CHETANA’S BACHELOR OF MANAGEMENT

STUDIES

SUBJECT:- SPECIAL STUDIES IN FINANCE

TOPICE :- MERCHANT BANKING, BOOK BUILDING AND SEBI

MARCHANT BANKING

Definition

“A merchant bank is defined as a financial institution or an organization that underwrites corporate securities and advises such clients on issues like corporate mergers etc. involved in the ownership of commercial ventures, etc.This organization may be a Bank, Corporate body, a firm or a proprietary concern.”

Merchant Banking in India started with management of public Issues and loan syndication and has been slowly and gradually covering activities like “Project Counselling,” “investment Counselling,” “Portfolio Management” and mergers and amalgamation of corporate firms.

STEPS FOR SETTING UP MERCHAND BANKS

Formation of the business organization.

Adoption of a viable business

plan

Seeking SEBI registration as a

merchant banker.

Essentials for commencement

of business.

Organizational Set Up Of Merchant Bankers In India

Institutional base

Banker base

Broker base

Private base

Management of Capital issue:

The public issue of corporate securities involves marketing of capital issues of new and existing companies, additional issues of existing companies including rights issues and dilution of shares by letter of offer.

Project Counselling:

It covers development of an idea into a project, preparation of the project report, estimation of the cost of the project and deciding upon the means of financial and techno-economic appraisal of project for capital issue etc.

Loan syndication:

Loan syndication refers to the services rendered by an organisation in arranging and procuring credit from financial institutions, banks, other lending and investment companies for financing the project or meeting working capital requirements.

Corporate Counselling:

It denotes the advice provided by a merchant banker to a corporate unit to ensure better corporate performance in terms of image building among investors, steady growth through good working, appreciation in market value of its equity shares.

THE SERVICES/ACTIVITIES FOLLOWED BY THE MERCHANT BANKERS

BOOK BUILDING

Book-building is a process of price discovery used in public offers. The issuer sets a base price and a band within the investor is allowed to bid for shares.

The investor has to bid for a quantity of shares he wished to subscribe to within this band. Book building is basically a capital issuance process used in Initial Public Offer (IPO) which aids price and demand discovery.

It is a process used for marketing a public offer of equity shares of a company. It is a mechanism where, during the period for which the book for the IPO is open, bids are collected from investors at various prices, which are above or equal to the floor price. The process aims at tapping both wholesale and retail investors.

The offer/issues price is then determined after the bid closing date based on certain evaluation criteria. Book building is basically the process of generating a book of investor demand for an IPO for efficient price discovery.

BOOK BUILDING PORCESS

The Issuer who is planning an offer nominates lead merchant banker(s) as 'book runners'.

The Issuer specifies the number of securities to be issued and the price band for the bids.

The Issuer also appoints syndicate members with whom orders are to be placed by the investors.

The syndicate members input the orders into an 'electronic book'. This process is called 'bidding' and is similar to open auction.

The book normally remains open for a period of 5 days.

BOOK BUILDING PORCESS

Bids have to be entered within the specified price band.

Bids can be revised by the bidders before the book closes.

On the close of the book building period, the book runners evaluate the bids on the basis of the demand at various price levels.

The book runners and the Issuer decide the final price at which the securities shall be issued.

Generally, the number of shares are fixed, the issue size gets frozen based on the final price per share.

Allocation of securities is made to the successful bidders. The rest get refund orders.

SECURITIES AND EXCHANGE BOARD OF INDIA

INTRODUCTION

The Securities and Exchange Board of India, set up in 1988 under an administrative arrangement ,given statutory powers with the enactment of the SEBI Act 1992.

The act provides for the establishment of the board to protect the interest of investors in securities market.

The board consists of a chairman , two members from the govt. of india,ministries of law and finance,one member from the RBI and two other members

It describe the manner in which SEBI Act 1992,the SCRA 1956,the companies Act 1956 and the depository act 1996.

OBJECTIVES

• To protect the interest of the investors in securities

• To promote the development of securities market

FUNCTIONS

Regulating business in stock exchanges and any other securities market.

Registering and regulating the working of stockbrokers, sub brokers, share transfer agents, bankers to an issue, registrars to an issue, merchant bankers, underwriters, portfolio managers, investment advisors and other intermediaries associated with securities markets.

Registering and regulating the working of depositories, custodian of securities, FIIs, credit rating agencies.

Registering and regulating the working of venture capital funds and collective investment schemes, including mutual funds.

Prohibiting fraudulent and unfair trade practices relating to securities market

Promoting investor’s education and training intermediaries of securities market

Prohibiting insider trading in securities Regulating substantial acquisition of shares and takeover of

companies

FUNCTIONS