Ch 1 Merchant Bnk

8/8/2019 Ch 1 Merchant Bnk

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MERCHANT BANKING


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DEFINITATION

Original Definition: A Merchant Bank is aBritish term fora bankproviding various financial services such as accepting bills arising outof trade, providingadvice onacquisitions, mergers, foreign exchange,

underwritingnew issues, and portfolio management.

The Focus Definition:A MerchantBank can be generally describedas a financial services companywith a private equity investment armoffering investment banking and ancillary services as well.

Because amerchant bankacts not onlyas anadvisorand brokerbut

also as a principal, amerchant bank has alongertermapproach thana typical investment bankand is highlyconcerned with the viability ofeach investment opportunityand providing the right advice fora strongpartnership with each client company.


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Services provided by Merchant Banking

Project counseling

Project appraisal

Pre investment studies

Portfolio management

Mergerand Acquisition Consultation

Mutual funds Corporate Finance Advisoryand Consulting Services

Capitalrestructuring

Credit syndication

Fixed deposit broking

Foreigncurrency finance

Issue management and underwriting Workingcapital finance

Acceptance credit and bill financing

Venture capital

Lease financing

Relief to sick industries


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Corporate Counseling

To ensure efficient running ofcorporate

enterprise

Rejuvenating old line co. & ailing units Guiding existing units inlocatingareas and

diversification

MB (merchant banker) plays the role of

managerial economist and financialandinvestment expert


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Project counseling

Part ofcorporate counselingand relate to

project finance

Covers study of product, offeringadvisoryassistance on viabilityand implementation


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Pre investment studies

Making detailed feasibility exploration to

evaluate alternate avenues ofcapital

investment


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Capital restructuring services

Assist project inachieving theirmaximum

potential through effective capital

restructuring

Strategies to widenand restructure the

capital base

Diversify operations and implement the

scheme foramalgamations, mergers


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Credit syndication

Credit procurement and project financing

Raising Indianand foreigncurrencyloans

from banks and FIs


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Issue management and underwriting

Management of public issues ofcorporate

securities i.e. equity shares, pre.shares &

debentures orbonds,

Mobilization ofmoney fromcapitalmarket


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Portfolio management

Making decisions related to investment of

cash resources ofcorporate enterprise

Involves right choice of investment

Optimum investment mix


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Working capital finance

Advises related to meet day to day expenses


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Acceptance credit and bill financing

Merger and Acquisition ConsultationVenture Financing

Funding high risk high reward projects

Plays a significant role in financing high tech Projects& helpingResearch and Development projects to turn

into commercial production. A typical private equity investment, inagrowth

oriented small/medium business to enable the

investors to accomplish theirgoals . Seed Capital, Start up Financing, Follow on

Financing, Expansion financing , ReplacementFinancing, Turnaround financing , Management Buy

Outs (MBOs)


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Lease financing

Foreign currency financeFixed deposit broking

Mutual funds

Relief to sick industriesProject appraisal

financial appraisal

technical appraisaleconomic appraisal


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Punjab National Bank

Indias one of the Leading Nationalized Bank established in1895, serving over3.5 crore customers through 4520 branchesand 439 extensioncounters is the largest amongst NationalizedBanks. The Bank has recently beenranked 21st among top 500companies and 9th among top 50 brands by the EconomicTimes. All the Branches of the Bank have beencomputerized.The Bank has aconcept of "AnyTime, AnyWhere Banking"through the introduction of Centralized Banking Solution (CBS)and over2511 offices have already been brought under its ambit.

The Bank is registered with SEBI as Category I Merchant

Bankerforprovidingall the majorMerchant Banking services.Ourgamut of Merchant Banking services includes:

Issue Management Services to act as BookRunning LeadManager/Lead Managerforthe IPOs/FPOs/Right issues/Debtissues


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Project appraisal

Corporate Advisory Services

Underwriting of equity issues

Banker to the Issue/PayingBanker

Refund Banker

Monitoring Agency Debenture Trustee

Marketing of the issue through a strongnetwork of

QIBs / HNIEs / Corporates and Retail investor.

The Bank itself is one of the major investor in themarket havinga treasury of 45000 crores.


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Indian bank

Merchant Banking Indbank is a Category 1 Merchant Bankerregistered with Securities

Exchange Board of India (SEBI) undertakingassignments

Undervarious capacities like Lead Manager, Co-Manager, Advisor,Arrangeretc. forpublic issues, rights issues and private placement.

Foracquisition of shares & takeovers underSEBI (SubstantialAcquisition of shares and Takeovers)Regulations, 1997, SEBI

(Buyback of Securities)Regulations, 1998 and SEBI (De-listing ofSecurities) Guidelines, 2003.

ForEmployee Stock Option Scheme / StockPurchase Scheme byCorporates under the SEBI (Employee Stock Option Scheme andEmployee StockPurchase Scheme), Guidelines, 1999.

Advisory Services

Valuation of shares & other financial instruments Syndication of Loans

Acquisitions

Mergers & Amalgamations

Project Counseling, appraisaland feasibility studies.


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DAMODARTHREADS LTD

LEAD MANAGERS TO THE ISSUE-

CANARA BANK

REGISTRAR TO THE ISSUE - INTIME

SPECTRUM REGISTRY LIMTED


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Reliance Power

LeadManager- Kotak, UBS, ABN AMRO,

Deutsche, ICICI Securities,


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List of Indian commercial banks merged since

January 1990

Name of the Transferor Bank Name of the Transferee Bank

And DateBank ofTamilnad Ltd. Indian Overseas Bank 20.02.19902.

Bank ofThanjavurLtd. IndianBank 20.02.19903.

ParurCentralBank Ltd. Bank of India20.02.19904. PurbanchalBank Ltd .CentralBank of India29.08.19905

Kashi Nath Seth Bank Ltd .State Bank of India 01.01.19966.

Bari Doab Bank Ltd. OrientalBank of Commerce08.04.19977

Punjab co-op Bank Ltd. OrientalBank of Commerce 08.04.19978.

Bareilly CorporationBank Ltd. Bank ofBaroda03.06.19999.

SikkimBank Ltd. UnionBank of India22.12.199910


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Times Bank Ltd. HDFC Bank Ltd.26.02.200011.

Bank of Madura Ltd. ICICI Bank Ltd.10.03.200112

Benaras State Bank Ltd Bank ofBaroda20.06.200213

Nedungadi Bank Ltd PNB01.02.200314.

South Gujarat L A Bank Ltd. Bank OfBaroda25.06.200415.

GlobalTrust Bank Ltd. OrientalBank Of Commerce14.08.200416

Bank ofPunjab Ltd CenturianBank01.10.200517.

IDBI Bank Ltd. IDBI Ltd.02.04.200518

The Ganesh Bank of Kurundwad Ltd The FederalBankltd.02.09.200619.

United WesternBank Ltd .IDBI Ltd.03.10.200620.

Bharat Overseas Bank Indian overseas Bank31.3.200721.

The Sangli Bank Ltd ICICI Bank Ltd. ( Voluntary) 19.4.200722

Lord KrishnaBank Ltd. CenturionBank ofPunjab Ltd.(voluntary)29.8.2007


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Regulatory framework on Merchant Banking

Priorto 1992, the new issue market activitywas

controlled by the Controllerof Capital Issues under

the Capital of Controller Issues Control Act 1947.

Post 1992 the protection of the interest of the

investors, regulationand of the market activityand

promotionand development has become the

responsibility of Securities and Exchange Board ofIndia .(SEBI).


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SEBI Regulations

Registration under4 categories

Compulsoryapplication

Category 1 - prospectus, other informationpreparation, financial structure , tie up of financiers,finalallotment of securities , refund of subscription ,act as advisors, consultants, and underwriters orportfolio managers.

Category 2 to act as advisor, consultant, co-manager, underwriter, portfolio manager

Category 3 - to act as underwriter, advisor, consultantto an issue

Category 3 - to act as advisor, consultant to an issue


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SEBI Regulations

Consideration ofapplication (Grant ofcertificate) Bodycorporate other than NBFC.

Adequate office space, equipment and manpower.

Atleast two persons with experience inmerchant banking Should not be associated with the applicant as

associate/subsidiary/group company etc.

directors/officer- not involved inanylitigationwith the securities

market.

Directors/officers with professionalqualification infinance/law/business management.


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SEBI Regulations

Capital AdequacyRequirement

Rs.5 crore forcategory I

Rs.0.5 crore forcategory 2

Rs.0.2 crore forcategory 3

Nil forcategory 4


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General Obligations

Sole function

Maintenance of books To be maintained foraminimum of 3 yrs .

Details regardingapplicationmoneyreceived, the names of

investors, the time within which the same is forwarded to theissuingcompany , dates & amts. Ofrefund to investors.

Disciplinary Action byRBI

If RBI takes disciplinaryactionagainst the Bank forhandlingissue payments, the bank has to inform the same to SEBI.

If bank has been prohibited fromcarrying on its activities byRBI,the SEBI registrationautomaticallygets cancelled.

Submission of halfyearlyresults

Preservation of books of Accounts, Records etc.

Reports on steps taken onaudits report

Appointment oflead manager


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Restriction on the appointment of Lead manager

Size of issue no. of MB< thanRs 50 crores 2

>50 cr. But < 100 cr. 3

>100 cr. But < 200 cr. 4>200 cr. But < 400 cr. 5

>400 cr. 5 ormore


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General Obligations

Responsibilities of Lead managers agreement with issuingcompanies formutualrights, obligations for

issues , allotment and refund.

Statement to SEBI of these details , 1 mth before issue. Statements

of obligations of otherassociates also to be furnished.

Cannot associate with amerchant bankerwho has not registered

with SEBI.

Minimum underwritingcommitment Rs. 25 lakhs of total underwriting

amount.

Ifcannot manage the underwritingamount then has to arrange

equalamount through otherassociate lead managers.


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General Obligations

Underwriting obligations 5% of total underwritingcommitment orrupees 25 lakhs

whicheverless

Submission of Due Diligence Certificate has to submit to SEBI two weeks before issue

details regarding the offerletter/prospectus conformitywith thepapers , materials relevant to the issue.

All disclosures are true, fairand adequate to enable investors totake well informed balanced decision.

Submission of documents

all documents like prospectus, offerletter, otherparticulars to besubmitted to SEBI before 2 weeks of issue.

Ifanyrecommendations made by SEBI, they should be dulyincorporated .


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General Obligations

Documents to be furnished to the board

Payment of fee to the board

Information to the board Disclosure to the board

Appointment of Compliance Officer


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Procedure for Inspection

Boards Right to inspect Inspection by SEBI at any time.

Allrecords, documents, computerdate to be provided toinspector.

All provisions on inspectionreport to be complied with.

Notice before inspection

Obligations of Merchant Bankeron Inspection

Submission ofreport to the board Action on inspection or investigationreport

Appointment of Auditor

Communication of findings


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P

rocedure for Action in case ofD

efault Liability foraction incase of default

Suspension ofregistration

Cancellation ofregistration

indulges in deliberate manipulation/price riggingaffectingthe securities market.

Poor financial position ofmerchant banker

is guilty of fraud, orconvicted ofacriminal offence .

Showcause notice and order Effect of suspensionand cancellation

Appeal to Securities Appellate Tribunal


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Procedure for Inspection

Registration Fee paid at the time of originalas wellas renewalregistration

Forcategory I- Rs. 2.5 lakh for first two yrs andRs.1 lakh for the third year.

Category 2- Rs.1.5 lakh for2 yrs and Rs.50000forthird year.

Category 3 -Rs.1 lakh for2 yrs and Rs.25000 forthird year.

Category 4- Rs. 5000 for2 yrs and Rs.1000 forthird year.

Renewal fees


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Code of Conduct for Merchant Bakers

Protect interest of investors

integrity, dignityand fairness

Prompt, ethical

Due diligence

Grievance of investors are redressed obligations fulfilled in prompt and professionalmanner

Investor inquiries and grievances handled on time andappropriate manner

adequate disclosures to investors as perguidelines

True and adequate information

No discriminationamongst clients. Copies of prospectus and offerletterto all investors at time of

offerof issue.

Best advice to clients.

Avoid conflict of interest

Best possible advice


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SEBI Guidelines

Operationalguidelines

Guidelines onadvertisement


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Operational guidelines

Submission of offerdocument

Dispatch of issue material

Underwriting Compliance obligations


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Guidelines on Advertisement

Factualand truthful

Clearand concise

Promise of profits

Mode ofadvertising

Financial data

Risk factors

Issue date

Product advertisement

Subscription

Issue closure Incentives

Reservation

Undertaking

Availability ofcopies