8Copy of Merchant Bkg1

8/3/2019 8Copy of Merchant Bkg1.

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MERCHANT BANKING


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SEBI grants the certificate if the applicant is :

A body corporate

Has necessary infrastructure Have at least two persons with experience in merchant banking

business

Should not be involved in any litigation connected with the securitiesmarket

Have recognized professional qualification in finance , law or business

managementRegistration

Registration with SEBI is mandatoryin order to carry out activities likes

determining the financial structure ; preparation of prospectus ; tie-up with financiers ;

final allotment of securities.

To carry out activities as underwriters and portfolio managers , they should obtain

separate certificate of registration from SEBI


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S.N. Category Eligibility Minimum Net

Worth

1 Category I carry out issue management, can

act as an advisor, consultant,

manager, underwriterand

portfolio manager

Rs 5 crore

2 Category II act as an advisor, consultant,

manager, underwriterand

portfolio manager.

Rs 50 lakh

3 Category III act as an advisor, consultant,underwriter

Rs 20 lakh

4 Category IV act only as an advisorand

consultant

nil


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Restriction on Business

A merchant banker is prohibited from carrying on fund /

asset based business such as leasing etc.

A merchant banker who is registered with RBI as a Primary

Dealer may carry on such business as may be permitted by

RBI.


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Merchant Banker

Corporate Advisory

Services

* advises the corporate

for its survival &

growth

* investigate & analyzethe business problems

and try to solve those

with their skill &

experience

* assist in equity &

business valuation

* privatization

* rehabilitation of weak

units

Project Advisory

Services

* gives concrete shape

to business ideas

* does appraisal for

technical feasibility,commercial viability

& financial viability

* prepare an action

plan

Issue Management

* structuring of

instruments

* preparation of

offer document

* due diligence

certificate

* appointment of

intermediaries

* management of

book buildingissue

* post issue

monitoring

Portfolio

Management

manage the portfolio of

the client on the basis

of terms and conditions

such as -

* risk and return* composition of

securities,

* reporting

requirement,

* repayment as

specified by the client.


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Merchant Banker

Credit Syndication

* arrange domestic currency

&

foreign currency loans by

analyzing their cash flowpattern

* provide assistance in loan

documentation procedures

* arrange buyers` line of

credit / suppliers` line of

credit / guarantee

assistance

* advice for resolvinginter-creditor issues

Underwriting

* agrees to subscribe to a

portion of the capital to be

issued incase the issue is not

fully subscribed* total underwriting

obligations at a point of time

should not exceed 20 times

his own net worth

* the maximum liability of

an underwriter is limited

the amount underwritten

by him.* underwriting can be done

for public issue &

rights issue

* the company can appoint

more than one underwriter.

Financial Structuring

* assist the client company to

conduct activities involved

in mergers and acquisitions

divestitures etc.* target screening,

identification & evaluation

* financial analysis &

valuation of target

company

* advising means & source of

financing

* arranging necessaryfinance

* counseling on bidding

strategy

* negotiating with the parties

* complying with regulatory

norms


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Issue Management

It is now a days mandatory that all public issues should be

managed by merchant bankers.

Maximum Number of Merchant Bankers

Issue Size less than Rs 50 crores : 2 MB

Issue Size between Rs 50 crto Rs 100 cr : 3 MB

Issue Size between Rs 100 crto Rs 200 cr : 4 MB

Issue Size between Rs 200 crto Rs 400 cr : 5 MB Issue Size above Rs 400 cr : more than 5 MB


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Responsibilities of Lead Manager

Every lead manager has to enter into an agreement with the

issuing company , setting out their mutual rights andobligations relating to such issue and in particular to disclosures, allotment and refunds.

A statement specifying these is to be furnished to the SEBI

at least 1 month before the opening of the issue forsubscription.

Incase of more than one lead managers , the statement has toprovide details about the respective responsibilities.

It is necessary for the lead managerto accept a minimumunderwriting obligation of 5% of the total underwritingcommitment or Rs 25 lakh , whichever is less .


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A merchant banker is prohibited from acquiring securities of

any company on the basis unpublished price sensitive

information obtained during the course of any professionalassignment either from the client or otherwise .

He has to submit to SEBI , the complete particulars of any

acquisition of securities of a company whose issue is beingmanaged by him , within 15days from the date of transaction.

Code of Conduct

Make efforts to protect the interest of the investors Maintain high standards of integrity , dignity and fairness in

the conduct of its business

Ensure that adequate disclosures are made to the investors

in a timely manner


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Inquiries from investors are adequately dealt with and

grievances are redressed on time

Avoid conflict of interest

Render best possible advice to the client

Not to divulge to anybody the confidential information

Not to make untrue statements orsuppress any material

facts

Ensure that good corporate policies and corporategovernance are in place

Should not be a party to :

* creation of false market ;

* price manipulation ;

* passing unpublished price sensitive information

Should not discriminate among its clients

Should not indulge in unfair competition


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AA PREPRE--ISSUE OBLIGATIONSISSUE OBLIGATIONS

1 Structuring of Instruments

Determining the composition of the capital structure.

Whether an equity or a debt instrument is to be floated isdecided.

Decision is made after

* analyzing the capital structure ,

* financial requirement of the companyand

* the market condition

in consultation with the promoters.

In case of debt convertible ornon convertible.


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2 Preparation of Offer Document

Responsible for drafting ofprospectus and application form.

The maximum gradingof a prospectus can be 10

Default in Prospectus attract negative points :

Absence of risk factors [-1]

Absence of listing [-0.5]

Irrelevant contents of prospectus , if stated [-0.5]

prospectus scoring greater than orequal to 8 points are categorized as

A+

those with 6 orless than 8 points as A

those with 4 orless than 6 points as B

those with less than 5 points as C


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3 Due Diligence Certificate

The lead manager to an issue has to submit to SEBI, at least 2 weeks

before the date of filing with the registrar of companies /stock exchanges

or both :* Particulars of the issue

* Draft prospectus

* Other literature to be circulated to investors

These documents are submitted along with the prescribed fee

* Issue Size ofRs 100-500 crores : Rs 2.5lac

* Issue Size ofmore than Rs 500 crores : Rs 5lac

The lead manager is responsible for the verification of the contents of a

prospectus / letter of offer of an issue and the reasonableness of the

views expressed in them .

He has to submit , a due diligence certificate to the SEBI , at least 2

weeks before the opening of the issue for subscription , to the effect that :

the prospectus is in conformity with the material facts / documents

all legal requirements have been fully complied with

the disclosures are true , fairand adequate


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4 Undertaking

Issuer should submit an undertaking to the Sebi to the effect thattransaction in securities , by the promoters and their immediaterelatives , during the period between the date of filing the offer documentwith the ROC and the date of closure of the issue would be reported tothe stock exchange , within 24 hours.

5 Appointment of Intermediaries

Selection and appointment of :

brokers

bankers to the issue

registrar to the issue

underwriters / sub-underwriters

6 Management of Book Building Issue

Compliance ofprocedural formalities related to : Listing of securities

Placing of issues

Advertising of the issue


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BB POST ISSUE OBLIGATIONSPOST ISSUE OBLIGATIONS

1 Allotment

Assisting Registrar to the Issue in determining the basis of allotment of

securities in consultation with Executive Director/Managing Director of thedesignated stock exchange.

Supervising the allotment procedure wherein

* applicants are categorized according to the number of shares applied for

* total number of share to be allotted to each category as a whole is arrived

at on a proportionate basis. Ensuring the dispatch of the allotment letters to the allottees and refund

orders to the non-allottees.

2 Submission of Documents to Sebi

Post-issue monitoring report

Dispatch to allottees

Certificates showing refunds

Listing of securities in stock exchanges


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Default by Merchant Bankers and Penalty Points

SEBI imposes penalties for non-compliance of basicconditions .The default are categorized as follows:

I General Default

Following defaults attract 1 penal point:

non-receipt ofdraft prospectus

non-receipt ofresponsibility allocation prior to

opening of issue

non-receipt ofdue diligence certificate failure to ensure submission ofcertificate showing

90 % subscription to the issue

failure to ensure dispatch of refund orders


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II Minor Default

These defaults attract 2penal points :

advertisement / circular / press release not in

conformation to the contents in prospectus

exaggerated information

delay in refund / allotment of securities

failure to exercise due diligence in verifying the

contents of the offer failure to provide fair disclosure to the investors

non- handling ofinvestors grievances promptly


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IV Major Default

These defaults attract 3 penalty points:

mandatory underwriting not taken by merchant

banker

excess number of lead managers than permitted

association ofunauthorized merchant bankers in an

issue


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V Serious Default

These defaults attract 4 penal points : unethical practices

violation of code of conduct

non-cooperation with SEBI

On reaching cumulative penalty points of8 , a

merchant bankerattracts action from SEBI in terms

of :

* suspension* cancellation of authorization

Note : Incase of joint responsibility , the same penalty

point is awarded to all lead managers .


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BANKERS TO AN ISSUE

The bankers to an issue are engaged in activities such as :

acceptance of applications along with

application money from the investors refund of application money


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Registration

To carry on activity as a banker to issue , the applicant mustobtain a certificate of registration from the SEBI.

SEBI grants the certificate if : the applicant has necessary infra-structure , communication

and data processing facilities and manpowerto effectivelydischarge his activities

the applicant is not involved in any litigation connected with

the securities market the applicant is a scheduled bank

grant of certificate is in the interest of the investor

Registration Fee

Since 1999 , schedule of fee is : Rs 5 lakh as initial registration fee and

Rs 2.5 lakh renewal fee every 3 years from the 4rth yearfrom the date of initial registration .

Non payment of prescribed fee may lead to the suspension ofthe registration certificate.


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General Obligations and ResponsibilitiesGeneral Obligations and Responsibilities

I Furnish Information to SEBI

number of issues for which he was engaged as abanker to an issue

numberof applications / details of the applications

received

the dates on which applications from investors were

forwarded to the issuing company/registrar to an

issue

the dates / amounts of refund to the investors .


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Disciplinary Action by the RBIDisciplinary Action by the RBI

If the RBI takes any disciplinary action against a

banker to an issue in relation to issue payment , the

latter should immediately inform SEBI.

If the banker is prohibited from carrying on his

activities as a result of the disciplinary action , the

SEBI registration is automatically deemed assuspended / cancelled.


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Code of Conduct

make efforts to protect the interest of the investors

fulfill its obligations in a prompt , ethical andprofessional manner

prompt in disbursing dividends , interests or any

such accrual income received or collected by him onbehalf of his client


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Should Not :

allow blank application forms bearing brokers

stamp to be kept in the bank premise or sold near the

entrance of the bank premise

accept applications after the office hours orafter the

date of closure of the issue or on a holiday

after the closure of the public issue accept any

cheque/draft


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part with the issue proceeds until listing permission

is granted by the stock exchange to the bodycorporate

delay in issuing the final certificate pertaining to the

collection figures :

*to the registrar to the issue ,

*lead manager and*body corporate

within 7 working days from the closure date.


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BROKERS TO THE ISSUE

These are the persons mainly concerned with the

procurement of subscription to the issue from theprospective investors .

The appointment of broker is not compulsory

The companies are not free to appoint any numberof brokers .

The company in consultation with the stockexchange writes to all active brokers of all exchangesand obtains their consent to act as brokers to the

issue . A copy of the consent lettershould be filed along

with the prospectus to the ROC .

The names and addresses of the brokers to the issue

are required to be disclosed in the prospectus .


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The brokerage rate applicable to all types of public

issue of industrial securities is fixed at 1.5% , whether

the issue is underwritten ornot.

The listed companies are allowed to pay a brokerage

onprivate placement of capitalat a maximum rate

of 0.5%

Brokerage is not allowedin respect of :

* promoters quota including the

* amounts taken up by the directors ,

* their friends

* employees

* in respect of the rights issues taken by or

renounced by the existing shareholders.


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Brokerage is not payable when applications are

made by :

* the institutions / bankers against their

underwriting commitments on the amounts

devolving on them as underwriters consequent

to the under subscription of the issues.


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The issuing company is expected to

pay brokerage within2

months from the date ofallotment and

furnish to the brokers , on request , the particulars

of allotment made against applications bearing

their stamps, without any charge. The cheques relating to brokerage on new issues and

underwriting commission , if any, should be made

payable at par at all centres where the recognized

stock exchanges are situated The rate of brokerage payable must be disclosed in

the prospectus.


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* The mailing cost and

* Otherout-of-pocket expenses forcanvassing ofpublic issue

Is to be borne by the stock brokers and no payment

on that account is made by the companies .

A clause to this effect must be included in the

agreementto be entered into between the broker

and the company.


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REGSITRAR TO AN ISSUE AND SHARETRANSFER AGENT

The registrar to an issue is an intermediary in the

primary market and carries out activities such as :

collecting application from the investors

keeping a proper recordofapplications and money

received from investors

assisting companies in determining the basis ofallotment of securities in consultation with stock

exchanges ,


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finalizing the allotmentof securities

processingand dispatchingallotment letters , refund

orders etc,

maintains a record of holders of securities on

behalf of the companies

deals with all matters connected with transfer /redemption of securities


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To carry out these activities they must be registered

with SebiCategory I : to carry on activities as a registrar to an

issue andshare transfer agent

Category II: to carry on activities eitheras a registrar

oras a share transfer agent

Capital Adequacy

Category I : Rs 6 lakh

Category II: Rs 3 lakh


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With effect from Nov 1999 ,

Category I is required to pay:

* a registration fee of Rs 50,000 and

* a renewal fee of Rs 40,000 every three years.

Category II is required to pay :

* a registration fee of Rs 30,000 and

* a renewal fee of Rs 25,000 every three years.


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Maintain Records relating to:

all applications receivedfrom investors in respect to

an issue

all rejected applications togetherwith reasons

basis of allotmentof securities in consultation with

stock exchanges

terms and conditions of allotmentof securities

list of allottees and non-allottees , refund orders

These have to be preserved by them for a period of 3

years.


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Thank you