15-01-2013, 03:15 PM
Merchant Banking
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Merchant Banking (MB) in India….
Originated in 1969 – Grindlays Bank setting up division for undertaking & management of public issue
Recommendations of Banking Commission (1972)
SBI started MB service in 1973
ICICI was the first development bank to start in 1974
Mid seventies saw boom with MB organizations sponsored by banks, FIs, NBFCs, brokers etc.
But rules & regulation came into existence with formation of SEBI in 1992
Merchant Bankers & Lead Managers
Merchant Banker means
Any person who is engaged in the business of issue management
By making arrangement regarding
Selling, buying or subscribing to securities or
Acting as manager/consultant/advisor or
Rendering corporate advisory services in relation to issue management
Issue means
An offer for sale/purchase of securities by any body corporate/other person or group of persons
On its/his/their behalf to or from the public or from holders of their securities
Through a merchant banker
Registration
Compulsory registration with SEBI to carry out their activity
Category I
Preparation of prospectus & other info. Relating to issue
Determining the financial structure, tie up of financiers, final allotment of securities, refund of subscription etc.
Category II
Can act as advisors, consultants, managers, underwriters and portfolio managers
Grant of Certificate
MB should also be a body corporate other than NBFC
If granted permission by RBI to be the primary dealer it would not accept/hold public deposit
They need to have adequate infrastructure
Space, equipment, manpower
Should appoint 2 persons with experience
Any person related directly or indirectly does not have certificate of Regn.
Fulfill capital adequacy of Rs.5 crore
Officer should not be involved in litigation w.r.t. security market
Should have recognised qualification in finance, law or business management
Condition for Registration
Prior approval from SEBI after change of status like
Amalgamation/demerger/constitution/corporate restructuring
Change in management/whole time director
Any change in control over body corporate
Shares are listed
Controlling interest (51% voting rights)
Pay the registration fees
Take steps to redress the grievance
Abide by the regulation by SEBI
Obligation & Responsibility
Protect interest of the investor
Maintain high standard of integrity/fairness
Adequate disclosures are made
Avoid conflict of interest
No sharing of confidential information about clients
Not indulge in any unfair competition
Abide by the provisions of SEBI Act
SEBI is informed about any action/legal proceedings
Not to be part of
Creation of false market
Price rigging
Passing unpublished price sensitive information
Issue Management: Activities/Procedures
To protect interest of the investor &
Orderly growth and development of security market
SEBI has put in place Disclosure & Investor Protection (DIP) guideline
Addition to company law requirement
These are applicable to all
Public issue & offer for sale by listed/unlisted companies
Rights issue –offered to the existing share holder
IPO by Unlisted Companies
Co. should have tangible assets of at least Rs.3 Cr. In each of the preceding 3 years
50% of those should be in the form of monitory assets
Has a track record of distributable profit for at least 3 years out of immediate 5 yrs.
Net worth as per the audited balance sheet of at least Rs.1 cr.
If change in name -50% of the profit in the preceding yr. should be from new name
Aggregate issue of all previous issue in the same FY does not exceed 5 times of pre issuance net worth
Price Band
Can mention a price band of 20% in the offer document filed with SEBI
Should not exceed 20% of the floor price
Actual price can be determined before filing with ROCs
Resolution to be passed for determining such price
In case of listed company details to be provided to stock exchanges
No commission/discount to be paid to any firm in case of a public issue
Issue can be in any denomination as specified SEBI from time to time
Book Building
The process of determining the price at which an Initial Public Offering will be offered. The book is filled with the prices that investors indicate they are willing to pay per share, and when the book is closed, the issue price is determined by an underwriter by analyzing these values
In a book building offer, the syndicate members decide the price range and the people decide the price of the issue based on a tender method