Professional Documents
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Merchant Banking
Merchant Banking
Basics of Merchant
Banking
Basics of Merchant Banking Merchant banking
is relatively new concept in the area of financial
services in India. It caters to the need of trade
and industry by acting as intermediary,
consultant , financial and liaison agency. The
expectation that the business will generate
money at some time in the future to repay the
amount lent or invested, plus a return to the
owner of the fund, is the basis of banking.
Meaning
The merchant bank is An
organisation that underwrites
corporate securities and advises
clients on issues like corporate
mergers, etc. involves in the
ownership of commercial ventures.
Definition
Merchant banking means any person who is
engaged in the business of issue
management either by making
arrangements regarding selling, buying
underwriting or subscribing to the securities
as underwriter, manager, consultant, advisor
or rendering corporate advisory services in
relation to such issue management.
1. Corporate counselling,
2.Project counselling and pre-investment studies
3.Capital restructuring
4.Credit syndication and project finance
5.Issue management and underwriting
6.Portfolio management
7.Non-resident investment
8.Working capital finance
Registration of merchant
bankers
The applicant should be a body corporate The applicant
should not carry on any business other than those
connected with the securities market. The applicant
should have necessary infrastructure like office space,
equipment, manpower, etc. The applicant must have at
least two employees with prior experience in merchant
banking Any associate company, group company,
subsidiary or inter connected company of the applicant
should not have been registered merchant banker. The
applicant should not have been involved in any securities
scam or proved guilty for any offence. The applicant
should have a minimum net worth of Rs. 5 crores.
Function of a merchant
banker
Management of debt equity offerings
Promotional activities Placement and
distribution Corporate advisory services
Project advisory services Loan syndication
Providing ventures capital and mezzanine
financing Leasing finance
Function of a merchant banker Bought out
deals Non resident investment Advisory
services relating to mergers and
acquisition Portfolio management
CODE OF CONDUCT
Should make all efforts to protect the interest
of investors Should maintain high standards of
integrity, dignity and fairness in conduct of
business Should fulfil all obligations in a
professional and ethical manner Should not
discriminate among the clients Should ensure
that prospectus, letter of offer etc.. is
available to investors at the time of issue
Should render best possible advice to its
clients Any penal action taken by SEBI should
be informed to its clients
Issue management
It refers to a management of securities
offering of clients to the general public
and existing shareholders on right
basis. Issue managers are also known
as merchant banker or lead managers.
Type of issues Public issues Right
issue, and Private placement
Registration charges
According to SEBI the charges payable by the
merchant banker are as under: Category 1- a
sum of Rs. 2.5 lakh to be paid annually for the
first two year commencing from the date of
initial registration and thereafter a sum of Rs.
1 lakh to keep the registration in force.
Category 2- A sum of Rs. 1.5 lakh to be paid
annually for the first two year commencing
from the initial registration and thereafter a
sum of Rs. 50000 to keep the registration in
force.
Registration charges
Category -3- A sum of Rs. 1 lakh to be
paid annually for the first two year
commencing from the date of initial
registration and there after a sum of
25000 to keep the registration in force.
Category 4- A sum of Rs. 5000 to be paid
annually for the first two year
commencing from the date of initial
registration and there after a sum of Rs.
1000 to keep the registration in force
Authorized activity
Issue management- It consist of preparation of prospectus and
other information relating to the ; issue of shares and securities
Determining financing structure Tie-up of finances Final allotment
Refund of subscriptions Corporate advices Managing, consultation
and advising The other authorized activities will be portfolio
management services
Slide 30:
Underwriting fees Brokerage commission 1.5%
Other expenses :- - Advertising - Printing Registrars expenses - Stamp duty
Entry of FII :
2) Entry of FII Indian capital market is
globalised Indian Cos. are permitted to
invest in euro issues. Similarly, FII are
permitted to invest in India. Hence they
need M.Bs to advise them for their invt in
India. Increasing no. of JVs also require
expert services of M.Bs.
Changing policy of FI :
3) Changing policy of FI Liberalisation of policies FI would require
expert services of M.Bs for project appraisal, financial management,
financial restructuring etc.
Corporate Restructuring :
6) Corporate Restructuring Liberalisation and
globalisation Competition in corporate sector becoming
intense. Cos. reviewing their strategies, structure and
functioning etc. leading to corporate restructuring. Good
opportunity to M.Bs to extend their area of operation.
7) Disinvestment :
7) Disinvestment It means reduction of some kind of
asset of a firm for achieving either financial or ethical
objectives. Motive of disinvestment is to obtain funds.
Conclusion :
Conclusion Inspite of problems popping up,
merchant banking in India has vast scope
to develop because of lot of domestic as
well as foreign businesses booming here.
Indian economy provides an amicable
environment for these firms to set up,
flourish and expand here.