Definition: • The Notification of the ministry of finance defines a merchant banker as “ any person who is engaged in the business of issue management either by making arrangements regarding selling, buying or subscribing to the securities as Manager, consultant, adviser or rendering corporate advisory services in relation to such issue Management”.
6. Underwriting
7. Capital Restructuring 8. Pre investment studies
9. Merger and acquisition
10. NRI investments.
SEBI Regulations 1. Registration of merchant Bankers 2. Procedure for Inspection 3. Procedure for action in case of Default 4. Code of Conduct for Merchant Bankers.
SEBI REGULATIONS
1. Registration of merchant Bankers
a. Application for Grant of Certificate b. Conformance to Requirements c. Furnishing of information d. Consideration of application • • • Body of corporate Primary dealer Necessary infrastructure
•
• •
Employment of minimum two persons
Capital Adequacy Requirements Litigation connected
SEBI REGULATIONS •
• • • Convicted Professional qualification A fit and proper person In the interest of investor
e. Capital Adequacy Requirements Category Category I Category II Category III Category IV f. Renewal of Certificate Minimum Amount Rs 5,00,00,000 Rs 50,00,000 Rs, 20, 00, 000 NIL
SEBI REGULATIONS
General Obligations Sole Function Maintenance of Books Submission of Half Yearly Results
Preservation of Books of Accounts, records
Reports on steps taken on auditors report Appointment of Lead Merchant Bankers Restriction on Appointment of Lead ,Managers Size of Issue < Rs. 50 Crore Rs.50 Crore - Rs 100 Crore Numbers of Lead Managers Two Three
Rs.100 Crore - Rs 200 Crore Four
Rs.200 Crore - Rs 400 Crore > Rs 400 Crores Five Five or more
Acquisition of share Prohibited Complete information to the board
SEBI REGULATIONS II. PROCEDURE FOR INSPECTION a. Board’s Right to inspect b. Notice Before inspection
c. Obligation of merchant bankers on inspection
d. Submission of Report to the Board e. Action on inspection or investigation Report f. Appointment of Auditor g. Communication of Findings
III Procedure For Action in case of Default Liability for Action in case of Default Suspension of Registration
i. Violates the Provisions ii. Fails to furnish any information iii. Fails to resolve the complaints iv. Indulges in manipulating v. Guilty of misconduct vi. Fails to maintain Capital adequacy vii. Fails to pay the fee viii. Violates the conditions of Registration ix. Fail to carry out his obligations
Cancellation of Registration i. Indulges in deliberate Manipulation ii. Financial position Deteriorates iii. Guilty of Fraud iv. Repeated defaults
IV. Code of Conduct
i. Protect the interest of investor ii. High standard of integrity Prompt and ethical
Adequate discloser
True adequare information Copy of the prospectus No discrimination Do not Mis represent the srevice Resolve any conflict Shall not indulge in unfair competition
Shall not make untrue statements
Good corporate polices
SEBI GUIDELINES
1. Submission
of offer document
2. Despatch of issue material
3. Underwriting
4. Compliance obligation i. Association of resource personnel
ii. Redressal of investor grievances
iii. Submission of post issue monitoring reports iv. Issue of No Objection Certificate v. Registration of merchant bankers vi. Reporting Requirements
vii.Imposition of penalty points
SEBI GUIDELINES- Guidelines on Advertisement
1.
2. 3. 4. 5. 6. 7. 8. 9.
Factual and truthful
Clear and Concise Promise of promise Mode of advertising Financial Data Risk factors Issue Date Subscription Issue closure
10. Incentive 11. Reservation 12. Undertaking 13. Availability of copies
Pre issue Activities involved on public issue management
1.
2. 3. 4. 5. 6. 7. 8. 9.
Signing of MOU
Obtaining appraisal note Optimum capital structure Convening meeting Appointment of financial intermediary Preparing Documents Due diligence Submission of offer document Finalization of collection centers
10. Filling with RoC 11. Launching the issue 12. Promoters contribution 13. Issue closure.
Post issue Activities
1. 2. 3. 4. Finalization of Basis of Allotment Despatch of share Certificates Advertisement. Coordination with intermediaries Maintain close coordinatation with Registrar to the issue and depute its officers to the offices of the various intermediaries at regular intervals after the closure of the issue, to monitor a) Flow of applications from the
collecting bank branches b). Processing of applications c) other matters till
the basis of allotment is finalized , despatch of security certificates/ refund orders are completed and securities are listed .
5.
Audited financial statements in the offer document
The merchant banker should ensure that i) The information contained and ii) the particulars Audited financial statements in the offer document are not more than 6 months old from the issue opening date.
Post issue Activities
5. Other Responsibilities
The despatch of refund orders / allotment letters /share certificates is by registered post /certificate of posting,
Payment of interest to the applicants for delayed despatch of all allotment
letters / refund orders and as so on is made as per disclosure in the offer document Issue is kept open , in case of absence of definite information about subscription figures, for the required number of days to avoid any dispute at a later date by the underwriters in respect of their liability.
Right Issue
Issues of additional shares to existing shareholders at a price which is generally below the market price at the time of issue.
Relevant Guide lines issued by SEBI 1. Record date
2.
3. 4. 5. 6. 7. 8.
Listed companies
Underwriting Letter of offer and application form, Issue period No complaints certificate Reservation for employees Utilization of funds. Dis advantages
Advantages
a. Economy a. Restrictive b. Easy b. Against Society nomenclature c. Advantage to share holder
Book Building
A method of marketing the shares of a company whereby the quantum and price of the securities to be issued will be decide on the basis of the ‘bids’ received from the prospective shareholders by the lead merchant bankers is known as “Book- building “ method.
Book –building process involves the following steps 1. 2. 3. Appointment of book- runners Drafting Prospectus Circulating drafting Prospectus
4.
5. 6.
Maintaining offer records
Intimation about aggregate orders Bid analysis
7.
8. 9.
Mandatory Underwriting
Filling with ROC Bank accounts
10. Collection of completed applications
Book Building
11. Allotment of securities 12. Payment schedule and listing 13. Under- subscription Advantages 1. 2. No price Manipulation. Reduction in the duration between allotment and listing.
3.
4.
Reliable allotment Procedure.
Quick listing in stock exchange possible.
Private Placement
A method of marketing of securities where by the issuer makes the offer of sale to individuals and institutions privately without the issue of prospectus is known as private placement.
Intermediaries
Issues to Limited numbers of subscribers
Exempt from public discloser and regulations No need of underwriters No prospectus Instrument covered Issuer Investors Negotiation Popular instrument Market size.
Private Placement
Advantages Cost Effective Time effective Structure Effectiveness Access Effective
Disadvantages Concentration of securities in a few hands Depriving the common investors of an opportunity to subscirbe to the issue.
Issues of Securities on private placement basis
Qualified Institutional Placement (QIP) Preferential Issues
Private Placement
Qualified Institutional Placement (QIP)
Issuing company Pricing Shareholder Resolution Placement Document Number of Allottees Obligation of merchant Bankers Issuer Certificate
Deposit Receipts
A receipt issued by a ‘Depository’ of a country against the deposit of
shares issued by a domestic company which is eligible for issue to foreign investors and eligible for trading on an oversea stock exchange , is known as ‘Depository Receipt’
Types of Depository Receipts American Depository Receipts ( ADR) Global Depository Receipts ( GDR) European Depository Receipts (EDR) International Depository Receipts (INDR) Indian Depository Receipts (IDR)
American Deposit Receipts
It is a stock that trades in the United States but represents a specified number of shares in a foreign corporations. Working Mechanism Benefits To the company For the investor
Global Depository Receipt
It is an instrument in the form of a depositary receipt or a certificate issued by the overseas depository bank and issued outside the country to non residents against ordinary shares of the issuing company. A GDR issue by an Indian firm takes the following steps 1. 2. 3. 4. 5. 6. 7. 8. Convening Board Meeting Appointment of syndicate member Constitution of task force Oversee listing Indian listing Preparing offer circular Offer analysis Deciding on timing
9.
Holding road shows
Global Depository Receipt
9. Discovering issue price 10. Issue closer 12. GDR allotment 13.Investor information 14. Report to government