8/3/2019 Mod 8 FMS Investment Banking
1/20
InvestmentInvestment
BankingBanking
http://www.iamee.in/index.html8/3/2019 Mod 8 FMS Investment Banking
2/20
overviewoverview
IntroductionFunctions and activitiesUnderwriting
Bankers to an issueDebenture trusteesPortfolio managers
Challenges faced by investmentbankersPrivate equity-functions, strategies,
services
Recent developments in India
8/3/2019 Mod 8 FMS Investment Banking
3/20
IntroductionIntroduction
Investment banking is anAmerican synonym of merchantbanking.
Merchant banking originated inthe 13th century in the Europeancountries.
These are institutions whichprovide valuable services likeportfolio management, bills of
exchange etc.
8/3/2019 Mod 8 FMS Investment Banking
4/20
What is merchantWhat is merchant
banking?banking?The term "merchant bank" came
back into vogue in the late 1970swith the nascent private equity
business of firms like Kohlberg,Kravis & Roberts (KKR).
Merchant banking in its modern
context refers to using one's ownequity (often accompanied byexternal debt financing) in a
private transaction, as opposedto underwritin a ublic issue.
8/3/2019 Mod 8 FMS Investment Banking
5/20
Origin of merchantOrigin of merchant
bankingbankingMerchant banking in Britain
started in the 13th century when afew private firms engaged
themselves in foreign trade andfinance.
8/3/2019 Mod 8 FMS Investment Banking
6/20
Indian scenarioIndian scenario
During 19th century, the foreignmerchant bankers operated inIndia.
SBI floated its merchant bankingdivision in the year 1972
Other commercial banks followed
SBI and started merchantbanking activities in ICICI 1973
IFCI -1986
IDBI - 1991
8/3/2019 Mod 8 FMS Investment Banking
7/20
Functions of MerchantFunctions of Merchant
BankerBankerAct as lead manager in the public and
rights issue of new capitalAct as consultant or advisor in the public
issue of new capital
Underwriter offerings of new securitiesHelp companies to privately place issues
of new securitiesProvide venture capital for high-
technology firms and ventures promotedby unproven entrepreneurs
Provides corporate restructuringservices such as mergers andacquisitions, divestitures etc.
8/3/2019 Mod 8 FMS Investment Banking
8/20
Categories of MerchantCategories of Merchant
BankersBankersSEBI grants certificates in four
categories in order to perform MBactivities
8/3/2019 Mod 8 FMS Investment Banking
9/20
Category ICategory I
This class of merchant bankers carryon activities associated with issuemanagement such as preparation of
prospectus and other informationrelating to the issue, determinationsof the financial structure,arrangement of financiers,
allotment and refund of subscription.
They are also permitted to perform
the roles of advisor, consultant,
8/3/2019 Mod 8 FMS Investment Banking
10/20
Category IICategory II
This category of Merchantbankers is allowed to carry outthe roles ofadvisor, consultant,
co-manager, underwriter andportfolio manager
8/3/2019 Mod 8 FMS Investment Banking
11/20
Category IIICategory III
This class of merchant bankers isallowed to act as underwriters,advisor, and consultant
8/3/2019 Mod 8 FMS Investment Banking
12/20
Category IVCategory IV
This category of merchantbankers are only allowed to actas advisor, or consultant
8/3/2019 Mod 8 FMS Investment Banking
13/20
Services of MerchantServices of Merchant
BankersBankers1. Corporate counselling
2. Project counselling
3. Loan syndication
4. Management of capital issues
5. Corporate advisory services
6. Portfolio management
7. Advisory services to mergersand take overs
8/3/2019 Mod 8 FMS Investment Banking
14/20
8. Consultancy to sick industrialunits
9. Leasing
10.Issue management
8/3/2019 Mod 8 FMS Investment Banking
15/20
Qualities of MerchantQualities of Merchant
BankerBanker1. The merchant banker must have
knowledge and informationabout the capital markets,
trends in stock exchange,psychology of the investingpublic, and technological andeconomical changes in the
country2. They must have ability to
analyse and evaluate varioustechnical, financial andeconomical aspects concerning
8/3/2019 Mod 8 FMS Investment Banking
16/20
3 they must safeguard the interest ofthe investing public
4. The merchant banker should realizethe changing environment of capital
market and keep cordial relationshipwith the investors5. They must be able to develop
innovative capital market
instruments for satisfying thechanging needs of investors6. The merchant banker must be able
to restrict the function to be
performed and concentrate anddevelop their strength to keep costs
8/3/2019 Mod 8 FMS Investment Banking
17/20
Problems faced by merchantProblems faced by merchant
bankersbankersStipulation of networth of Rs 1
crore for authorisation ofmerchant bankers creates
problems for professionalMerchant bankers.
Issuing companies not
cooperating for timely allotmentof shares and refund ofapplication money to theinvestor.
8/3/2019 Mod 8 FMS Investment Banking
18/20
Future prospects of MerchantFuture prospects of Merchant
banking in Indiabanking in India1. Growth of primary market
2. Entry of foreign investors
3. Changing policy of financial
institutions
4. Development of debt market
5. Corporate restructuring
8/3/2019 Mod 8 FMS Investment Banking
19/20
Principal steps in issue ofPrincipal steps in issue of
prospectusprospectus1. Design and vetting of prospectus
2. Nature of instrument
3. Financial results
4. Risk factors
5. Pricing of the issue
6. Appointment of underwriters
7. Appointment of bankers
8. Appointment of registrars
9. Appointment of brokers and
8/3/2019 Mod 8 FMS Investment Banking
20/20
Filing of the prospectus with theFiling of the prospectus with the
Registrar of CompaniesRegistrar of Companies1. printing and dispatch of prospectus
and application form
2. Filing of initial listing application
3. Promotion of the issue4. Statutory announcement
5. Collection of applications
6.Processing of applications
7. Establishing the liability ofunderwriters
8. Allotment of shares
9. Listing of the issue
Top Related