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WHAT

WHY Rights Issues


WHEN
What is Rights Issues?

 Instead of going to the public, the company gives its existing


shareholders the right to subscribe to newly issued shares in
proportion to their existing holdings

 Usually the price at which the new shares are issued rights
issues is less than the current market price of the stock

 The shares are offered at a discount rate


Why does a company go for Rights
issues?

 To raise fresh capital

 when a company needs funds for corporate expansion or a large


takeover

 companies also use rights issue to prevent themselves from being


conked out from the market

 companies typically use rights issues to pay down debt, especially


when they are unable to borrow more money
When to buy?

 Rights issue are different from bonus issue as one is paying money to get
additional shares and hence one should subscribe to it only if he/she is
completely sure of the company performance.

 One must not take up the rights if the share price has fallen below the
subscription price as it may be cheaper to buy the shares in open market.
Private Equity
Private Equity

 Private equity consists of investors and funds that make investments


directly into private companies

 Capital for private equity is raised from retail and institutional


investors.

 Private Equity Firm is also called as LBO firm.


(Leverage Buyout).
Role And Importance Of private Equity

 They help in growth of the economy

 Helps the companies for expanding to international markets

 Greater expansion of business create more employment


Corporate Advisory
Services
Corporate Advisory Services

“We live in a time of continuous disruption, in a world that is information rich,


technologically advanced, increasingly more complex and with so little time;
Boards and executive teams are under increasing pressure to deliver – whether it
is growth initiatives, earnings targets, customer management programs, supply
chain efficiencies, staff satisfaction surveys and the like. What is apparent is
that the best and more progressive enterprises recognise they require assistance
from time to time, through the use of trusted professionals in various capacities
to assist them to deliver on their corporate objectives.”
 The finance industry encompasses a broad range of organizations that deal
with the management of money. Among these organizations are banks, credit
card companies, insurance companies, consumer finance companies, stock
brokerages, investment funds and some government sponsored enterprises.
 A business requires advisory services in a number of domains. Some entities
have multi disciplinary teams that provide advisory services on issues that cut
across domains, while others specialize in specific domains.
 Corporate finance advisory means the advisory services that are provided to
the various corporate bodies about the financial aspect of their operations.
These services may be provided by the advisory boards of the companies or by
professional bodies who deal in such services.
Customer Advisory Services includes :

 Project Consulting

 Mergers and Acquisitions

 Disinvestment/ Bid Process Management

 Joint Venture/PPP Advisory

 Corporate Restructuring

 Bidding Advisory
Services that make up the Business
Advisory Services:
 Entry Strategy Plans

 Project Feasibility Plans

 Corporate Plans

 Business Alliances

 Cross-Border Investments
Investment Banking
and Merchant Banking
Difference between Investment
Banking and Merchant Banking

Investment banking Merchant banking


Investment banks are financial A merchant bank is a financial
institutions that assist individuals, institution that provides capital to
corporations, and governments in companies in the form of share
raising financial capital by ownership instead of loans
underwriting or acting as the client's
agent in the issuance of securities
Core activities

Investment Banking Merchant Banking


• Underwriting security issuance • Issue management
• Initial public offerings (IPOs) • Portfolio management
• Secondary market offerings • Credit syndication
• Brokerage • Acceptance credit
• Mergers and acquisitions • Counsel on mergers and
• Securities research acquisitions
• Proprietary trading • Insurance
• Investment management • Issuing letters of credit
• Sales and trading • Transferring funds internationally
• Research • Co-investment in international
• Risk Management projects
Examples
Investment Banking Merchant Banking

HDFC asset management company ltd PNB appointed i-Bankers for selling 32%
appointed Kotak investment banking stake in PNB housing finance.
• AXIS CAPITAL
• BofA MERRILL LYNCH Other examples :
• CLSA INDIA PVT LTD • J. S. MORGAN & CO.
• ICICI SECURITIES • BROWN BROTHERS HARRIMAN & CO.
• IIFL HOLDING LTD. • SAMUEL MONTAGU & CO.
• J.P. MORGAN & Co. • H. J. MERCK & CO
for IPO launch
Financial Engineering
DEFINIATION

 Financial engineering involves the design, the development and the


implementation of innovation financial instruments and processes and
the formulation of creative solutions to the problems in finance.

 Financial engineering and innovations are seen in bonds, equity,


derivatives and in fields like mergers, acquisitions and corporate
restructuing.
PROCESS
CONCLUSION

 The field of financial engineering needs much more development to ensure


that investors have wider choice of investing and corporates have wider
choice of financing.
 The new instruments should be created to ensure financial efficiency and
solve the problems of financing the corporations.

This can done by two ways:


By unbundling existing products
By creating new products
VENTURE CAPITAL
FINANCING
What is Venture Capital?
 It is the money provided by an outside investor to finance a new, growing,
or troubled business. The venture capitalist provides funding knowing that
there is a significant risk associated with the company’s future profits and
cash flow.
 It is the capital invested in exchange for an equity stake in the business
rather than given as a loan.
 Venture capital is the most suitable option for funding a costly capital
source for companies and more so suitable for the kind of business that
needs large front-up capital requirements which have no other cheap
alternatives.
 Kohlberg Kravis & Roberts (KKR), one of the top-tier alternative investment
asset manager in the world, entered into an agreement to invest 962
crores in Mumbai-based polyester maker JBF industries Ltd. The funding
provided by KKR will help JBF complete the ongoing projects.
Features of Venture Capital
 Equity participation

 High Risk

 Long-term investments

 Lack of liquidity

 Participation in management
Process of Venture Capital Financing

 Deal Orientation

 Screening

 Evaluation

 Deal-structuring

 Post-investment activity

 Exit Plan
Advantages of Venture Capital

 They bring wealth and expertise to the company.

 Large sum of equity finance can be provided.

 The business does not stand the obligation to repay the money.

 In addition to capital, it provides valuable information, resources,


technical assistance to make a business successful.
Disadvantages of Venture Capital

 As the investors become part owners, the autonomy and control of


the founder is lost.

 It is a lengthy and complex process.

 It is an uncertain form of financing.

 Benefit from such financing can be realised in the long run only.
MERGERS & ACQUISITIONS
Meaning

 MERGERS :- A merger is the voluntary fusion of two companies on


broadly equal terms into one new legal entity.

 ACQUISITIONS :-An acquisition is a situation whereby one company


purchases most or all of another company's shares in order to take
control.
Why Merge ?
 Strategic Benefit

 Economies of scale

 Economies of scope

 Tax Shield

 Industry Consolidation

 Diversification

 Lower Financing Costs

 Earnings Growth
Difference between Mergers & Acquisitions
MERGERS ACQUISITIONS
Merging of 2 organizations to 1 Buying one organization by another

It is a mutual decision It can be friendly or hostile takeover

Dilution of ownership occurs in mergers The acquirer does not experience the
dilution of ownership

Merger is expensive and time consuming Acquisition is less expensive and faster and
easier transaction

For example, GlaxoWellcome and SmithKline Dr. Reddy's Labs acquired Betapharm through
Beehcam ceased to exist and merged to an agreement amounting $597 million
become a new company, known as Glaxo
SmithKline.
Important terms in a Merger

 Synergy:- Synergy is the magic force that allows for enhanced cost
efficiencies of the new business. Synergy takes the form of revenue
enhancement and cost savings

 Due Diligence :- Due diligence is a very detail and extensive


evaluation of the proposed merger. An over-riding question is - Will
this merger work? In order to answer this question, we must
determine what kind of "fit" exists between the two companies.
Varieties of Mergers
 Horizontal Merger: Two firms operating in same industry or producing
ideal products combining together. Example – Heineken and United
Breweries

 Vertical Merger: A merger between two firms operating at different


levels within an industry’s supply chain. Example – A car manufacturing
company acquires its tyre supplier firm or steel supplier firm.

 Congeneric Merger: A merger where two companies are in the same or


related industries or markets but do not offer the same products.
Example – Computer manufacturing firm merging with UPS company.

 Conglomerate Merger: A merger between firms that are involved in


totally unrelated business activities. There are further more 2 types of
Conglomerate merger : Pure Conglomerate & Mixed Conglomerate
Varieties of Acquisition

 Friendly Takeover: A public offer of stock or cash is made by the acquiring


firm, and the board of the target firm will publicly approve the buyout
terms, which may yet be subject to shareholder or regulatory approval.
Example – Walmart acquired Flipkart, Axis bank acquired Freecharge. Ola
acquired Foodpanda.

 Hostile Takeover: A hostile takeover is the acquisition of one company


(the target company) by another (the acquirer) that is accomplished by
going directly to the company's shareholders or fighting to replace
management to get the acquisition approved. A hostile takeover can be
accomplished through either a tender offer or a proxy fight. Examples –
LBO of RJR Nabisco by KKR.
LOAN SYNDICATION

• Loan syndication is a lending


process in which a group of lenders
provide funds to a single borrower.
• This loan is provided to corporation
and government bodies because the
amount to be lent is huge.

• Participants:
• Borrower
• Arranger
• Co-arranger
• Agent
• Co-lender
STAGES OF LOAN SYNDICATION PROCESS

1. Pre-mandate stage (Primary stage)

2. Placing the loan and disbursement

3. Post-closure stage
FDI & FII
FOREIGN DIRECT INVESTMENT & FOREIGN INSTITUTIONAL INVESTOR
Foreign Direct Investment - FDI

 Foreign direct investment (FDI) is an investment made by a firm or


individual in one country into business interests located in another
country

 When an investor establishes foreign business operations or acquires


foreign business assets
Advantages of FDI
 Increased Productivity: The facilities and equipment provided by
foreign investors can increase a workforce’s productivity in the target
country.
 Access to resources: FDI is also an effective way for you to acquire
important natural resources, such as precious metals and fossil fuels.
Oil companies, for example, often make tremendous FDIs to develop
oil fields.
 Reduces cost of production: FDI is a means for you to reduce your
cost of production if the labor market is cheaper and the regulations
are less restrictive in the target foreign market. For example Apple
manufactures its iPhones in China and will start manufacturing in India
to reduce costs.
Disadvantages of FDI
 Risk from Political Changes
Because political issues in other countries can instantly change, foreign direct investment
is very risky. Plus, most of the risk factors that you are going to experience are extremely
high.
 Negative Influence on Exchange Rates
Foreign direct investments can occasionally affect exchange rates to the advantage of one
country and the detriment of another.
 Higher Costs
If you invest in some foreign countries, you might notice that it is more expensive than
when you export goods. So, it is very imperative to prepare sufficient money to set up
your operations.
Foreign Institutional Investor - FII

A foreign institutional investor (FII) is an investor or investment fund registered


in a country outside of the one in which it is investing

Institutional investors most notably include :


 Charitable Trusts / Charitable Societies
 Insurance Companies
 Pension Funds
 Mutual Funds
Advantages Of Foreign Institutional Investment
(FII)

 Increases Forex reserves


Foreign investor invest in our country shares . Because of there investments in our country
there is an inflow of foreign currency . Through that there is an increase in foreign
reserve
 Enhanced Flow of Capital
It helps in growth rate of the investment whereby development project economical and
social infrastructure is built and so does boosts production and employment and income
of the host country
 Managing Uncertainty and Controlling Risks
It helps promote hedging instruments and improve the competition in financial market
and also alignment of assets which help in stabilizing markets.
Disadvantages Of Foreign Institutional Investment
(FII)
 Problem of inflation
Huge inflow of FII funds creates high demand for rupee and whereby pumping huge
amount of money by the RBI into the market. This creates excess liquidity creating
inflation.
 Potential Capital Outflow
Since FIIs are controlled by investors there can be sudden outflow from markets leading to
shortage of funds.
 Adverse Impact on Exports
With FII inflows leading to appreciation of currency, exports become expensive which
ultimately leads to lower demand and hence shortfall in the export of goods, reducing
competitiveness.