MERCHANT BANKER

MERCHANT BANKING
BACHELOR OF COMMERCE BANKING & INSURANCE SEMESTER V ACADEMIC YEAR - 2011-2012 SUBMITTED BY

SURAJ RANBIR SINGH THAKUR
ROLL NO. – 54

MAHARSHI DAYANAND COLLEGE OF
ARTS, SCIENCE & COMMERCE
PAREL, MUMBAI – 400 012.

1

MERCHANT BANKER

“MERCHANT BANKING”
Bachelor of Commerce
BANKING & INSURANCE
Semester V
Submitted

In Partial Fulfillment of the requirement For the Award of Degree of Bachelor of Commerce BANKING & INSURANCE

By SURAJ RANBIR SINGH THAKUR. Roll No. – 54

MAHARSHI DAYANAND COLLEGE
OF ARTS, SCIENCE & COMMERCE
Parel, Mumbai – 400 012.

2

MERCHANT BANKER

MAHARSHI DAYANAND COLLEGE OF ARTS, SCIENCE & COMMERCE PAREL, MUMBAI – 400 012.

__________________________________ CERTIFICATE
This is to certify that SURAJ RANBIR SINGH THAKUR of T.Y. B.Com BANKING & INSURANCE Semester V (2011-12) has successfully completed the project on MERCHANT BANKING under the guidance of PROF. KUNAL SONI

Course Co-ordinator

Principal

Project Guide / Internal Examiner

External Examiner

DECLARATION

3

The information submitted is true and original to the best of my knowledge.Y.B.54 4 .MERCHANT BANKER I SURAJ RANBIR SINGH THAKUR the student of T.SINGH ROLL NO . BANKING & INSURANCE Semester V (2010-11) hereby declares that have completed the Project on MERCHANT BANKING. Signature of Student SURAJ R .Com.

Mr. Prof. P. It was a very enriching experience throughout and the contributions from the following individuals in particular made sure that. 5 . the faculty. Mrs. Kunal Soni Co-ordinator for Banking and Insurance & BANKING & INSURANCE was always available for immediate advice and guidance. Santosh Shinde associated with the administration department of Banking and Insurance & BANKING & INSURANCE section that has been very helpful in making the infrastructure available for data entry. Dr. IO feels privileged to take this opportunity to put on record my gratitude towards them. the classmates and the atmosphere in the college were all the favorable contributory factors right from the point when the topic for the report was to be selected till the final copy was prepared.MERCHANT BANKER ACKNOWLEDGEMENTS The college. Ghule. Principal of our college has always been an inspiring and driving force. T. I am thankful to Mr. this project report took its shape in the form in which it appear today.

Their importance in the economy is expected to grow even further in the coming years with an increasing proportion of household savings getting invested in corporate & other securities. Hence. my project covers the challenges and advantages. I have covered several services provided by Merchant Bankers & the role of Merchant bankers in providing those services to the business world. My project covers how the merchant banks works. 6 . it was only in 1992 after the formation of Securities and Exchange Board of India that it is defined and a set of rules and regulations in place. Today a merchant banker is who has the ability to merchandise that is. rules & regulations laid by SEBI & its impact on the merchant banking activities. which India will get and is getting by merchant banking activities.MERCHANT BANKER EXECUTIVE SUMMARY Although merchant banking activity was ushered in two decades ago. create or expand a need and fulfill capital requirements. I have given an overview about the BANKING & INSURANCEs and the role of merchant bankers in the growth of these markets.

MERCHANT BANKER INDEX SR.NO 01 02 03 04 05 06 07 08 09 11 10 12 CONTENTS INTRODUCTION ROLE IN MARKET COMMERCIAL BANK S & MERCHANT BANKS CURRENT SCENARIO MERCHANT BANKING ORGANISATION REGISTRATION OF MERCHANT BANKER PLAYER IN MERCHANT BANKER MERCHANT BANKING – FUTURE DEVELOPMENT CASE STUDY CONCLUSION RECOMMENDATION & SUGGESTION BIBLOGRAPHY PAGE NO 08 22 24 28 33 42 57 64 69 70 72 73 7 .

the services offered by Merchant Banks have entered into the other areas of operations. As international trade grew and other lesser-known names wanted to import goods from abroad. The second historical of Merchant Banks was the raising of capital for foreign Government. More recently.MERCHANT BANKER INTRODUCTION The term Merchant Banking has its origin in the trading methods of countries in the late eighteenth and early nineteenth century when trade-taking place was financed by bill of exchange drawn by merchanting houses. but of others. Their role is wide ranging and they can now provide most of the financial services required by a 8 . At that time the merchants were merely financing their own activities. In many cases. Merchant Banks can be accepting houses or issuing houses or both. the Merchant Banks have been trading in the countries concerned and gained the confidence of Governments and other authorities in those countries. the established merchants ‘lent their names’ to the newcomers by agreeing to accept bills of exchange on their behalf. The acceptance houses would charge a commission for this service and thus there grew up the business of accepting bills of finance trade not merely of themselves. Thus the second principal ingredient of Merchant Banking became and still is rising of capital through the issue of stocks and bonds. Therefore. Merchant Banking started in the beginning of 20th century in UK and USA.

involved in the ownership of commercial ventures. touching almost all aspects of establishing and running of industrial units on sound financial footing. etc. Dictionary meaning of organization that ‘merchant bank’ refers to an corporate securities and underwrites advises such clients on issues like corporate mergers. 9 .MERCHANT BANKER company.

corporate adviser services etc. Merchant Banking is distinctly different from commercial Banking and Investment Banking. Consequently masters identified Bankers’. Investment advises and Bought out deals which are not the main activities of Merchant Bankers. However. Commercial Banks can undertake some of the merchant banking activities like Issue Management whereas Merchant Banking Units can not undertake commercial banking activities. in certain ways. In many ways. the functions of Merchant Banking may not widely vary from Investment Banking. of with developments Amsterdam the the various in the which.MERCHANT BANKER HISTORY OF MERCHANT BANKING During the seventeenth and most of the eighteenth century international finance was centered on Amsterdam. the Investment Banker undertaken trading in securities. The Merchant Banker mainly deals with Issue Management. of the first and techniques became emergent profession ‘Merchant 10 . However. there may be similarities in their functions. merchants financial course became of time. The primary function of a commercial bank is to receive deposits from the public and lend the same to others. post issue services. Commercial Banking and Investment Banking are often confused with Merchant Banking.

capital matters as new share and bond (2) (3) reconstructions. (4) Acceptance credits and all forms of export finance (5)The holding and dealing in quoted and unquoted investment. investment trusts and wealthy individuals. money Medium-term lending and syndication of loans. unit trust. DEFINITION 11 . The management consultant have a wide area operations like production. receiving loans etc. which the management consultants also do. mergers and acquisitions. Marketing. most typically pension funds. of finance etc.MERCHANT BANKER In today’s Scenario the Merchant banker and management consultants undertake advisory services to the corporate sector. but they lack statutory recognition to undertake capital market related activities which has enabled the merchant banker to cater to the needs of the Corporate Sector. and (6) Fund management on behalf of clients. A merchant bank may be considered as an institution which centers its operation on all or most of the following activities. market operations including foreign exchange dealing. The Merchant Banker advices corporation and firms relating to opening of issues. Personnel Relations. (1) Corporate financial advice. The taking of deposits and currency. on such diverse issues.

buying or subscribing to Securities as Manager. and order or otherwise”. Adviser of rendering Corporate Advisory Service in relation to such Issue Management”. repayable on demand or otherwise and withdrawable by cheque. 1922.MERCHANT BANKER The first authoritative definition for the term ‘Merchant Banker’ has been given in the Rule 2 (e) of SEBI (Merchant Bankers) Rules. Consultant. for the purpose of lending or investment of deposits of money from the public. “A Merchant Banker means any person who is engaged in the business of Issue Management either by making arrangements regarding selling. Sec/5 (b) of the Banking Regulation Act. 1949 defines Banking as “Accepting. 12 . Accordingly. draft.

debentures and equity shares both electronic and physical forms. Derivatives financial instruments are also be added to the market shortly. The market is comprised of 24 stock exchanges transacting long-term debt. India’s capital market is among the largest in the developing world. The progress of the Securities Industry of any country depends mainly on the flow of funds. The progress of any economy mainly depends on the efficient financial system of the country.MERCHANT BANKER EVOLUTION & EMERGENCE OF MERCHANT BANKING India has entered the 21st century as one of the Asia’s most dynamic economies. Indian economy is no exception financial system of the country. In fact. The number of firms listed on the Indian 13 . capital generation is the lifeblood of the capital market without which the health and soundness of the financial system cannot be geared and for which well-developed capital market as well as money market is essential. financial and social in India and elsewhere in the developing nations of the world. The importance of the financial sector reforms affirms an effective means for solving the problems of economic. This is the part of the assessment made by International Financial and Capital Market Institutions based on India’s economic and financial reforms initiated in 1991 and brought to fruition in various budget.

judge by any standards. The capital market of the country.MERCHANT BANKER Stock Exchange is more than the USA. however. underwent dramatic changes since the beginning of 1980s basically because of a progressive realization that the command economy on which the emphasis was placed could not lead to higher levels of economic development and that a slant towards a market-oriented economy is necessary. Malaysia. Market Capitalization of listed firms is 1980s was similar to Brazil. It is in the context of fast expanding economy and a liberalized and deregulated atmosphere that the growth of the Indian Stock Market activities has to be viewed. No wonder that the markets have registered a quantum jump 14 . Singapore and Denmark.

merchant banking services were offered along with other traditional banking services. the setting up of merchant banking This marked the beginning of specialized merchant banking in India. namely the National Grindlays Bank in 1967 and the City Bank in 1970. Few share broking firms also functioned as merchant bankers. In the midEighties. The State Bank of India was the first India Bank to set up merchant Banking division in 1972.managing agents acted as issue houses for securities. Punjab National Bank and UCO Bank. 15 . 1956. The merchant banking services were started by foreign banks. Canada Bank. The need for specialized merchant banking services was felt in India with the rapid growth in the number and size of the issues made in the primary market. the Banking Regulation Act was amended permitting commercial banks to offer a wide range of financial services through the subsidy rule. The merchant banking gained prominence during 1983-84 due to new issue boom. The Banking Commission in its report in 1972 recommended institutions. To begin with. evaluated project reports. Bank of Baroda.MERCHANT BANKER MERCHANT BANKING IN INDIA In India prior to the enactment of Indian Companies Act. planned capital structure and to some extent provided venture capital for new firms. Later ICICI set up its Merchant Banking division followed by Bank of India.

particularly commercial lending. the decision to enter merchant banking was thrust on other banks and bank holding companies by unforeseen events. many banks received private equity from developing nations in return for their defaulted loans. financed expansion or changes in capital structure and ownership. As lenders to small and medium-sized companies. In those years. rather than providing seed capital. takeovers. At that time. they took equity positions in LBOs. already profitable companies) and.MERCHANT BANKER MERCHANT BANKING: PAST AND PRESENT Many banks entered merchant banking in the 1960s to take advantage of the economies of scope produced when private equity investing is added to other bank services. Also at about that time. Often 16 . banks become knowledgeable about individual firms’ products and prospects and consequently are natural providers of direct private equity investment to these firms. As mentioned above. many of these banks set up merchant banking subsidiaries to try to get some value from this private equity. commercial banks were the largest providers of venture capital in the 1960s. as a result of the LDC (less-developed-country) debt crisis. In the middle to late 1980s. most commercial banks began refocusing their private equity investments to middle-market and public companies (often low-tech. Most particularly. or recapitalizations or provided subordinated debt in the form of bridge loans to facilitate the transaction.

in the mid-1990s. This option makes it difficult for one to compare different entities’ financial results and could lead to an overly liberal reporting of profits.MERCHANT BANKER they did both. 17 . the Internet search engine Lycos was a 1998 investment of Chase Manhattan’s venturecapital arm. Some of these recent venture-capital investments have been spectacularly successful. Commercial banks financed much of the LBO activity of the 1980s. as long as they are consistent in the reporting. where they had substantial expertise from their previous exposure to this kind of investment. major commercial banks began once again focusing on venture capital. Commercial banks are permitted to report either realized or unrealized gains on their merchant-banking portfolios.Then. For example.

MERCHANT BANKER NEED & IMPORTANCE IN INDIA  Important reason for the growth of merchant banking is due to exerting excess demand on the sources of funds forever expanding industry and trade.  Merchant banks can play highly significant role in mobilizing funds of savers to investible channels assuring promising return on investments activity. share brokers and financial consultancy firms to enter into the field of merchant banking and share the growing capital market. sectors would be able to meet the growing requirements for the funds for establishing new enterprises. undertaking expansion/modernization/diversification enterprises.  Corporate sector had the only alternative to avail of the capital market services for meeting their long-term financial requirements through capital issues of equity and debentures.  With the growth of merchant banking profession corporate enterprises in both public and private. and also doing advisory functions as merchant bankers as well as managing public issues in syndication with other merchant bankers.  In India have opened their merchant banking windows and are competing in this field. of the existing 18 .  With the growing demand for funds there was pressure on capital market that enthused the commercial banks.

safety and organizations for higher yields. guidelines and press release instructions brought out by the Government from time to time imposing statutory obligations upon the corporate sector to comply with all those requirements prescribed therein. the need of skilled agency existed which could provide counseling. good return on investment and capital appreciation in such investment to motivate them to invest their savings in securities.  Thus. other statutory relaxations.  In view of multitude of enactments. 19 . and the investors to invest their saved money in sound and healthy concerns with confidence.  Merchant bankers advise the investors of the incentives available in the form of tax relief’s. the merchant bankers help industry and trade to raise funds.MERCHANT BANKER  Merchant banks have been procuring impressive support from capital market for the corporate sector for financing their projects. offshoot rules and regulations.

He has to assume wider responsibilities of saving industrial units from going sick and guiding industries to be set up industrially backward areas to eliminate regional imbalances in industrial development of the country. Merchant banker’s dynamism lies in promptly attending to the corporate problems and suggests ways and means to solve it. He is always awake to renew his skills. regulations and policies affecting business conditions frequently change. modernizations or replacements of existing plant and machinery or other equipments putting new demands for finances and necessitating overhauling of the capital structure of the firms. therefore. Merchant banker is. The nature of merchant banking services is development oriented and promotional to help the industry and trade to grow and survive. He has to keep pace with the changing environment where Government rules. develop expertise in new areas so as to equip himself with the knowledge and techniques to deal with emerging new problems of corporate business world. He has to guide the 20 . diversification. dedicated to achieve this objective through his dynamism. Merchant banker has to think and devise new instruments of financing industrial projects. where science and technology create new innovations in production processes of industries envisaging immediate renovations.MERCHANT BANKER ROLE OF MERCHANT BANKERS The role of merchant banker is dynamic in the wake of diverse nature of merchant banking services.

For this reason.. He has to help the industry in different forms to ensure that it runs risk free and devoid of uncertainty by assisting the has to watch the interest and win over the confidence of the Government. to play merchant tuning bankers have to very the significant their activities requirements of the growth pattern of corporate sector. In the days role ahead. He must bridge the communication gap between different sections and resolve the problem being faced in different areas concerned with the business world. Moving Bottom.B i. i. its agencies. called M. in it. a merchant banker is sometimes. His role depicts a personality cult. To discharge the above role.attending meetings and meeting clients and constituents.e. along with the entrepreneurs. the investors and the whole community. a merchant banker has t be dynamic. which is. a challenging task and to meet these challenges merchant bankers will have to be more vigorous and strategic in 21 .MERCHANT BANKER wider section of the community possessing surplus money to invest in corporate securities and other productive investment channels.e. always moving. the industry and the economy as a whole. doing business and getting business by attending meetings and conferences. imparting knowledge to others and acquiring new knowledge to maintain his supremacy in possession of latest information. one who never sits at one place. which is unique and envious to be followed by others.

They will have also to adopt new ways and means in discharging their role. Resultantly. which could only be achieved through the institution of market makers. ROLE IN THE MARKET The Securities and Exchange Board of India (SEBI) has stated that merchant bankers must be involved more closely in the market making process as share brokers do not have the requisite expertise to evaluate the fundamentals of the scrips before taking over the role of market makers. 22 . The SEBI has felt that to ensure liquidity of scrip it was necessary to facilitate greater movement. share brokers generally being partnership. A minimum of ten scrip’s has been proposed by SEBI for the market makers. Market makers would also create a market for the scrip’s by offering two way quotes to the investors. Further.MERCHANT BANKER playing their role. firms do not have the financial clout which is necessary for market making activity. the SEBI has suggested that any member of the stock exchange along with one merchant banker registered with SEBI could act as a market maker.

Registrar’s expenses. 5 lakh 2.00 1. (iv) Underwriting Commission.5% up to Rs.50 2.5%.25 crore.2% in excess of Rs. (iii) A lead manager can claim a commission of 0.Equity shares 2. (vi) Other expenses like advertising.00 2.50 1. COMMERCIAL BANKS AND MERCHANT BANKS 23 ..50 On amount subscribed by public (v) Brokerage commission 1.25 crore and 0.MERCHANT BANKER MERCHANT BANKERS COMMISSION As determined by the Finance Ministry. 5 lakh (b) Excess of Rs. On amount Devolving Type of Security on underwriter s 1. stamp duty etc. Government of India.5% as the maximum as commission for whole of the issue. printing. Merchant Bankers are eligible to charge commission / fee from their clients as detailed below: (i) A Merchant Banker can charge 0.50 2.Preference share/debentures (a) Upto Rs. (ii) They can charge project appraisal fees. in connection with the issue can be reimbursed from its clients.

mergers. There activities include project counseling.MERCHANT BANKER There are differences in approach. MERCHANT BANKS Basically they deal with mainly funds raised through money market and capital market and the area of activity is ‘equity and equity related finance’. amalgamations. discounting and rediscounting of short term paper in money markets. corporate counseling in areas of capital restructuring. underwriting and supporting public issues 24 They are financiers. credit appraisal and loan sanctions. managing. The differences between merchant banks and commercial banks are summarized below: COMMERCIAL BANKS Basically deal in debt related finance and their activities are appropriately arrayed around credit proposals. Are management oriented They generally are willing to accept risks of business.. and areas of operations between commercial banks and merchant banks. takeovers etc. Are asset oriented and their lending decisions are based on detailed credit analysis of loan proposals and the value of security offered against loans. They generally avoid risks. attitude. merely .

MERCHANT BANKER and new issue market and acting as brokers and advisers on portfolio management in stock exchange. This activity has impact on growth. 25 . stability and liquidity of money markets.

merchant banking activity became attractive to banks and the firms of consultants and share brokers who entered into this fields vigorously to reap the advantages of the expanding capital markets. Both these Indian merchant bankers emerged as leaders in merchant banking having done significant business during the period of 1974-1987 in comparison to foreign banks. secondly. The early growth of merchant banking in the country is assigned to the Foreign Exchange Regulation Act. 26 .MERCHANT BANKER GROWTH OF MERCHANT BANKING IN INDIA Formal merchant banking activity in India was originated in 1969 with Merchant Banking Division set up by the Grindlays Bank. the largest foreign bank in the country. The early and mid-seventies witnessed a boom in the growth of merchant banking organizations in the country with various commercial banks. State Bank of India started merchant banking in 1973 followed by ICICI in 1974. Chartered Bank also assumed the merchant banking activity in India. 1973 (FERA) where under large number of foreign companies operating in India were required to dilute their foreign holdings in order to continue business in the country. and broker’s firms entering in to the field of merchant banking. financial institutions. This had caused two-pronged effect viz. firstly. The main service offered at that time to the corporate enterprises by the merchant banks included the management of public issues and some aspects of financial consultancy. in the form of spate in ‘Foreign Exchange Regulation Act Issues’ eliciting interest of the investors by creating massive awareness about capital markets amongst the new class of investing public. Other foreign banks like City Bank.

3. 2. 27 . These guidelines have made the merchant bankers either to restrict their activities or think of separating these activities from the present one and float new subsidiary and enlarge the scope of its activities. The guidelines have put the responsibility on the merchant bankers. They have to seek the co-operation of the issuing company to shoulder the responsibility. Non co-operation of the issuing companies in timely allotment of securities and refund of application money is another problem of merchant bankers.1 crore for authorization of merchant bankers. SEBI guidelines have authorized merchant bankers to undertake issue related activities only with an exception of portfolio management. Small but professional and specialized merchant bankers who do not have a net worth of Rs.MERCHANT BANKER PROBLEMS OF MERCHANT BANKERS 1.1 crore may have to close down their business. specialized professionals into merchant banking business. SEBI guidelines stipulate a minimum net worth of Rs. The entry is denied to young.

The red hot economy is the obvious starting point. etc. it becomes increasingly necessary for us to look at this business in a more holistic manner. while there is a steady flow of deals.. Obviously. Thus. India is likely to end the year with GDP growth in excess of 7 percent. together with experienced organizations like Enam and institutional backed investment bankers such as ICICI Securities. 28 . and placement power in a greater measure than relatively new entrants. are the ones who have expertise.MERCHANT BANKER CURRENT SCENARIO Merchant banking is an area that we need to build and grow in the years to come. there is now a shortage of talent to do the job. JM Morgan Stanley. In 2006 deal activity was largely restricted to the IT and Telecom sectors. Kotak Mahindra Capital. As India forms part of the global village. Companies and private equity investors are sitting on large piles of cash. muscle. international players with strong domestic partners such as DSP Merrill Lynch.

The division took up the task of assisting new entrepreneur and existing units in the evaluation of new projects and raising funds through borrowing and issue of equity.MERCHANT BANKER MERCHANT BANKING: INDIAN SCENARIO Merchant Banking activity was formally initiated into the Indian capital markets when Grindlays Bank received the license from Reserve Bank in 1967. Citi Bank set-up its Merchant Banking division in 1970. that Indian bank should start Merchant Banking Division in 1972. Grindlays which started with management of capital issues recognized the needs of emerging class of entrepreneurs for diverse financial services ranging from production planning and system design to market research. the needs of small-scale units it provided management constancy services to large and medium sized companies. Apart from meeting specially. trade and financial sector have paved the way for rapid development of the economy. With several large projects been set-up and many more on the 29 . services were also offered. Management consultant Consequent to the recommendations of Banking Commission in1972. Several projects have been conceived since then and almost all the major groups in the country that have announced their intentions to set-up mega projects in infrastructure sector envisaging investment of thousands of crores. Following Grindlays Bank. The economic reforms initiated by the Government since July 1991 in the files of industry.

This has led to a sharp growth in the Merchant Banking business in 30 . issue management and financial advisory services for corporate sector has increased considerably. the last 2 years. the demand for a complete range of Merchant Banking services encompassing project advisory services.MERCHANT BANKER drawing board.

Merchant Banks in UK In United Kingdom. and issue houses. 31 . Rich merchant houses that made their fortunes in a colonial trade diversified into banking.  Manage individual funds. Merchant Banks came on the scene in the late eighteenth century and early nineteenth century. A Merchant Banker was primarily a merchant rather than his customers entrusted banker but him with funds. The acceptance of the trade bills and their discounting gave rise to acceptance houses. A brief outline of Merchant Banking in USA and UK has shown in the following paragraphs.MERCHANT BANKER MERCHANT BANKING: INTERNATIONAL SCENARIO The Merchant Banking scenario in developed countries like USA and UK are different from Indian Merchant Banking activities. The Merchant banker is also called as Investment Bankers. discount houses. Merchant Bankers initially included acceptance houses. Their principle activity started with the acceptance of commercial bills pertaining to domestic as well as international trade. Merchant Banks in UK:  Finance foreign trade. Industrial revolution made England into a powerful trading nation. discount houses and issue houses.  Issue capital.

Merchant Banks have today a strong parent. mergers fund and acquisitions. a strong 32 . They have a prominent presence in London and other European financial centers. niche management advisory services governments and firms. proprietary trading and market making. offering multiple services Since the end of Second World including Merchant Banking British War commercial banks in Western Europe have been services to their individual and corporate clients.MERCHANT BANKER  Undertake foreign security business. Merchant Banking services. They also used to finance sovereign government through grant of long-term loans. and  Foreign loan business. The US investments Banks have extended their operations to the international level. They are largely responsible for the development of the Euro-dollar market in the securities and globalization of capital markets. and undertake global. The increased regulation and control of domestic banks set-up division or subsidiaries to offer their customers operations gave a fillip to large US banks to undertake Merchant Banking functions in international capital markets. to custody. arrange business. Merchant Banking in USA Merchant banks make the primary markets in USA.

PNB Capital Services Ltd. portfolio manager. India the financial has and technical consultants into and four chartered accountants. subsidiary companies established by banks like SBI Capital Markets Ltd.. etc. Indian Bank Merchant Banking services Ltd. manager. MERCHANT BANKING ORGANISATIONS In India. To act as adviser. which are as follows: CATEGORIES ACTIVITIES To carry on the activity of issue management and to Category I act as adviser. Category II consultant. consultant.. 20 lakhs Rs.1crore NETWORTH Category IV Nil 33 .. underwriter. To act only as adviser or consultant to an issue Rs.50 lakhs Rs.. can Bank Financial Services Ltd.. co-manager. underwriter. stock exchange dealers. portfolio manager. Securities and Exchange Board of (SEBI) divided merchant bankers categories. the firm organized by the stock brokers. merchant banks operate in the form of Divisions of Indian and Foreign banks and financial institutions. Category III adviser or consultant to an issue.MERCHANT BANKER balance sheet and a strong international network to play a global role. To act as underwriter.

MERCHANT BANKER

Merchant Bankers are classified into 4 categories as shown in the above table having regard to their nature and range of activities and their responsibilities to SEBI, investors and issuers of securities. The minimum net worth and initial authorization fee depends on the category. activity of issue management, determining The first financial category consists of merchant bankers who carry on any structure, tie-up of financiers, advisor or consultant to an issue, portfolio manager and underwriter. The second category consists of those authorized to act in the capacity of co-manager/advisor, consultant, and underwriter to an issue or portfolio manager. The third category consists of those authorized to act as underwriter, advisor or consultant to an issue. The fourth category consists of merchant bankers who act as advisor or consultant to an issue.

34

MERCHANT BANKER QUALITIES OF GOOD MERCHANT BANKERS
Merchant bankers are individual experts who organize and manage the merchant banks. The operations of merchant banks are, therefore, influenced by the personality trait of these individuals. For the success of merchant bank’s operations, the qualities which merchant bankers should have are discussed below: LEADERSHIP:–

Merchant banker should possess all relevant skills, update knowledge to interact with the clients and effectively communicate. Leadership is synonymous with followers who follow the one who leads.
 AGGRESSIVE ACTION: -

Aggressiveness is a personality trait of a good leader but in merchant banking it has a wider connotation. Aggressive merchant bankers are always looking for new business. Once a business opportunity has been located, the merchant banker has got to obtain the mandate for the merchant banking assignment from the clients at once which will depend upon his own communication skills, persuasiveness and the background of the organization to which he belongs. A good merchant banker is one who does not allow his client to think anything outside except what has been advised.
 COOPERATION AND FRIENDLINESS:-

35

MERCHANT BANKER
These two characteristics are the symbols of good leadership but it hardly needs to be stressed that cooperation and friendliness coupled with persuasiveness are the main instruments with which a merchant banker mixes with the people, gathers information, obtains business mandate and renders satisfactory services to the clients. Business of an honest business merchant banker spreads with geometrical propagation when he shares the thoughts of his clients with sympathetic gestures and offers pragmatic suggestions without greed or favours. Very often, rude, intemperate and indifferent disposition or blunt out burst withdrew fortunate business opportunities forever. Friendliness and cooperation must flow as natural traits in the merchant banker to win the trust of the clients.
 CONTACTS :–

Success of merchant banker depends upon his sociable nature and the richness of wider contacts. constituents of merchant banking. A merchant banker is supposed to be acquainted deeply with all the The scope of contact encompasses intimate contiguity and acquaintances within his own organization, Central and State Government Offices where compliances under various relevant enactments are to be reported, at Indian and foreign and banks, State financial levels, institutions Central

promoters/directors/owners and chief executives of the private and public enterprises which would be prospective beneficiaries of merchant banking services, printers,
36

college and office. in school. Positive approach to understand the view points of others. Many persons are effective in this trait without any training for reasons of cultivating a habit from environment in which they have been brought up at home. This is so important that it must be treated as a separate objective quality of a good merchant banker. honour and humor by meeting people. Effective communication and proper feedback are the pre-requisite for creating a positive attitude towards problem solving.MERCHANT BANKER advertising agencies. Merchant bankers should widen contacts and references and continue to maintain them with goodness.  ATTITUDE TOWARDS PROBLEM SOLVING: – The most important personality trait of a merchant banker is his attitude towards problem solving. advocates and solicitors and members of the press whose services are availed of in executing merchant banking assignments. their difficulties and their adverse circumstances is possible only when a person is skilled in human relations particularly the inter-personal and intrapersonal behavior. INFORMATION AND KNOLEDGE: – 37 . brokers and stock exchange dealers. Even client coming to him has got to return fully satisfied having consulted a merchant banker.  INQUISITINESS FOR ACQUIRING NEW SKILLS.

Therefore. 38 .MERCHANT BANKER Merchant banker’s lice on their wits they earn by giving information to needy clients. they should keep abreast with latest information in the area of the service product. administrative salesmanship so as to understand the problems and sell the service product to the needy clients. Nevertheless. they market. capacities and merchant banker should possess super business acumen. The above to qualities be of a so merchant banker are only illustrative. difficult All good qualities in merchant bankers are defined elaborately. This is possible if merchant bankers possess the quality of inquisitiveness. managerial abilities.

Protection is not to be conceived as that of compensating for the losses suffered. Where the project has already been appraised by a bank/financial institution. ♦ Project Evaluation and due Diligence Due diligence and project evaluation is another major responsibility of the Merchant Banker. These exercise are done mainly in order to meet the fund requirement of the company taking due cognizance of the investor’s preference. and general economic factors. the cost of capital. ♦ Capital structuring The Merchant Bankers while designing the capital structure take into account the various factors such as Leverage effect on earnings per share. completeness of the disclosures is of The responsibility of the Merchant Banker in ensuring the paramount importance in view of the fact that entire reliance is based on offer Document either Prospectus or Letter of Offer because an independent agency like a Merchant Banker has done the scrutiny. 39 .MERCHANT BANKER RESPONSIBILITIES OF MERCHANT BANKER ♦ To the Investors Investor protection is fundamental to a healthy growth of the Capital Market. size of the company. the considerations of management control. cash flow ability of the company. the project cost and the gestation period.

where the project has not been appraised by as bank/financial institution. ♦ Pricing of the Issue The Merchant Banker looks into the various factors while pricing the issue. Book value per share. stock market performance of the shares. However. ♦ Marketing of the Issue 40 . The Merchant Banker has a vital role to play in pricing of the instrument. Some of the factors are past financial performance of the company.MERCHANT BANKER the Merchant Banker relies on the said appraisal before accepting an assignment. towards liabilities criminal/civil prosecution any of the directors for any  Fair and adequate disclosures in the prospectus. issued litigation’s by the Ministry tax of Finance or and any Department of Company Affairs. the Merchant Bank undertakes a detailed evaluation of the project before taking up an assignment for issue management. ♦ Legal aspect The factors that are looked into in case of the legal aspects are:  Compliance with the SEBI guidelines and the various guidelines  Pending offenses.

mutual funds. banks.MERCHANT BANKER Marketing of the issue is a vital responsibility of the Merchant Banker. brokers. FII’s and NRI’s. The first stage is Pre-issue marketing for placement of the issue with the financial institutions. ♦ Bought out Deals The concept of wholesale but out of public offerings by the Merchant Bankers started off with over the Counter Exchange of India where a Merchant banker acts also as a sponsor and either takes up the entire issue to be offered wholly of jointly with other co-investors and off-loads the same to the public at a later date by an offer for sale. The second stage is the marketing of the issue to the general public through various vehicles such as press. The duration of this transaction period has not officially been announced. etc. Major amendments were made to the SEBI regulations regarding Merchant Bankers. 41 .

In fact. they also entrusted with the job of issuing bonds in the London market. Merchant Banker invested accumulated profits in all kinds of promising activities. operated locally and later accepted 42 . Although Merchant Banking activity ushered in two decades ago. it was only in 1992. With the increase in international trade. Once these banks had gained the confidence of the government. in India. the established merchants started the practice of lending their names to the new comers and accepting the bills of exchange on their behalf.MERCHANT BANKER REGISTRATION OF MERCHANT BANKER The term ‘Merchant Banking’ originated in the 18th and early 19th centuries in the United Kingdom when trade between countries was financed by bills of exchange drawn on the principal merchant houses. after the formation of SEBI that is defined and a set of rules and regulations governing it are in place. A distinction was existed in banking systems between moneychanger and exchanger. the origin of Merchant Banking is to be traced to Italy in late medieval times and France during the seventeenth and eighteenth centuries. They would charge a commission for the purpose and thus acceptance business became the hallmark of Merchant Bankers. Since they added banking business into the profession of Merchant activities and became a Merchant Banker. Moneychangers concentrate on the mutual exchange of different currencies.

Merchant Banks and other Financial Institutions. The exchanges were remitters and Merchant Bankers. engaged in billbroking that raising foreign exchange and provision of longterm capital for public borrowers.  The applicant must have at least two employees with prior experience in merchant banking 43 . Merchant Bankers were not banks at all and a distinction was drawn between banks. manpower etc. An applicant should comply with the following norms:  The applicant should be a body corporate  The applicant should not carry on any business other than those connected with the securities market  The applicant should have necessary infrastructure like office space. Initially. Among all these. a Merchant Banker was a dealer in bills of exchange who operated with correspondents abroad and speculated on the rate of exchange. who operated internationally.MERCHANT BANKER deposits for security reasons. Institutions it was only banks that accepted deposits from public. Passage of time money changers evolved into public or deposit banks whereas exchangers. Registration with SEBI is mandatory to carry out the business of merchant banking in India. No person s allowed carrying out any activity as a Merchant Banker unless he or she holds a certificate grated by SEBI. equipment. In the seventeenth century.

subsidiary or interconnected company of the applicant should not have been a registered merchant banker  The applicant should not have been involved in any securities scam or proved guilt for any offence  The applicant should have a minimum net worth of Rs.MERCHANT BANKER  Any associate company. group company.5 crores SERVICES RENDERED BY MERCHANT BANKERS 44 .

These two activities have major implications for the integrity of the market. It is quite common to come across reference to merchant banking and financial services as though they are distinct categories. Merchant banks are rendering diverse services and functions.MERCHANT BANKER Among the important financial intermediaries are the merchant bankers. They affect investors' interest and. To a large extent the type of issue would vary 45 . At one time it was constructed as the sole function. Merchant bankers were identified as issue houses. When companies seek to raise resources for implementation of a new project or finance expansion or modernization or diversification of an existing unit or fund long term working capital requirement. Merchant bankers (Category 1) are mandated by SEBI to manage public issues (as lead managers) and open offers in takeover. they retain the services of a merchant banker. therefore. The services provided by merchant banks depend on their inclination and resources . transparency has to be ensured. which are as follows: ISSUE MANAGEMENT: The public issue of securities is the core of merchant banking function.technical and financial. It was later perceived that they provide other financial services. The services of Merchant bankers have been identified in India with just issue management. These are also areas where compliance can be monitored and enforced.

Merchant bankers when retained as managers to issue will have to assist the company in all the stages connected with public issue. • Obtaining the consent of all the agencies involved in the public issue. brokers. • Deciding the branches where application money should be collected. underwriters. the pricing of issues is now freely decided by the company. with valuable inputs from the merchant 46 . advertisers. • Deciding the pattern of advertising. They usually render the following services: • Obtaining consent/acknowledgement from SEBI. debentures. • Appointing bankers. The merchant bankers help corporate to raise money from the markets through the issue of shares. • Deciding the dates of opening and closing of the issue. bonds etc.MERCHANT BANKER with the purpose for which funds are raised. Their main business is to attract public money to capital issues. They are designated as managers to the issue.  CORPORATE ADVISORY SERVICES RELATING TO THE ISSUE In India. printers etc.

The promoter also needs to decide whether to go in for a fresh issue or to go for a rights issue. at the same time the company should get the premium that it is looking for. In this matter. 47 . who have to sell the issue at the decided price. The success of the issue depends on the cooperation of all the agencies involved. Brokers etc. • Drafting of the prospectus. the premium can play a very role in deciding the company’s capital structure. • Selection of underwriters. The pricing of the issue especially in a public issue is very important. • Preparation of application to SEBI and assistance in obtaining the consent from SEBI. However this will depend mainly on the quantum of funds that the company needs to raise. The merchant bankers offer following services during the public issues: • Preparing an action plan and budget for the total expenses for the issue. as larger the premium lesser will be the requirement for borrowed funds. After all.MERCHANT BANKER bankers. the expert advice of merchant bankers is of immense importance. The success of the issue is dependent on the selection of the right type of security. The pricing has to be such that the investors will be attracted to invest in the issue at that price. In the issue management the merchant bankers have to coordinate the various agencies to the issue.

• Selection of advertising agency for publicity. One of the biggest problems of course that the company is not well known to the investors and many of them will be unwilling to invest 48  . functioning either as the sole or lead manager to the issue. Ordinarily. advisors and consultants to a public issue. UNDERWRITING Underwriting is like insurance against the failure of an issue. or to procure subscription for the unsubscribe portion of the issue. It means that even if the issue is not fully subscribed to by the public. which is not taken up. that the money that it requires for its project will definitely be raised. In issues of over Rs. the underwriters will make up the short fall. New companies entering the markets for the first time. SEBI guidelines insist that all issues should be managed by at least one authorized merchant banker. For the risk that the underwriter takes. he is paid commission.MERCHANT BANKER • Selection of bankers to the issue. always face number of problems in raising funds from the market. the number could be up to a maximum of four. Underwriting involves the underwriter agreeing to subscribe directly. not more than two merchant bankers should be associated as lead managers. Companies are free to appoint one or more agencies as Managers to an issue. 100 crores. It is a guarantee to the issuing the company.

MERGERS AND ACQUISITIONS Mergers and acquisitions (M&A) and corporate restructuring are a big part of the corporate finance world. It is obligatory for the merchant bankers to accept a minimum 5% underwriting in the issue subject to a ceiling. they show their full commitment to the issue that they are managing. By taking underwriting in an issue managed by them.MERCHANT BANKER their money in such ventures. the underwriters will pick the shares and only if the project is good enough. Many a time’s even existing companies may find it difficult to raise money. then in future they can sell the shares in the market and get not only their money back. Underwriters on their part need to satisfy themselves about the viability of the project and also about the integrity of the promoters of the company. Issuing companies therefore approach different underwriters with a request to underwrite the issue. It must be noted that when an issue is under subscribed. but can also make a decent profit as well. due to some reasons. Every day. Wall Street investment bankers arrange M&A transactions. which bring separate companies 49 .

50 . corporate finance deals do the reverse and break up companies through spin-offs. • Negotiation with the parties for arriving at the suitable price or exchange ratio. Role of Merchant Banker Mergers & Acquisitions is an area where Merchant Bankers act as intermediaries in negotiating on one with corporate interested in hiring of divisions/companies which are not within the purview of the long-term business strategy of the group/company. Merchant Bankers provide following services in M&A: • Identification of potential takeover targets.MERCHANT BANKER together to form larger ones. Takeovers may be hostile or friendly in nature. and on the other hand for Corporate interested in non organic growth by acquiring companies/units for reason strategic or non strategic in nature. • Financial & Technical appraisal of the merger/takeover proposal. carve-outs or tracking stocks. hostile takeovers are without the consent of the company and company being takeover may work out an anti takeover strategy to counter the threat. as due to competition the companies unable to survive or prosper on their own may like to merge and face competition and achieve growth targets. Mergers can be beneficial for both the entities. When they're not creating big companies from smaller ones.

• Aspects of project appraisal with financial institutions/banks. PROJECT COUNSELLING Project counseling is very important and lucrative merchant banking services which only very few merchant bankers having advantages of knowledge. The merchant bankers carry out detailed studies on product demand patterns. • Scope of services • Project counseling services are needed by industrial entrepreneurs in India in the following areas: • Preparation of project report • Deciding upon the financing pattern to finance the cost of the project.MERCHANT BANKER • Assistance in obtaining necessary approval & addressing procedural & legal issues.. The corporate seek advice in respect of identification of profitable investment opportunities in the related business areas (like forward/backward integration) or as part of diversification process. • Project report • Project report purpose  51 . advice on technical parameters and also legal issues. cost structures. etc. skills and experience over others are able to render satisfactorily. to enable the corporate in preparation of feasibility study may involve arrangement of a foreign collaboration.

RECENT TRENDS Merger & Acquisition transaction -. • Grant import license for importing raw material. Such loans may be obtained from a single development finance institution or a syndicate or consortium as in the case of large term loans. Merchant banks can also help corporate clients to raise syndicated loans from commercial banks. machinery and equipments. • Grant of foreign exchange allocation for import of capital goods or raw materials. plant. etc.  LOAN SYNDICATION It refers to assistance rendered by merchant banks to get mainly term loans for projects.MERCHANT BANKER • Grant of industrial license to undertake specified industrial activity. • Foreign investment and technology tie-up.' 52 .Merchant banks' services not taxable The Finance Ministry has excluded services provided by merchant banks and other agencies in a merger and acquisition (M&A) transaction from the scope of taxable services provided by a `management consultant.

any service rendered in relation to an M&A transaction will be covered under the scope of taxable service provided by the management consultant and will be liable to service tax.and not governed by any contractual relationship with the advisee company.such as takeover regulations of the Securities and Exchange Board of India (SEBI) -. Merchant banks do not provide any consultancy on an M&A transaction. They further opined that acquisition or divesting of shareholdings was a purely financial transaction and distinct from the advice or service provided prior to taking a decision to divest. the Board has ruled. but were in the nature of financial advisory service. but merely verify and submit a report to the authorities concerned. Industry representatives held that services provided in respect of M&A cannot be construed as a management consultancy service. 53 . merge or acquire an organisation. Barring the services of merchant banks.MERCHANT BANKER The rationale accorded is that the role of such agencies is limited to compliance of any statute or regulation -. according to the Central Board for Excise and Customs (CBEC).

MERCHANT BANKER 54 .

53 billion (about 11. 4 last year in the process. And when the market booms. The analyst sees pharmaceuticals. having sewn up 11 deals worth $2.3% now. Its market share is up 50 basis points to 15. Mahindra/Goldman Sachs topped the heap by executing 13 deals valued at $2. In this scenario. Stock prices have gone up because of profitability. (ended In the first nine Kotak September). The key to any deal is valuation.000 crore). the investment bank has increased its share by 420 basis points from 13.2%. agreed valuations for proposed M&A are thrown into disarray. M&A rankings will change depending on who has been able to close deals faster. M&A are also getting hit because more & more companies are opting for the global depository receipts/foreign information currency & convertible engineering bonds issue to sate their capital needs. Indian companies are also looking at overseas opportunities.23 billion so far. technology specifically auto ancillaries as the areas where an increasing amount of M&as will take place in India. 55 . This bank was ranked No. Morgan Stanley retained its No 2 position. months of 2005.MERCHANT BANKER RAPID RISE IN VALUATION IMPEDES M&As The surging stock market is creating an unusual problem: Mergers & Acquisitions (M&A) deals are becoming tougher to close as the two parties to a deal keep looking over their shoulders to figure out how the market is pricing their shares.1% for last year to 17.

3 Standard Chartered Ernst & Young Citigroup Ambit Corporate Fin DBS Group ICICI Securities UBS 4 5 6 7 8 9 10- 12.4 3.8 4.7 6.MERCHANT BANKER Rapid valuation changes do cause some delays.2 Mkt sha re’0 4 13.6 6.3 15.1 14 6. 56 . airlines and the auto component sectors as being prime for acquisitions. the deals go through if there are benefits to both parties. Infrastructure related business. 227 1.8 16. INDIA’S TOP 10 M&A PLAYERS PLAYERS Ran k ‘05 1 2 Ran k ’04 4 2 3 9 1 6 8 5 Mkt sha re’0 5 17.7 6.9 980 11 962 4.2 649 550 Rankings based on deals in up to 30th September.53 4 2 .7 Val ue ($m ) 2. 2008.9 936 704 12.4 4.77 1 981 Dea ls 13 11 12 5 37 8 21 1 10 3 Kotak/Goldman Sachs Morgan Stanley Merrill Lynch & Co. but in the end.1 14.8 4.

ENAM provides client with strategic and practical solutions to financial challenges. Their restructuring services Debt includes Mergers & Acquisitions.  ENAM also provide the seed stage services.  Corporate Restructuring: . ENAM ENAM was founded in1984 to provide knowledge-driven financial services at the time when Indian economy investors faced a bewildering array of options. ENAM offers promising & exciting companies the opportunity of assessing the public market equity finances. restructuring. represents the clients in the private placement of debt and equity with institutional & high net worth investors. Buyers . value creation services and IPO’s advisory services which are represented below: 57 Takeovers.MERCHANT BANKER PLAYERS IN MERCHANT BANKING 1. ENAM’s long-term association with capital markets & primary markets has provided it with deep insights of the functioning of Indian financial institutions. ENAM is the one of the largest underwriters in India. services etc. The merchant banking services provided by ENAM are:  Equity debt/syndication: Raising capital through a of a company’s securities is an ENAM private placement effective & timely offering to a public offering.

ICICI SECURITIES provide following services:  Mergers and Acquisitions: . advisory. Restructuring and infrastructure advisory. and Singapore consists of professionals with expertise across a range of industries.ICICI Securities Limited is amongst the first Indian investment Banks to form a dedicated M&A practice and continues to be a leader by providing innovative and unique solutions to achieve varied objectives of the client. syndication.MERCHANT BANKER 2. They offer a full range of 58 . London. We are experienced in every aspect of the business from domestic to M&A and international Private capital Equity markets advisory. ICICI SECURITIES ICICI Securities Limited is a leader across the spectrum of Merchant Banking. Our investment banking team. based across key cities in India and New York.

MERCHANT BANKER advisory services.ICICI Securities Limited has a dedicated infrastructure vertical focused on assisting clients in identifying and capitalising on the opportunities thrown up by the all pervasive boom in the Indian infrastructure sector. It is amongst the leading underwriters of Indian equity and equity-linked offerings. is the stock broking and distribution arm of the Kotak 59 . The equity group leverages research and distribution reach to domestic and foreign institutional investors in case of public offerings. Thus the quality of analysis and client servicing standards. KOTAK SECURITIES LIMITED Kotak Securities Limited.  Equity Capital Markets: . and divestitures. a subsidiary of Kotak Mahindra Bank. acquisitions. which include joint ventures.  Dealing with Bulls and Bears: .  Infrastructure Advisory: . mergers. 3. are a testimony to the quality of ICICI SECURITIES team.ICICI Securities Limited assists global institutional investors to make the right decisions through insightful research coverage and a client focused Sales and Dealing team.ICICI Securities Limited is at the forefront of capital markets advisory having been involved in most major book building and fixed price offerings over the last decade.

automobiles. Kotak Securities is a corporate member of both The Bombay Stock Exchange and the National Stock Exchange of India Limited.  Structured Finance (Project Finance & Advisory Business): -KMCC has developed expertise in various vertical segments in the infrastructure sector including power.MERCHANT BANKER Mahindra Group. ports. It mainly secondary market broking marketing of equity offerings.including private and secondary placement of debt and equity and mutual funds. The company has four main areas of business:  Kotak Institutional covers Equities: - Kotak Institutional and the Equities. steel & metals and hotels. among the top institutional brokers in India. we provide our clients expertise and a 60 . including IPOs.  Financial advisors and loan syndications to British Gas and GAIL. Its operations include stock broking and distribution of various financial products .  Mergers & Acquisitions: -In the area of Mergers & Acquisitions. oil. Some of the transactions executed by this team include:  Advisor to Ford on financial closure for its Car project in India. The company was set up in 1994. Currently. by offering structured finance solutions.  Advisor to one of the largest LNG projects on the Western coast of India. Kotak Securities is one of the largest broking houses in India with wide geographical reach. gas. to domestic and foreign institutional investors.

The features Citigroup are as follows:  Over the years. 61 . Citigroup has established a track record of outstanding business milestones such as Cash Management. CITIGROUP Citigroup Corporate and Investment Banking achieve the extraordinary for our clients around the world. governments and institutions on the best ways to realize their strategic objectives. Our spectrum of services include:  Divestments  Spin-Offs / Restructuring & Joint Ventures / Strategic Alliances 4.MERCHANT BANKER comprehensive set of services that help them achieve their strategic and financial objectives. pioneered by Citigroup in 1986 and utilized by over 900 Corporates with through-puts totaling around $ 35 billion (8% of India's GDP). We create solutions for and provide the broadest possible capital and market access to thousands of issuer and investor clients. And no institution better executes the increasingly complex payment and cash management solutions required in today's global economy. No financial institution is more committed to advancing the goals of its clients—our diverse and talented staff in more than 100 countries advises companies.

distribution. Securities Research. DSP Merrill Lynch Limited (DSPML).. This Transaction heralds DSPML as a key player in the private equity market. among India's leading investment banking and Brokerage Company. and Merrill Lynch & Co.  As the leading custodian. and trading of equity and debt securities..MERCHANT BANKER  It is India's largest foreign bank in the FX (foreign exchange) market with a 14 per cent market share. The service features of DSPML are as follows:  DSPML has consistently been rated as one of India's leaders in origination. the leading international capital raising. DSP MERRILL LYNCH LTD. Citibank has over $22 billion of custody assets under management. is a culmination of a long standing relationship between DSP Financial Consultants Ltd.  A diverse client base made up of India's most prestigious private and public sector corporations and multinational 62 . and Investment Advisory services. financial management and advisory company. Equity & Debt Brokering. DSPML is a full service investment bank and broking company with leadership position in M&A. Euro money Magazine has ranked DSPML as the "Best Domestic Securities firm in India" for the last four consecutive years. Capital Raising.

MERCHANT BANKER corporations have rendered DSPML a commanding presence in the Indian capital market.  DSP Merrill Lynch is the leading underwriter of Indian equity and equity-linked offerings across domestic and international markets. DSPML offers investors access to every major initial or subsequent public offering. By leveraging their extensive knowledge of local markets and global resources. they have delivered innovative and customized solutions to their clients.  Through direct market's group. 63 .

frequent changes and /or amendments to policies and control measures. The very purpose for which these firms are commences their services should be taken care of and they should mould their policy decision and activities to move in tune with the main objectives of Investor’s protection and to create healthy environment in capital markets. To some extent. though needed for smooth working of the securities Industry. changing 64 . No doubt. Merchant Banking firms are subject to a host of control measures.MERCHANT BANKER MERCHANT BANKING-FUTURE DEVELOPMENT Time and again the Merchant banking Industry in India witnessed experienced and underwent significant changes. regulations and rules framed and guided by SEBI. proves to be detrimental to the very existence of the Merchant Banking system in the country. The SEBI’s Act 1992 confers power upon SEBI to supervise and control the affairs of the Merchant Banking firms in India. No single study has been emerged so far pertaining to the evaluation of Merchant Banking firms and in-depth study on their activities in as well the as light operational of and financial regulatory performance environment. The various studies which had been undertaken in India for evaluating the performance of Merchant Banking firms and the implications of these on securities industry.

false premiums the dictum of proportionate and gray market operations. ate capital market and dreamt capital market. SEBI embarked on a course of action. It needed an extraordinary effort and skill the drive the small investor away! interests first laid down High premiums. hopes ran high that the small investor would now have a safe playing field. information given by the Issuer. the small investor has turned his back on the primary capital market. But these hopes were soon belied. The professed protector of his allotment. And this when all these years millions have though capital market. With the coming to SEBI. all working against his interests. rekindle his enthusiasm. an organisation that was ostensibly brought into existence to guard the interest of the small investor. which has positively hurt them. Far from guarding the interests of the investing public. He has lost all hopes of appreciation of his investment. The latest fiat of EBI bans corporate advertising after the receipt of acknowledgement card by a company wanting to go public. SEBI’s this action has caused the closure of an information window.MERCHANT BANKER In recent past. Now 50 million potential investors are deprived of official and authentic It is hard to understand 65 . and reinforce his faith. then of minimum subscription. This would make an observant student of the stock market infer that there is some game plan afoot to dethrone the small investor from his prominent. he was believed to be the king. Issue after issue as failed to capture his imagination.

oblivious of the fact that our capital markets are altogether different in structure. in systems and in the number of participants Freedom of commercial expression could be exploited by some to serve their own ends. just a s freedom of speech and expression could be abused but this has not led our Government to put arbitrary restrictions on our freedom. the small investor would be deprived of the opportunity to study the corporate profile of the Issuer. economy flourished through bigger markets. Merchant Bankers have reason to believe they will be handicapped without the marketing support. Besides. But the worst sufferer would be the investor. As a result of the ban. While there has been no official explanation for this fiat. All this has been done perhaps because the corporate and intermediaries is to follow the practices of Western capital markets here. especially the small investor it is this class. higher sales 66 . In the absence of adequate information. which forms the backbone of the capital market.MERCHANT BANKER reasons for this drastic and totally uncalled for action. From the point of view of liberalisation of the A market economy. SEBI has taken a retrograde step. there is reason to believe that it may be based on a wrong perception of the role for corporate advertising. there are larger issuers arising out of SEBI’s action. they will have to depend on manipulated facts and information fed by unreliable sources.

the investors will look for alternative avenues to invest their funds.. No marketing plan can be worthwhile unless it is backed by an effective advertising plan. It consists of innumerable investors who take own individual investment decisions. The Indian primary capital market is basically a retail market. The dilution of the holdings of the multinational companies at affordable prices in the latter part of the 1970s had generated considerable interest. Development and Regulation of Securities Market” clearly specifies significance of regulating capital market and its future plans for fulfilling the twin objectives viz. If these markets destabilized. the system. it is this market that will bring in the funds. Development of capital market and investor protection are explained in introductory paragraphs. a company needs an aggressive marketing plan and advertising effort is the main thrust to such a plan. which was. Whatever. The ban imposed by SEBI nips the marketing plan in the bud. “The decade of the 1980 witnessed a phenomenal growth and development of the securities market. SEBI in its one of the first documents on “SEBI and Investor Protection. demonstrated its potential not only to mobilize the savings of the horses hold sector but also to allocate it with some degree of efficiency for industrial development. It speak out that. carries well into the next decade. Several companies’ came in the early part of the 1980s and successfully raised large resources from 67 .MERCHANT BANKER and lesser profits. To achieve this performance.

The emergence of the securities markets into the main stream of the financial system of the country was thus one of the major economic processes of the 1980s – an inevitable outcome of the maturing process of the financial system. gave birth to new intermediaries and institutions in the securities market and created a new awareness and interest in investment opportunities in the securities market among investor. By the end of the decade. They brought about notable changes in the capital structure of the companies across industries. With the corporate sector increasingly relying on the securities market for meeting their long-term requirement of funds. if not effective. India was then entering the phase of liberalization and decontrol which was to accelerate and gather momentum in the 1980s. which significantly influenced industry and aided the market. the securities market their long-term requirement of funds.MERCHANT BANKER the market especially through debt instruments. which were the traditional purveyors of long-term capital. the regulatory framework then prevailing was fragmented difficult. 68 . In spite market. its quality lagged far behind and there was absence of adequate professionalism and fair competition among the various players in the market. the securities market competed on equal terms with the Development Financial Institutions. There were several changes in Government policy. Besides. which further sustained investor interest. the securities market in India came to be firmly integrated with the financial system of the country.

Disinvestment Ministry has already issued letters to Suzuki Motor Corporation.200 — if the price fell below this on the day the share got listed.MERCHANT BANKER CASE STUDY The Security and Exchange Board of India (Sebi) has rejected the suggestion of Suzuki for ‘hard underwriting’ of Maruti’s public offer by a merchant banker. we will go ahead as per our original agreement with Suzuki signed in May this year. the official added. The Government hopes to realise at least Rs 3. the official said. ‘the suggestions that Suzuki had given for hard-underwriting of the issue has been rejected by the market regulator’. Now. 69 . Suzuki’s argument was that hard underwriting would instill confidence among the investing public. According to a senior official in the Ministry of Disinvestment. The merchant bankers will start studying company’s financials soon however it will take at least three to four months more to hit the market actually. he added. the merchant banker would have to pay for this. Ministry of Heavy Industry and both the merchant bankers regarding the commencement of sale process. 2003 with an extendible deadline up to December 31. the merchant banker was supposed to underwrite the share at a price of Rs 3. The appointments have been approved by the Disinvestment Minister on Thursday. the amount paid by Suzuki Motor Corporation for the Rs 400 crore rights issue. The Disinvestment Ministry has also appointed Kotak Mahindra Finance and ICICI Securities as book runner and co-book runner to start the process of offer for sale of 36 lakh shares of Maruti Udyog Ltd. Under the hard underwriting model. 2003.200 per share. Maruti’s public float is scheduled to be completed by March 31.

one must decide what the services for which he is being approached are.MERCHANT BANKER CONCLUSION The merchant banker plays a vital role in channelizing the financial surplus of the society into productive investment avenues. well regulated market place in future. Hence before selecting a merchant banker. Market development is predicated on a sound. body in Indian financial system. fair and transparent regulatory framework. discerning and growing awareness and interest into an essential to remove the trading malpractice and structural inadequacies prevailing in the market. Merchant Banking can be considered as essential financial 70 . Selecting the right intermediary who has the necessary skills to meet the requirements of the client will ensure success. Hence. To sustain the growth of the market and crystallize the growing awareness and interest into a committed. and provide the investors an organized. It can be said that this project helped me to understand every details about Merchant Banking and in future how it’s going to get emerged in the Indian economy.

Banking Co. Corp Fina Ind Bank Merchant Services Ltd Merchant Bank Allianz Securities Ltd Merchant Banker Tata Finance Merchant Bankers Ltd Finance Solutions 71 .MERCHANT BANKER Some Example of Merchant Banker SBI Capital Marketltd Fin Invt& Leas Compn Mrh Bnkg L& T Capital Ltd Merc.

Money-lending. Merchant banker can be made more accountable & responsible. This is 72 . Favoured allotment of shares. Industry is not well organised & all the players do not play the same tune. Portfolio Management. India corporate cultural is bettering. But still many corporate have ‘excessively friendly’ approaches. Leasing. But RBI does not permit merchant banking firms to get into these activities. there is still scope for further improvement. Though regulations are much better now. corporate like to’ use’ merchant bankers for malafide intension. Hire Purchase. This gives growth to more boutique flybyday firms. tempering with project appraisal report to bankers is common.MERCHANT BANKER RECOMMENDATION I recommended the company which is in merchant banking business would have expertise in Underwriting. Professional qualification focused on merchant banking is not available. So the same promoters have to set up different company from different purpose.

MERCHANT BANKER specifically evident in comparison with insurance industry & mutual funds industry. 73 .

C.managementparadise.MERCHANT BANKER BIBLIOGRAPHY BOOKS REFFERED  Merchant Banker – H.R.google. LAKSHMANNA & C.R.yahoo.RAVICHANDRAN WEBILOGRAPHY        www.com www.com www.scribd.wikipedia.N.MACHIRAJU  Merchant Banking in IndiaB.com www. KRISHNA NAIK  Merchant Banking – J.C.K.com www.com 74 .economictimes.VERMA (3rd & 4th Edition)  Merchant Banking and financial Services – Dr.sebi.com www.com www. SUNEJA  Merchant Banking Principles & Practices- H.

Sign up to vote on this title
UsefulNot useful