preparation of the detailed project report. They also offer project
appraisal services to clients.
Loan Syndication
Merchant bankers arrange to tie up loans for their clients. The
Merchant banker also helps the client in loan documentation
procedures.
Commercial Banks
o HDFC Bank
National Financial Institutions
o Industrial Development Bank of India (IDBI)
o Industrial Finance Corporation of India (IFCI)
State Financial Institutions
o GSFS capitals & Securities Ltd.
Foreign Banks
o HSBC Securities and Capital Market (India) pvt. Ltd.
Indian Private Banks
o ICICI securities Ltd.
Leasing Banks
o Citibank
Financial and Investment Companies
o Kotak Mahindra Capital Company Ltd.
JM Finance-Morgan Stanley
DSP Financial Consultants-Merrill Lynch
Kotak Mahindra-Goldman Sachs
Ind Global Fin Trust-Salomon Bros
Creditcapital-Lazard Bros
SBI Capital Markets-Lehman Bros
Activities of Merchant Bankers
Endeavor to ensure that the investors are provided with true and
adequate information without making any misleading or
exaggerated claims or any misrepresentation and are made
aware of the attendant risk before taking any investment
decision.
The company selects the Merchant Banker(s) for handling the issue.
The lead merchant banker should maintain a standard of due diligence
that he would satisfy himself about all the aspects of offering, veracity
and adequacy of disclosure in the offer documents. The Lead Manager
should submit the following documents along with the offer document:
Requisite Fee : The lead merchant banker should pay the requisite
fee in accordance with Regulation 24-A of the SEBI Merchant
Bankers Rules and Regulations (as specified in the preceding
chapter of this book) together with draft offer document field with
SEBI.
Appointment of Intermediaries :
Abridged Prospectus :
The lead merchant banker should ensure that every application form
distributed by the issuer company or anyone else is accompanied by a
copy of the abridged prospectus. The application form may be stapled
to form part of the abridged prospectus. Alternatively, it may be a
performed part of the abridged prospectus. The abridged prospectus
should not contain matters that are extraneous to the contents of the
prospectus should be printed at least in point seven size, with proper
spacing. Enough space should be provided in the application form to
enable the investors to fill in various details like name, address and so
on.
Agreement with Depositories :
The lead managers should ensure that (I) the issuer company has
entered into an agreement with depository(ies) for dematerialilsation
(demat) of securities, (ii) an option be given to the investors to
receive allotment of securities in demat form.
Branding of Securities :
Securities may be branded describing their nature but not the quality.
Post-Issue Obligations/Activities
Once the lead merchant banker is through with the formalities of the
subscription, he submits the post monitoring reports within 3 days
from the due dates. The due date for the 3-day post issue monitoring
report is the 3rd day from the date of closure of subscription of the
issue and for the 78-day post issue monitoring report; it is the 78 day
from the date of closure of the subscription. The post-issue lead
manager actively associates himself with post-issue activities like
allotment, refund and dispatch and regularly monitors redressal of
investor grievances.
In detail
Public Issues :
In case of public issues, 3-day and 78-day monitoring reports
are to be submitted.
Final Post-Issue Monitoring Report the due date for this report
would be the 78th day from the date of closure of subscription
of the issue.
Stock invest :
www.sebi.com
www.hsbc.com
www.icici.com