Merchant Banking in India - Last

Merchant Banking
PREPARED BY MS.S.SANGEETHA, SENIOR LECTURER, KCTBS

Origin of MB
Italy
Later in France

Merchant Banking in India

Grindlays bank in India, which got license from
RBI (1967).
Activities of Grindlays bank:
 Capital issue management,
 Financial consultancy
 Recognizing the reqts of emerging entrepreneurs

for diverse FS
Financial Services
Production Planning
Sys design
Market research
Management consultancy services

Later Citi bank – sets its division
(1970)
Tasks undertaken:
Assisting new entrepreneurs &
existing units in the evaluation
of projects &
Raising funds through
• Borrowing &
• Issue of equity
Recommendations of banking
commission 1972
• Indian banks should start MB services as part
of their multiple services they could
offer the clients
• SBI Started MB Division in 1972

In initial years it rendered :
 Corporate advice and
 Assistance to small & medium entrepreneurs.

Followers of SBI
• Central Bank of India
• Bank of India 1977
• Syndicate bank
• Bank of Baroda
• Standard Chartered Bank 1978
• Mercantile Bank
• United Bank of India
• United Commercial bank
• Punjab National Bank
Late 70’s
• Canara Bank & Early
• IOB 80’s
Development Banks
ICICI (1973)
IFCI (1986)
IDBI (1991)
• Boom in MB- mid 70’s
• Sponsored by banks, financial institutions,
NBFCs, brokers.
Activities / services
Portfolio Corporate Project Loan Debenture

mngt Counseling Counseling Syndication trusteeship
Takeovers & Acqn

M&A

Differences between MBs & CBs
 Commercial Banks  Merchant Banks

• Debt & Debt • Equity & Equity related
related finance finance (money & capital
market)
• Management oriented.Willing to
• Avoids risks. accept risks.
• Many activities like corporate
counseling & project
• They are merely counseling, M&A, takeovers,
Financiers. restructuring, Discounting &
Rediscounting ST papers etc.

Till 1992, - no
definition / no
set of rules &
regulations.
• 1992  SEBI’s formation
• MB’s  mandatory to register with
SEBI.
• Registration is must
Capital issues (pre & post issues),

Portfolio mngt,
M&A.

Services rendered by MB
• Extending finance for

investment in projects
• Assistance in financial
management
• Raising Euro Dollar loans
• Issue of foreign currency
bonds
• Financing export of capital goods,
ships & railways, Hydro power
installation,
• Financing of HP transactions
• Equipment leasing, mergers &
takeovers
• Valuation of assets
• Investment mngt
• Promotion of investment trusts
External Commercial Borrowings (ECB) are defined
to include
• Commercial bank loans,

• Buyer's credit,
• Supplier's credit,
• Securitised instruments
such as floating rate notes,
fixed rate bonds etc.,
• Credit from official export
credit agencies
• Commercial borrowings from the
private sector window of multilateral
financial institutions such as IFC,
ADB, AFIC (Asian Finance and Investment
Corporation Ltd ), etc. and
• Investment by Foreign Institutional
Investors (FIIs) in dedicated debt funds
• Applicants will be free to raise ECB
from any internationally recognised
source like banks, export credit
agencies, suppliers of equipment,
foreign collaborations, foreign
equity - holders, international
capital markets etc..
FCCB’s:
• A type of convertible bond issued in a currency
different than the issuer's domestic currency. In
other words, the money being raised by the issuing
company is in the form of a foreign currency.
• FCCB can be converted into Indian Shares or

American Depository Shares (ADS).
• FCCB have been extremely popular with Indian

Corporate for raising Foreign Funds at competitive
rates.
• FCCB are treated as Foreign Direct Investment

(FDI) by Government of India.
• They are called in different names in different

countries
• ECB/FCCB can be raised under
Automatic route ( for specified
Industries only on meeting specified
conditions) or on RBI approval.
• Reliance Energy Limited, has issued

two series of FCCB till date, first being
US$ 120 Million, 0.5 per cent FCCB
due on 25th Sep. 2007 and other US$
178 Million, ZCB due on 29th March,
2009.
• All MB’s don’t offer
all services.
•Specialised in different
services

Definition of MB- by SEBI
A MB has been defined as
any person who is engaged in the
business of issue management either by
making arrangements regarding
selling, buying or subscribing to
securities or
acting as a manager, consultant,
adviser or
rendering corporate advisory services in
relation to each issue mngt
Functions
Corporate counseling Acceptance credit &
Project counseling Bill Discounting
Pre invt studies M&A, takeovers
Capital restructuring VC financing
Credit syndication & Lease financing
Project finance Foreign currency finance
Issue mngt & Fixed deposits Broking
Underwriting Mutual Funds
Portfolio mngt Relief to sick industries
WC finance Project appraisal

Corporate counseling
• Providing guidance - diversification
based on Govt’s economic & licensing policies
• Undertaking appraisal of pdt lines,
analysing their growth & profitability &
forecasting future trends.
old line companies &
• Rejuvenating
ailing sick units by appraising their
tech & process, Assessing the reqts &
restructuring the capital base

• Commissioning of diagnostic
studies
revival prospects &

• Assessment of
planning for rehabilitation
through modernisation & dvfn & revamping of
the financial & orgn’al structure
approval of the
• Arranging for the
financial institutions/ banks for
schemes of rehabilitation involving financial
relief .
• Providing assistance in getting loans
from financial inst for cap exp , and the
requisite credit facilities from the bank
• Monitoring of rehabilitation
schemes
takeover
• Exploring possibilities of
of sick units & providing
assistance PREPARED BY MS.S.SANGEETHA, SENIOR LECTURER, KCTBS
IDLC
Corporate Counseling :
• Provides advice to ensure better
corporate performance in terms of
prolonged existence and survival,
• steady growth through better working
results and
• provide suggestions and opinions to
take corrective actions for solving
corporate problems and help by
restructuring the corporate set-up if
necessary.
• IDLC of Bangladesh Ltd. (IDLC)- the
largest Non Banking Financial
Institution in Bangladesh and a major
merchant banker, has formed a
strategic alliance with SBI Capital
Markets Limited (SBI Caps).
• SBI Caps is the largest investment bank

in India and subsidiary of India’s
largest bank, the State Bank of India.

Project counseling
project ideas/ project
• Reviews
profiles
• Advice on procedural aspects -

project implementation
• Review of technical feasibility
• Viability study
Project counselling
• Assisting TCO in preparing pjt reports &
make mkt surveys / review
• Assisting preparation of project reports in
financial angle, & advising & acting on various
procedural steps including Govt consent.
• Assisting in obtaining approvals
licences/permissions/ grants from
govt agencies in the form of letter of indent,
industrial licence, registration & govt approval

guidance
• Providing to Indian
Entrepreneurs for making invts in
Indian projects in India & in Indian JV’s
overseas.
• Identification of potential invt

avenues.
• Arranging & negotiating foreign

collaborations, amalgamations,
mergers & takeovers
precise
Carrying out
capital structuring &
shaping the pattern
of financing.
pjt profiles &
• Preparation of
feasibility studies based
on preliminary pjt ideas, covering
the technical, financial inst &
banks
• Advising & Assisting clients in

preparing applications
for financial assistance to
various national, state inst &
banks.
Project Counseling:
• IDLC contributes to the basic idea that
Company , as a promoter, will initially pick
up for a new project or an industrial
activity.
• They systematically develop company’s
idea into a plan or scheme and help
preparing the appraisal and project
feasibility report including its financing
structure.
• IDLC also prepares complete feasibility
report for BMRE project.
(Balancing Modernization Rehabilitation &
Expansion)
Pre investment studies
• Fin’l & economic viability 
In-depth investigation of envt &
regulatory factors,
location of RM,
Supplies,
DD project &
financial reqts
• Identifying & short listing projects.
• Studies  fgn companies willing to
have joint ventures
Capital Restructuring Services
• Examining capital structure of the
client co.
• Preparation of memorandum for the
Controller of capital issues
• Suggesting alternative capital
structure conforming legal reqts.
• Preparing memorandum covering
valuation of shares & justifying
the level of premium applied for
Memorandum of association
• Name
• Registered office
• Background
• Objectives
• Any grants availed
• Name, address, occupation of the
members of the management.
• Signature
• Suggesting ideal capital
restructuring for sick units
and advising the client co’s on
the extent & means of bringing
fresh capital into business
• Cap restructuring may cover

mergers, takeovers &
amalgamations, involving
modernisation /dvfn of the
existing pdn sys & the units.
IDLC
• With improper corporate structure of the
customers company, the company may
experience high financial risk, low or no
growth, etc. IDLC helps to redesign the
capital and provide an appropriate
structure so that they may experience an
optimum growth and minimum risk.
• IDLC will helps to diagnose the financial
problems of the customers company and
provide the customers the customized
solution for the company through
financial engineering.
Credit Syndication
•Estimating total cost of

the project to be
undertaken
•Drawing up a financing
plan for the total project
cost PREPARED BY MS.S.SANGEETHA, SENIOR LECTURER, KCTBS
Credit Syndication
• Preparing loan application for
financial assistance
• Selecting inst & banks for
participation in finance
• Follow up of term loan application
with the financial inst & banks &
obtaining approval for their respective
share of participation

Credit Syndication
• Arranging bridge finance
• Assisting in completion of
formalities for drawing of
term finance sanctioned by
institution by expediting legal
documentation formalities,
drawing up agreements
• Assessing WC reqts.
• SBI Caps has been a leading player in the Indian
loan syndication market. It has been ranked first
in Asia-Pacific for project finance syndication by
Thomson Project Finance International.
• Realising the huge potential in the loan syndication

market, the investment bank recently tied with
IDFC for syndication of debt financing of
infrastructure projects.
• Some Japanese banks lending to Indian Corporates

are the Sumitomo group and Mizuho group.
• New players -- Merrill Lynch, Lehman Brothers and

Donaldson, Lufkin & Jenrette, the Equitable unit --
have started their own loan syndication businesses.
Issue Management
• Preparation of an action plan
• Preparation of budget for the
expenses for the issues
• Preparation of CI application &
assisting in obtaining consent
/ acknowledgement
• Drafting of prospectus
Issue Management
• Selection of institutional &
brokerS, underwriters for
syndicating / underwriting
arrangements.
• Selection of Issue houses & advtg
agencies for undertaking pre &
post- issue publicity

Issue Management
• Obtain approval from institutional
underwriters & stock exchanges for
publication of the prospectus & application
forms, as well as their dispatch, if necessary
• Providing assistance  launching the issue in
the form of advertisement campaigns
by holding press, brokers’ and investors’
conferences etc
• Coordination with the Underwriters, brokers &
bankers to the issue, & the stock exchange

Issue Management
• Providing advice on the design of a
sound capital structure
acceptable to financial institutions.
• Determining thequantum , terms

and timing of the public
issue of different forms of securities
Issue Management
• Arranging for Stock exchange
Clearances & listing of Securities
• Liasioning & Coordination with
various constituents of the public
issue to make the function of
issue mngt successful.

Public Issue can take place in 3 forms
• Prospectus
• Offer for sale
• Private placement

Public Issue thro’
•Common method
of public issue
thro’ Prospectus.
The information required by the
companies Act & SEBI are furnished
in the prospectus.
When the prospectus is ready
sent to
SEBI (for vetting & clearance)
Filed with the Registrar of companies
Brokers canvass the subscription

(Members of the stock exchange)

Offers for sale
• Offers thro’ the intermediary of issue

house/ firm of stock broker
Issue of shares
• Co Sells entire Issue
house / Debentures
at agreed
price(par value)
Private Placement
• Direct sale of securities by a company

to investors
LIC UTI GIC SFC

Role of Merchant Bankers
Merchant Bankers
appoint
Brokers Principal Agent Bankers to

issue

Pricing of the Issues
• The SEBI guidelines (1992) for cap issues

have opened the cap mkt for free pricing.
• Pricing done by co’s with consultation
with MBs.
 An existing Listed company & a new co
set up by an existing co with 5 years of
track record.
 An existing Unlisted company going in for
public issues for the 1st time & 2 1/2
years of track record of constant
profitability can freely price the issue.
Reliance com’s- merchant
bankers
• Goldman Sachs, Deutsche Bank, Morgan
Stanley and UBS
• The proceeds raised from the IPO will be

used to part finance expansion plans
announced last year, which include laying
50,000 km fresh undersea cable in regions
where there is dearth of international
bandwidth. The expansion plan could entail
an investment of about 1.5 billion dollar
(nearly Rs 7,000 crore).
Premium
• Premium will be based on
 Net Asset Value

 Profit Earning Capacity
 Market Price
Justification of price has to be
stated & included in the prospectus.

Rights issue
• New shares are offered to the existing
shareholders.
• Only in equity shares
• Can be done only after 1 year of the

first issue

Prospectus
Sec2(36)of the Co’s Act 1956
• Is any document described/ issued as a
prospectus & includes any notice ,
circular, advt or other document inviting
deposits from the public, inviting offers
from the public for the subscription or
purchase of any shares in or debentures
of a body corporate
• Registered with the Registrar
• Advertised in newspapers atleast 10 days
before opening of subscription
• Subscription list -Minimum period
for which the company will continue
to receive application.
• Must be open atleast for 3 days
• Minimum subscription is fixed at 90%
of the issued capital to the public
• Has to be subscribed within the
stipulated period after the issue of
the prospectus , if not to be returned
to the applicants.
• In case of over subscription, partial
allotment is made
Marketing
• After the despatch of Prospectus , the MB arrange a
meeting with the representatives & advertising
agencies to finalise
 Date of opening
 Closing of issue
 Registration of Prospectus
 Launching publicity campaign
 Fixing date of Board meeting to approve & sign
prospectus
 Pass necessary resolutions.
Security issues are to underwritten . SEBI has
made it mandatory.

Post Issue management
• Collection of application forms &
(applicant should submit only one
application )
• Statement of amount received from bankers
• Screening Application
• Deciding allotment procedure
• Mailing of allotment letters , shares

certificates & refund orders.

Role of Registrars
• Receive application
• Verify
• Submit the basis of allotment to the
stock exchange
• They have to ensure that the
application are processed &
allotment /refund orders are sent
within 70 days of date of close of
issue.
After the approval by the Stock
exchange and the Board
The Auditor has to certify the

allotment

Underwriting the public issue
• Guarantee given by underwriter at under
subscription is that the amount underwritten
would be subscribed by him.
• Only Category I & II & III MBs are permitted

to underwrite an issue.
• Lead managers underwrite mandatorily 5% of
issue /2.5 lakhs whichever is less.
• Banks /MBs cannot write > 15% of any issue.
• The underwriting commission may not

exceed 5 % on shares and 2.5 % in case of
debentures.PREPARED BY MS.S.SANGEETHA, SENIOR LECTURER, KCTBS
Underwriting by Capital
Market Services Limited
Till to date they have
underwritten shares of 27
companies valuing
Taka.372.59 million.

Types of Underwriting
• Syndicate Underwriting:- two or more
agencies or underwriters jointly underwrite an
issue of securities.
• Sub-Underwriting:- is one in which an
underwriter gets a part of the issue further
underwritten by another agency.
• Firm Underwriting:- is one in which the
underwriters apply for a block of securities.
Under it, the underwriters agree to take up
and pay for this block of securities as ordinary
subscribers in addition to their commitment
as underwriters.
Managers /Consultants/Advisers to
the Issue
• SEBI at least one authorised MB
• Not more than 2 MB should be

associated as lead managers, advisers &
consultants to a public issue
• Issue >100 crores – max. of 4 MBs

associated as Lead Managers
Size of issue No. of. LMB
Less than Rs.50 Cr 2
Rs.50 cr –Rs.100 cr 3
Rs.100 cr –Rs.200 cr 4
Rs.200 Cr- Rs.400 cr 5
> Rs.400 cr 5 or more as

agreed by
SEBI
MBs has to be aware of
• Monetary & Fiscal policies of the Govt.
• Financial statements of various corporate

sectors.
• Secondary market position.
• Competition faced by the industry.

Bajaj Capital
Provides Merchant Banking Co-ordination
& Advisory Services for
• Preparation of prospectus/ letter of offer (s)
• Liasioning with authorities mainly SEBI,
ROC, RBI, Stock exchange (s)
• Appointment of various intermediary
agencies
• Marketing of issue (s)
• Listing of securities
• Compliance of other pre issue and post
issue formalities
Portfolio Management
• Maintaining proper combination of

securities in a manner that they give
maximum return with minimum risk
• Every investor is interested in

safety,
liquidity &
profitability of his investment.

• Undertaking invts in securities
• Undertaking invts for NRI’s both repatriation and non
repatriation basis. (Bajaj Capital)
March 1991 US$ 14.0 billion
NRI deposits in India March 2007 US$ 41.2 billion
• Undertaking review of PF invt
March 2008 US$ 43.7 billion
• Safe custody of securities in India & Overseas
• Collection of RoI & ploughing back the profits

• Invt advisory services to the investors & other related
services

• Providing advice on selection of invts
• Carrying out a critical evaluation of invt
portfolio
• Securing approval from RBI for the
purchase / sale of securities (NRI Clients)
• Maintaining invt records
• Collecting & remitting int & dividend on
invt
• Providing tax counselling & filing tax
returns through tax consultants.
CMSL (credit market services ltd) is a licensed Merchant Bank
carrying out functions like
• issue management,
• portfolio management and underwriting
• international tax advisory services both home and abroad
Religare- Investment Banking,

• Corporate Finance,
• Portfolio Management Services,
• Equity & Commodity Broking,
• Insurance and Mutual Funds.
IL&FS (Infrastructure leasing & financial services)

* Wealth Management Services
* Portfolio Management Services
* Securities Broking - Equities & Derivatives
* Depository & Custodial Services
* Merchant Banking

Working Capital Finance
• Assessment of WC reqts
• Preparing the necessary application to
negotiations for the sanction of
appropriate credit facilities.
• Providing assistance in negotiations
with all the banks, & suggesting a sharing
pattern of credit limits amongst
participating banks, where more than one
bank is involved.

Acquarius Capital & Financial Services
• Provides services related to banking and

financial institution
• External Commercial Borrowing,
• Project Finance,
• Term Loan,
• Working Capital,
• Letter of Credit Discounting

Acceptance Credit & Bills
Discounting
Accepts & discounts B/E

Merger and Acquisition
• Specialised service provided by
the merchant banker
• Undertaking mngt audits to
identify areas of corporate
strength & weaknesses in
order to help formulate
guidelines & directions for
future growth
• Undertaking studies on a global basis
to locate overseas mkts, fgn
collaborations & prospective JV
associates.
• Examining the pros & cons of
proposals & formulating schemes for
financial reconstruction, M&A
• Obtaining approvals from shareholders,
depositors, creditors, Govt & other
authorities
• Monitoring the implementation of
M&A Schemes
• Identifying Orgns with Matching

Characteristics
• Assisting in the compliance of legal

reqts
• Advising on cap reorgn of business
enterprises
Advisory services relating to Mergers &
Takeovers
• Once the approval is done, the MBs

appraises M/T proposal
Financial viability Technical Feasibility
 Negotiates purchase consideration & mode of

payment
 Gets approval from the GOI /RBI.
 Drafts scheme of Merger & obtains approval from
the financial institutions.
• Bajaj capital
Reasons for M&A
• Unused capacity
• Lack of mftg space for the purchaser
• Advantages of economies of scale
• Benefits of VI

Venture financing
• Originated in US
• Popular 60’s & 70’s.
• High risk- high reward
projects
• New technology Co’s.
• In India IFCI, ICICI,IDBI
• VC financing really started in India in
1988 with the formation of Technology
Development and Information
Company of India Ltd. (TDICI) -
promoted by ICICI and UTI.
State level financial institutions started VCs like

• Gujarat Venture Finance Ltd. &
• APIDC (Andhra Pradesh Industrial
Dvlpt Corp) Venture Capital Ltd.
• Sources of these funds  financial
institutions, foreign institutional
investors or pension funds and high
net-worth individuals. (Angel groups)
First Private Venture Capital
Sponsor Promoters
Credit Capital Bank of India,
Finance Corporation Asian Development Bank
&
(CFC) Commonwealth
Development Corporation
Credit Capital Venture Fund

• Chrysalis Capital - Venture capital
funding for IT companies
• Cipher Securities - Offers startup
funding, venture capital & strategic
investment services
• CoolStartups - Initial stage mentoring,
services & funds to startups
• Dawn Consulting - Venture capital
fund raising consulting
• Draper - US VC company investing in
Indian IT start-ups
• Gujarat Venture Finance - Venture
finance & managerial support services
• India Technology Fund - Boston, MA
based hedge fund investor
• Indiaco - Virtual and physical
incubator support and services
• IndianVentureCapital - Interactive
forum for venture capitalists & startups
• Intel India - Software development,
venture capital funding & market
development
• Jumpstartup's VC Database - Listing of
Indian venture capital firms
• Mantra Consultants - Venture capital
consultancy and investment banking
services PREPARED BY MS.S.SANGEETHA, SENIOR LECTURER, KCTBS
• Pacific Century Group Ventures - Fund
management, venture capital &
corporate finance
• Sameer Gandhi Bolts to Accel Partners
- Sameer Gandhi of Sequoia Capital
has joined Accel....
• Satwik Ventures - Venture capital
funding and positioning services
• Silicon Spot - Promotes dotcom and
investor community relations
• SmartCapital - Venture financing for
small IT and telecommunications
companies
• TDICI - The VC pioneers in India
• Technology Capital Partners - Provides
assistance in making business plans
and accessing venture capital funds
exclusively to information technology
companies.
• VC Addresses - Address of VC firms
from VC Line
• VCFirm.com - Seed & early stage
venture capital firm
• VCline.com - Venture capital guidelines
and advisory services
• Venture Finance - Portal on venture
finance
• Venture Bazaar-Venture formation
services PREPARED BY MS.S.SANGEETHA, SENIOR LECTURER, KCTBS
Registration
For grant of certificate as VC’s:

• Registered with SEBI and
• Application fee pay Rs.25,000 and
• Registration fee Rs. 5,00,000

• The venture capital investment in India till the year
2001 was continuously increased and thereby
drastically reduced. Venture capital investors slow
down their investment.
Years Growth
1998-99 327 %
1999-00 132 %
2000-01 40 %
2001-02 -4 %
2002-03 -54 %
Lease Financing
• Letting out assets on lease for a
particular time for use by the lessee.
Important services offered:
• Providing advice on the viability as an
alternative
• Providing advice on the choice of
favourable rental structure
• Providing assistance in establishing
lines of lease for acquiring capital
equipment
Examples
• Pan Caribbean Merchant Bank (PCMB)
offers lease financing for BMW customers
• Bajaj capital
• SBI, Canara Bank, ICICI, IDBI, IFCI

Foreign Currency Financing
 Providing assistance
• turnkey projects & construction contract projects
(supply, erection and commissioning of boilers,
power plants, transmission lines, sub-stations,
plants for manufacture of cement, sugar, textiles
and chemicals)
• In appln to working groups, liaison with RBI,
ECGD & other institutions.
• In Opening & Operating Bank accounts
abroad.
• In obtaining export credit facilities from EXIM
bank  capital, packing credit
Financing Indian JV abroad & Providing
Assistance in fgn collaboration
Advice in legal laws, pdt risk, Govt

regns shareholdings, exge
restrictions, taxation, dividends,
incentives & subsidies etc.
Providing guidance on negotiating fgn
financial & technical collaboration
agreements within the framework of Govt
policies, rules & regulations, assistance in
the formation of corporate ventures in India
in collaboration with suitable foreign parties.
Foreign Currency Financing
Arranging
• Foreign currency loans under buyer’s
credit scheme for importing goods
• Deferred payment guarantees under

suppliers credit scheme for importing
capital goods.
• LoC, Pre shipment Credit, Post

shipment credit, bridge loans (bajaj
capital) PREPARED BY MS.S.SANGEETHA, SENIOR LECTURER, KCTBS
Forms of foreign currency
Procuring euro currency in the form of
mngt & syndication of Euro currency
loans, bonds, FRN, US Commercial
papers, with the assistance of
International Treasury Mngt Ltd (ITM)
Eg: The National Bank of Abu Dhabi
(NBAD) announced the launch of its $2
billion settled floating rate subordinated
convertible notes due in 2018.
Cross border leasing packages
Capital & Credit Merchant Bank Ltd is engaged in
• taking deposits,
• granting loans and
• trading in foreign currencies and
government securities.

SBI
• Pre-Shipment Export Credit
offers Pre-shipment Credit (Packing
Credit) to the exporters,
for financing purchase,
processing,
manufacturing or packing of goods
prior to shipment.

Post-Shipment Export Credit
• SBI extend Post-shipment Credit that is
any loan / advance granted or any other
credit provided by SBI for purposes such
as export of goods from India.
The exporter has the option to avail of

pre-shipment and post-shipment credit
either in rupee or in foreign currency.

PRE-SHIPMENT CREDIT IN FOREIGN CURRENCY(PCFC)
• SBI’s Pre-shipment Credit in Foreign Currency
• Avail it to meet the customers manufacturing,

processing and packing fund requirements at
international interest rates.
• Offers 4 different currencies  the US Dollar,

Pound Sterling, Euro and the Japanese Yen.
• Has 64 branches across the country  PCFC

facility
• Their Foreign Department Kolkatta, is the

nodal centre for raising and deploying offshore
and onshore funds for lending under PCFC.
Brokering FD
• Amt that can be raised by the
company in the form of FD from the
public & loans from the shareholders
(Ranbaxy, Jindal steel & power)
• Drafting of advtg for inviting deposits
• Filing a copy of advtg with the
Registrar of Companies for registration
• Arranging for the issue of advtg in
newspapers, as reqd by the
Companies Act
Brokering FD
• Drafting & printing of application
forms
• Making arrangements for the
collection of deposits at the banks
branches
• Submission of periodical
statements to companies concerned
• Making arrangement for payment of
interest amounts
Brokering FD
• Providing advice to the company on the
terms & Conditions of FDs &
• Deciding on the appropriate rate of int,
keeping in view the prevailing capital &
money mkt conditions
• Helping the company to observe all the
rules & regulations in this connection
• Assisting in Mntce of records & registers
for this purpose.
Deposits under corporate FD’s :
• Governed by  Companies Act under Section 58A.
• Unsecured.
Currently corporate fixed deposit rates

• Small companies  11%,
• Big companies offer 10.5% interest.
• Banks  6-7% and these rates can change easily.
• Corporate deposits  Do not change their rates during a
six month to one year period, which provides stability to
the investment.
• Tata Motors, Mahindra & Mahindra and Indian Hotels

all offer corporate FD’s and are doing well.
• People usually invest in lakhs and not thousands in
corporate FD’s.
• The interest paid  half yearly basis.
• Tata Motors was authorised to raise up to

Rs 1,931.48 crore from the public
through fixed deposits and has already
raised over Rs 700 crore.
• Majority of the companies who raise money

via fixed deposits have quarterly interest
payouts and the interest rates vary from
9-13% based on the options one chooses.
• It is a threat to mutual fund

• Bajaj capital
• Integrated Enterprises (India)
Limited
• Integra Capital Management
Ltd.
• ICICI LOMBARD
• Karvy consultancy
Mutual Funds
• Pooling up public savings
• Investing the funds in a diversified portfolio of shares
& debentures belonging to well managed & growing
companies
• Earnings investors a steady ROI with an assurance of
capital assurance
• Engaging in the business of acqn, holding/ disposal of
securities
• Making invt in any commercial paper floated by Central
Govt, RBI, any local authority, any fgn Govt, fgn
bank/ any other authority outside India & approved
by RBI.

Mutual Fund Companies in India
• ABN AMRO Mutual Fund

• Birla Sun Life Mutual Fund
• Bank of Baroda Mutual Fund (BOB Mutual
Fund)
• HDFC Mutual Fund
• HSBC Mutual Fund
• ING Vysya Mutual Fund
• Prudential ICICI Mutual Fund
• Sahara Mutual Fund
• State Bank of India Mutual Fund (SBI)
• Tata Mutual Fund
Relief to Sick industries
• Rejuvenating old lines & ailing units
by
Appraising their technology &
process,
Assessing their reqts
Restructuring their capital base
• Evolving the rehabilitation
packages which are acceptable
to financial institutions & banks
Relief to Sick industries
• Exploring the possibilities of M&A
• Assisting in obtaining approvals from

the BIFR & other authorities under
the Sick Industrial
Companies Act 1985
• Monitoring the implementation of

rehabilitation schemes, M&A
Example- Indian Drugs & Pharmaceuticals Ltd
• IDPL was formally declared sick by the Board for
Industrial & Financial Reconstruction (BIFR) on the
12.08.1992.
• A revival package for the company was approved by
BIFR on the 10.02.1994.
• BIFR heard the case from time to time.
BENGAL CHEMICALS & PHARMACEUTICALS LIMITED (BCPL)-

declared sick by the Board for Industrial and Financial Reconstruction
(BIFR) – 14/1/ 1993.
•A revival package was approved by the BIFR on the 4/4/1995.
•The revival period was for ten years beginning 1994-95. The company
could achieve a consistent growth of about 20% in the years 1994-95
to 1996-97.
•The net losses per annum are also came down significantly
thereafter.

• M/s. Khatau Makanji Spinning &
Weaving Mills Ltd. is a sick industrial
company , the Sick Industrial
Companies (Special Provisions) Act,
1985 (SICA). On 27 March, 1995, BIFR
sanctioned a scheme for the
rehabilitation of the company
• Rehabilitation scheme has been

prepared by ICICI .

Project Appraisal
Financial appraisal
Technical appraisal
Economic Appraisal

Financial Appraisal
viability,
profitability,
ST & LT obligations,
Capital structure analysis
- LT solvency position
Technical Appraisal
Technology
Design
Scope & content of the plant
Inputs
Infrastructure facilities
Marketable pdt from the resources
deployed
Plough back - certain %
Economic Appraisal
Effect of the Project on
employment & fgn
exge.
Impact of the project on
net social benefits /
welfare.
• If a fund had net assets of $50
million and there are one million
shares of the fund, then the price
per share (or NAV) ?

The current market value of the fund's net assets on that particular day
NAV=
The number of outstanding shares (or)
• The total net assets of the fund - any
liabilities. (or)
• Example: If the total value of assets in
a fund = $50 million N= one million
shares in the portfolio,
Total value of assets in a fund $50 million

NAV = = = $50/ share
Shares in the portfolio 1 million shares

Details of the IPO OF DLF:
• Issue period: Between June 11, 2007 and June 14, 2007
• Issue : 175,000,000 shares/ 17.5 crores
• Issue Size: Rs 8750crores -Rs 9625 crores
• Face Value: Rs.2
• Method: 100% book building
• Price band: Rs.500 to Rs.550 (250 to 275 times >face
value)
Rs 8750crores / 17.5 crores= 500;
Rs 9625 crores/ 17.5 crores= 550
• Market lot: 10 shares
• Minimum order: 10 shares
• Retail investor cap: Rs.100,000 maximum
• This is really an excellent IPO.
• Reasons for the demand for more housing,
infrastructure etc.
Global coordinators & Book running lead managers
• Kotak invt bank
• DSP Merrill Lynch
• Senior Book running lead managers:

Lehman bros Securities private ltd
• Registrar of the issue: Karvy Computershare pvt ltd
• Bankers o the issue: ABN Amro, ICICI, HSBC, Deutsche

Bank , citi bank, centurion bank of Punjab, Standard
chartered Bank, UTI, Kotak mahindra, HDFC
• Refund banks: ICICI, HSBC, Standard chartered Bank

Public Issue can take place in 3 forms
• Prospectus
• Offer for sale
• Private placement

Public Issue thro’
•Common method
of public issue
thro’ Prospectus.
The information required by the
companies Act & SEBI are furnished
in the prospectus.
When the prospectus is ready
sent to
SEBI (for vetting & clearance)
Filed with the Registrar of companies
Brokers canvass the subscription

(Members of the stock exchange)

Offers for sale
• Offers thro’ the intermediary of issue

house/ firm of stock broker
Issue of shares
• Co Sells entire Issue house
/ Debentures
at agreed
price(par value)
Private Placement
• Direct sale of securities by a company

to investors
LIC UTI GIC SFC

Role of Merchant Bankers
Merchant Bankers
appoint
Brokers Principal Agent Bankers to

issue

Pricing of the Issues
• The SEBI guidelines (1992) for cap issues

have opened the cap mkt for free pricing.
• Pricing done by co’s with consultation
with MBs.
 An existing Listed company & a new co
set up by an existing co with 5 years of
track record.
 An existing Unlisted company going in for
public issues for the 1st time & 2 1/2
years of track record of constant
profitability can freely price the issue.
Reliance com’s- merchant
bankers
• Goldman Sachs, Deutsche Bank, Morgan
Stanley and UBS
• The proceeds raised from the IPO will be

used to part finance expansion plans
announced last year, which include laying
50,000 km fresh undersea cable in regions
where there is dearth of international
bandwidth. The expansion plan could entail
an investment of about 1.5 billion dollar
(nearly Rs 7,000 crore).
Premium
• Premium will be based on
 Net Asset Value

 Profit Earning Capacity
 Market Price
Justification of price has to be
stated & included in the prospectus.

Rights issue
• New shares are offered to the existing
shareholders.
• Only in equity shares
• Can be done only after 1 year of the

first issue

Prospectus
Sec2(36)of the Co’s Act 1956
• Is any document described/ issued as a
prospectus & includes any notice , circular, advt
or other document inviting deposits from the
public, inviting offers from the public for the
subscription or purchase of any shares in or
debentures of a body corporate
• Registered with the Registrar
• Advertised in newspapers atleast 10 days before
opening of subscription

• Subscription list -Minimum period
for which the company will continue
to receive application.
• Must be open atleast for 3 days
• Minimum subscription is fixed at 90%
of the issued capital to the public
• Has to be subscribed within the
stipulated period after the issue of
the prospectus , if not to be returned
to the applicants.
• In case of over subscription, partial
allotment is made
Marketing
• After the despatch of Prospectus , the MB arrange a
meeting with the representatives & advertising
agencies to finalise
 Date of opening
 Closing of issue
 Registration of Prospectus
 Launching publicity campaign
 Fixing date of Board meeting to approve & sign
prospectus
 Pass necessary resolutions.
Security issues are to underwritten . SEBI has
made it mandatory.

Condition for Fixation of face value:
Issue prices Face value
Below Rs 500 per share Rs 10 per share.
Rs 500 or more Not below Re 1.

• Book Running Lead Manager
The lead merchant bankers appointed by the Issuer
Company are referred to as the Book Running Lead
Managers. The names of the Book Running Lead
Managers are mentioned in the offer document of the
Issuer Company.
• Syndicate Members
The Book Running Lead Managers to the issue appoint
the Syndicate Members, who enter the bids of investors
in the book building system. Syndicate Members are
intermediaries registered with SEBI who also carry on the
activity of underwriting.
• Order Book
It is an 'electronic book' that shows the demand for the
shares of the company at various prices on a real time
basis. PREPARED BY MS.S.SANGEETHA, SENIOR LECTURER, KCTBS
• Authorised capital is that capital which is
decided by the Registrar (recruited under 20 crores
companies act,1956)as the maximum amount
that can be raised from the shareholders.
• Issued capital is that part of the authorised

capital which is brought before the public for 18 crores
subscription.
• Subscribed capital is that part of the issued

capital that is actually subscribed by the 16 crores
public.
• Paid-up capital is that part of the subscribed

capital that is collected by the company as a 8 crores
part payment. The due part will be collected by
the company in the immediate future.
Company cannot raise capital amount more than

Authorised Capital unless the Article of Association is amended
by passing special resolution by the share holders with approval of
Central Government and Registrar of Companies.
• Bajaj Capital is a SEBI approved merchant
bankers, investment advisors and financial planners.
Their Products and Services :
Investment Advisory Products , Company
fixed deposits, Bonds, Mutual funds, Life
insurance, General insurance, Pension
schemes, Post office schemes, Tax saving
schemes, Insurance linked investment
schemes, Initial public offerings, Housing
loans, NRI scheme
• They are Category II Merchant Banker:
They provide the following services -
•Structuring & Syndication,
•Lease & Hire Purchase, •Syndications,
•Money Markets,
•Initial Public Offers [IPOs],
•Structuring of Short Term Finance Solutions,
•Placement of Preference Shares/ •Advisory Services,
•Non-Convertible Debentures, •Share Buybacks,
•Securitisation of Debt, •Mergers, Acquisition.
•Private Equity and Venture Capital
• ICICI Lombard.
- Asset Financing,
- Merchant Banking,
- Capital Market Operations,
- Corporate Advisory Services,
- Fixed Deposits.

Integrated Enterprises (India) Limited the
• Manufacturer and Services of Investment Avenues,
• Mutual Funds,
• Corporate Services,
• Demat services,
• Insurance,
• Secondary Market,
• Franchisee,
• Share News,
• e-TDS, (Tax deducted at source)
• BPO services,
• Depository Registry,
• Demat Account,
• Fixed Deposits, Bonds, Post office Schemes. -Post office
Schemes
• Public Provident Fund (PPF),
• Post Office Monthly Income Plan
• Integra Capital Management Ltd. -Asset
Financing -Merchant Banking -Capital
Market Operations -Corporate Advisory
Services -Fixed Deposits.
• IL&FS Investsmart Limited - Wealth

Management Services, Portfolio
Management Services , Securities Broking -
Equities & Derivatives , Depository &
Custodial Service.
• Bajaj Capital Ltd - Merchant Banking. -

Resource Mobilisation - Distribution of
Mutual Fund. - Investment Advisory -
Money Market - Financial Planning.
• Karvy Consultants Limited
- Stock broking, Depository Participants,
Distribution of financial products - mutual funds,
bonds, fixed deposit, equities, Insurance Broking,
Commodities Broking, Personal Finance Advisory
Services, Merchant Banking & Corporate Finance,
placement of equity, IPOs.
• LKP Shares and Securities Ltd.

-Stock Markets, Primary Market Operations,
Secondary Market Operations, Research, Merchant
Banking.
• Middle East Capital Group: MECG

- Merchant Banking, Private Equity Funds, And
Corporate Finance.

"Offer document" :
• Prospectus  public issue or offer
for sale
• Letter of Offer  rights issue which

is filed with Registrar of Companies
(RoC) and Stock Exchanges. An offer
document covers all the relevant
information to help an investor to
make his/her investment decision.

• "Draft Offer document"  offer document in draft
stage. The draft offer documents are filed with
SEBI, at least 21 days prior to the filing of
the Offer Document with the RoC/ SEs.
• SEBI may specify changes, if any, in the draft
Offer Document and the issuer or the lead
merchant banker shall carry out such changes in
the draft offer document before filing the Offer
Document with the RoC/ SEs.
• The Draft Offer document is available on the SEBI
Web site for public comments for a period of 21
days from the filing of the Draft Offer Document
with SEBI.

• "Red Herring Prospectus" is a prospectus which does
not have details of either price or number
of shares being offered or the amount of
issue. This means that in case the price is not disclosed,
the number of shares and the upper and lower price
bands are disclosed. On the other hand, an issuer can
state the issue size and the number of shares are
determined later.
• If the final price are included in the offer document &

the offer document filed thereafter with ROC becomes a
prospectus.
• "Abridged Prospectus"  Prospectus + application form

of public issues.

• DB Merchant Banking Services •Karur Vysya Bank Ltd.
Ltd. •Karnataka Bank Ltd.
• Cosmos Co-Op. Bank Ltd. •Dhanalakshmi Bank Ltd.
• Punjab & Sind Bank •Bank of Maharashtra
• State Bank of Patiala •City Union Bank Ltd.
•Centurion Bank of Punjab Ltd
• State Bank of Hyderabad •YES Bank Ltd.
• Lakshmi Vilas Bank Ltd. •UCO Bank
• Catholic Syrian Bank Ltd. •Ind Bank
• Bharat Overseas Bank Ltd. •Housing Ltd.
•Indbank Merchant Banking Services Ltd.
• City Co-operative Bank Ltd •United Western Bank Ltd.
• Shamrao Vittal Co-operative •Bank of Punjab Ltd.
Bank Ltd. •Bank of Madura Ltd.
• Benares State Bank Ltd. •IDBI Bank Ltd. (OLD)Nedungadi Bank Ltd.
• United Bank of India •Lord Krishna Bank Ltd.Development
Credit Bank Ltd.
• North Kanara G. S. B. Co- •Global Trust Bank Ltd.
operative Bank •Hindusthan Mercantile Bank Ltd.
• Bank of India •State Bank of Indore Ltd.Indian Bank
•Central Bank of India
• Andhra Bank •Small Industries Development Bank of
India
• Corporation Bank •Export Import Bank of India
• Vijaya Bank
• PREPARED BY MS.S.SANGEETHA, SENIOR LECTURER, KCTBS
•Jammu & Kashmir Bank •Kotak Mahindra Bank Ltd.
Ltd. •Dena Bank
•ING Vysya Bank Ltd. •Indian Overseas Bank
•Oriental Bank of •Punjab National Bank
Commerce •Allahabad Bank
•Federal Bank Ltd. •Bank of Rajasthan Ltd.
•Canara Bank •State Bank Of Bikaner and
•Axis Bank Ltd. Jaipur
• Syndicate Bank •State Bank Of Mysore
• ICICI Bank Ltd. •South Indian Bank Ltd.
• HDFC Bank Ltd. •State Bank of Travancore
•Union Bank of India •Karur Vysya Bank Ltd.
• IndusInd Bank Ltd.
•Bank of Baroda
•State Bank of India
•IDBI Bank Ltd.
• Bajaj capital
• Karvy consultancy

Merchant Banking in India - Last

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Merchant Banking in India - Last

Uploaded by

Copyright:

Available Formats

Merchant Banking

PREPARED BY MS.S.SANGEETHA, SENIOR LECTURER, KCTBS

PREPARED BY MS.S.SANGEETHA, SENIOR LECTURER, KCTBS

PREPARED BY MS.S.SANGEETHA, SENIOR LECTURER, KCTBS

 Recognizing the reqts of emerging entrepreneurs

PREPARED BY MS.S.SANGEETHA, SENIOR LECTURER, KCTBS

• SBI Started MB Division in 1972

PREPARED BY MS.S.SANGEETHA, SENIOR LECTURER, KCTBS

Portfolio Corporate Project Loan Debenture

Takeovers & Acqn

PREPARED BY MS.S.SANGEETHA, SENIOR LECTURER, KCTBS

 Commercial Banks  Merchant Banks

PREPARED BY MS.S.SANGEETHA, SENIOR LECTURER, KCTBS

Capital issues (pre & post issues),

PREPARED BY MS.S.SANGEETHA, SENIOR LECTURER, KCTBS

• Extending finance for

• Commercial bank loans,

• FCCB can be converted into Indian Shares or

• FCCB have been extremely popular with Indian

• FCCB are treated as Foreign Direct Investment

• They are called in different names in different

• Reliance Energy Limited, has issued

PREPARED BY MS.S.SANGEETHA, SENIOR LECTURER, KCTBS

PREPARED BY MS.S.SANGEETHA, SENIOR LECTURER, KCTBS

PREPARED BY MS.S.SANGEETHA, SENIOR LECTURER, KCTBS

revival prospects &

• SBI Caps is the largest investment bank

PREPARED BY MS.S.SANGEETHA, SENIOR LECTURER, KCTBS

• Advice on procedural aspects -

• Review of technical feasibility

PREPARED BY MS.S.SANGEETHA, SENIOR LECTURER, KCTBS

• Identification of potential invt

• Arranging & negotiating foreign

• Advising & Assisting clients in

• Cap restructuring may cover

•Estimating total cost of

PREPARED BY MS.S.SANGEETHA, SENIOR LECTURER, KCTBS

• Realising the huge potential in the loan syndication

• Some Japanese banks lending to Indian Corporates

• New players -- Merrill Lynch, Lehman Brothers and

PREPARED BY MS.S.SANGEETHA, SENIOR LECTURER, KCTBS

PREPARED BY MS.S.SANGEETHA, SENIOR LECTURER, KCTBS

• Determining thequantum , terms

PREPARED BY MS.S.SANGEETHA, SENIOR LECTURER, KCTBS

PREPARED BY MS.S.SANGEETHA, SENIOR LECTURER, KCTBS

Filed with the Registrar of companies

Brokers canvass the subscription

PREPARED BY MS.S.SANGEETHA, SENIOR LECTURER, KCTBS

• Offers thro’ the intermediary of issue

• Direct sale of securities by a company

LIC UTI GIC SFC

PREPARED BY MS.S.SANGEETHA, SENIOR LECTURER, KCTBS

Brokers Principal Agent Bankers to

PREPARED BY MS.S.SANGEETHA, SENIOR LECTURER, KCTBS

• The SEBI guidelines (1992) for cap issues

• The proceeds raised from the IPO will be

• Premium will be based on

 Net Asset Value

PREPARED BY MS.S.SANGEETHA, SENIOR LECTURER, KCTBS

• Only in equity shares

• Can be done only after 1 year of the

PREPARED BY MS.S.SANGEETHA, SENIOR LECTURER, KCTBS