Merchant Banking

PRESENTED BY:

BISWAJIT PALITAMRITA DAWN

JERRY JOHNRAJSHEKHAR

DEFINITION• MERCHANT BANKING is defined as “an institution which covers a wide range of activities such as underwriting of shares, portfolio management, management of customer services, project counseling, insurance etc”…

• They render all these services for a fee

DIFFERENCE BETWEEN MERCHANT BANK AND

COMMERCIAL BANK

COMMERCIAL BANKING MERCHANT BANKING

Deals with Debt & Debt related finance.

Deals with Equity & Equity related finance.

Asset oriented. Management oriented.

Generally avoid risks. Willing to accepts risks.

Commercial banks are referred to as “Banks”

Merchant banks are commonly called as “Investment Banks”

Anyone can open an A/C It cannot be done.

Related to secondary market. Related to primary market.

Merchant Banking

Services…?

SERVICES OF MERCHANT BANK

Corporate counseling Project counseling Loan syndication Issue management Portfolio management Advisory service relating to

mergers and takeovers Offshore finance Non resident investment

Corporate CounselingCovers the entire field of merchant

banking, Ltd to giving suggestions

•  Corporate counselling aims at engaging employees in making healthy lifestyle choices by providing the employees and the organization with the tools, resources, and knowledge to create a health supportive work environment.

Project Counseling

• It includes preparation of project reports, deciding upon the financing pattern, appraising the project relating to its technical, commercial and financial viability. It includes filling up of application forms for obtaining funds from financial institutions.

Preparing project report for govt. approval , financial assistance

Loan syndication

• Assistance is rendered to raise loans for projects after determining promoter’s

contribution. These loans can be obtained from a single institution or a consortium.

Assistance rendered to get term loan for project, help client make appraisal, designing capital structure etc

ISSUE MANAGEMENT :

Management of issues involves marketing of corporate securities i.e.…equity shares, preference shares and debentures by offering them to public.

Pre-issue activities:

They prepare copies of prospectus and send it to to SEBI and then file them to Registrar of Companies

They conduct meetings with company representatives and advertising agencies to decide upon the date of opening issue, closing issue, launching publicity campaign etc..

They help the companies in fixing up the prices for their issues

Post-issue activities:

It includes collection of application forms, screening of applications, deciding allotment procedure, mailing of allotment letters, share certificates and refund orders

• Portfolio refers to investment in different kinds of securities such as shares, debenture issued by different companies. It is a combination of assets but a carefully blended asset combination.

• Portfolio management refers to maintaining proper combination of securities in a manner that they give maximum return

• Investors are interested in safety, liquidity and profitability of his investment but they cant choose the appropriate securities. So merchant bankers help their investors in choosing the shares. They conduct regular market and economic surveys.

PORTFOLIO MANAGEMENT

Investment in different kind of securities

• Merger is a combination of two or more companies into a singe company where one survives and other loses its existence

• Takeover is the purchase by one company acquiring controlling interest in the share capital of another company

• Merchant banker acts as middlemen between offer or and offeree, negotiates mode of payment and gets approval from government.

ADVISORY SERVICE RELATING TO MERGERS AND TAKEOVERS

Offshore finance Help in areas involving foreign currency

•  Located or based outside of one's national boundaries. The term offshore is used to describe foreign banks, corporations, investments and deposits. A company may legitimately move offshore for the purpose of tax avoidance or to enjoy relaxed regulations. 

Non resident investment

• NRIs has to follow lots of complicated rules for investing in the shares in India. Merchant bankers help them in choosing the shares and offer expert advice fulfilling government regulations thus mobilizing more resources for corporate sector.

Provide help in better and smooth trade to NRIs

Qualities Required of Merchant Bankers

Ability to analyse Abundant

knowledge Ability to built up

relationship Innovative approach Integrity

(left) Rashesh ShahChairman & CEO, Edelweiss

(right) Nimesh Kampani

Chairman & MD, JM Financial

(Best merchant bankers)

Merchant banking

Problems….?

Qualities of Merchant Banker

Should have knowledge and information about the capital markets, trends in the stock exchange, psychology of the investing public, and technological and economical changes in the country;

Ability to analyze and evaluate various technical, financial, and economical aspects of an industrial project;

Safeguard the interest of the investing public. Integrity and maintenance of high professional standards are necessary for the success;

Conti…

Should realize the changing environment of capital market and keep cordial relationship with the investors;

They should develop innovative capital market instruments for satisfying the changing needs of investors;

Must restrict, concentrate and develop their strength to keep costs under control.

Filing of the prospectus

Printing and dispatch of prospectus and application form; Filing of initial listing application; Promotion of the issue; Statutory announcement; Collection of applications; Processing of applications; Allotment of shares; Listing of the issue; Cost of public issue.

Problems of Merchant Bankers

As per SEBI guidelines, Merchant Bankers are authorized to undertake only issue related activities, which restrict their scope of activities.

Not creating trouble for customer for the image of these bankers at the investors.

Yet merchant banking is vast but should develop adequate expertise to provide a full range of merchant banking services

SEBI stipulates high capital adequacy norms for authorization which prevents young, specialized professionals into merchant banking business

Merchant banking

Guidelines And Scope in India…?

Guidelines for the Merchant Bankers Should have qualification in finance, law or business

management;

Should have adequate office space, equipment and manpower;

At least 2 merchant bank operations qualified persons to be appointed;

Should be fair in all transactions;

SEBI will supervise the activities of merchant bankers.

Future prospects / scope in India

Growth of primary market;

Entry of foreign investors;

Changing policy of financial institutions;

Development of debt market;

Innovations in Financial Instruments

Corporate restructuring.

1) Growth of new issues market

Indian market largest emerging market

Domestic and foreign investors setting up their biz here.

Many public and private issues coming up

Growth in new issues market

2) Entry of Foreign Institutional Investers

Indian capital market is globalised Indian Cos. are permitted to invest in

euro issues. Similarly, FII are permitted to invest in India.

Hence M.Bs need to advise for their invest in India.

Increasing no expert services of M.Bs.

3) Changing policy of Financial Institutions

Liberalisation of policies FI would require expert services

of M.Bs for project appraisal, financial management, financial restructuring etc.

4) Development of debt market Good portion of

capital can be raised through debt instruments.

Tremendous opportunities to M.Bs.

5) Innovations in Financial Instruments

New financial instruments have come up.

M.Bs are market makers for these instruments.

6) Corporate Restructuring

Liberalization and globalization

Competition in corporate sector becoming intense.

Reviewing their strategies, structure and functioning etc. leading to corporate restructuring.

Good opportunity to M.Bs to extend their area of operation.

BISWAJIT PALIT

AMRITA DAWN

JERRY

JOHN

RAJSHAKHER