Issue Management

ISSUE MANAGEMENT

Merchant Banker: 

The organization merchant banker came into existence to link the investors on one side and cater to the needs of the entrepreneurs on the other .



A “Merchant Banker” is able to raise capital from the investing public and provide the same to the companies which are in need of them.

Definition  Rule 2(e) of SEBI (merchant bankers) Rules 1992, defines who

a merchant banker is. “merchant banker means any person who is engaged in the business of issue management either by making arrangements regarding selling, buying or subscribing to securities as managerconsultant, advisor or rendering corporate advisory services in relation to such issue management”

Merchant Banking in India  Till early 1960s there was no merchant banking in the Indian banking

system.

 It was the Grindlays Bank which started merchant banking services as far

back as 1967 in India. Others to follow were Citibank (1970), SBI (1972)

 The boom in the capital market in mid 1970s with the introduction of FERA

– 1973 encouraged other banks and financial institutions to set up MB divisions.

 Private financial brokers also started private MB organizations

REGULATIONS OF SEBI SEBI REFORMS:

One equity merchant banker  Allowed to perform underwriting  To perform portfolio Manager ,separate registration from SEBI  Cannot undertake function of non-banking financial company.  confine only to capital market activities. 

GUIDELINES FOR MERCHANT BANKERS : Authorization criteria include  Professional qualification in finance, law or business management  Infrastructure like office space, equipment and man power  Capital adequacy  Past track of record,experience,general reputation and fairness in all transactions

Conditions by SEBI:  Every merchant banker should maintain copies of balance

sheet,Profit and loss account,statement of financial position

 Half-yearly unaudited result should be submitted to SEBI

 Merchant bankers are prohibited from buying securities based

on the unpublished price sensitive information of their clients

SEBI has been vested with the power to suspend or cancel the authorization in case of violation of the guidelines

Every merchant banker shall appoint a ‘Compliance Officer‘ to monitor compliance of the Act

SEBI has the right to send inspecting authority to inspect books of accounts, records etc… of merchant bankers

Inspections will be conducted by SEBI to ensure that

provisions of the regulations are properly complied

An initial authorization fee, an annual fee and renewal

fee may be collected by SEBI

A lead manager holding a certificate under category I

shall accept a minimum underwriting obligation of 5% of size of issue or Rs.25 lakhs whichever is less

MECHANISM OF PUBLIC ISSUE MANAGEMENT Decision to raise Capital funds Obtaining SEBI approval Arranging Underwriting Preparation and finalization of prospectus Selection of Registrars,Brokers,Bankers,etc Arranging Press and investor conference Printing and publicity of Public issue Documents SEBI Compliance ISSUE LAUNCH

CATEGORIES OF SECURITIES ISSUE 2. Public issue 4. Right issue 6. Private placement

ISSUE MANAGER  Requirements‘  Categories of Issue Mangers

I. II. III. IV.

(I + A + C + U + P Mgr) (A + C + U + P Mgr) (A + C + U) (A or C)

 Restriction on Issue managers

ROLE OF ISSUE MANAGER 2.Easy floatation 3.Financial consultant 4.Underwriting 5.Market makers 6.Due diligence 7.Coordination 8.Liaison with SEBI

PRE ISSUE ACTIVITIES 2. Signing of MoU 3. Obtaining appraisal note 4. Optimum Capital structure 5. Convening meeting 6. Appointment of financial intermediary 7. Preparing documents 8. Due diligence certificate 9. Submission of offer doc 10.Finalization of collection centres 11.Filing with RoC 12.Launching the issue 13.Promoters contribution 14.Issue closure

PROJECT APPRAISAL 1. Technical appraisal 2. Ecological appraisal 3. Financial appraisal 4. Financial tools 5. Promoters contribution 6. Economical appraisal 7. Commercial appraisal 8. Managerial appraisal

CAPITAL STRUCTURE DECISIONS “ Proportionate claims of DEBT AND EQUITY ” OPTIMAL CAPITAL STUCTURE: 4.Simplicity 5.Low cost Maximum return & Minimum risk 6.Maximum control 7.Liquidity 8.Flexibility 9.equitable capitalization 10.Optimal leverage

PATTERN 2.Exclusively

(E)

3.( E + P S ) 4.( E+ D ) 5.( E + D + PS )

TAKING DECISIONS ON Cap Str.. 2.Cost principle 3.Control principle 4.Return principle 5.Flexibility principle 6.Timing principle

Capital Structure Decisions – FACTORS

Economy Characteristic

Industry Characteristics

Company Characteristics Size of business Age of company

Business Activity Stock Market Taxation Regulations Credit Policy FIs

Form of

Cyclical Fluctuations Levels of Competition Life cycle of Industry

organization Stability of earnings Credit standing Management philosophy

CAPITAL MARKET ISTRUMENTS “Financial instruments used for raising capital r/s in Capital Markets” TYPES: Preference Shares Equity Shares Non – voting E S CCPS Company Fixed Deposits Warrants Debentures and Bonds

PRICING OF ISSUES Factor to be considered: 3.Qualitative factors 5.Quantitative factors

CCI MODELS: NAV

NAV= total net worth / Total no. of outstanding (tot net worth={ E Cap + Free reserves – Contingent Liability} + Fresh capital)

Profit Earning Capacity Value(PECV) Share price =

Average Market Price

___EPS * 100____ Capitalization rate

SAFETY NET SCHEME: This method aims at affording a measure of

protection while the pricing. Here merchant banker provide a buy–back

facility to the individual investors.

PROSPECTUS “ A document through which publicc are solicited to subscribe to the share capital of a corparate entity is called PROSPECTUS”

CONTENTS PART I: General information Capital structure Terms of issue Particulars of the issue Company ,management and project Disclosure of public issues made by the company Disclosure of o/s litigation, criminal prosecution and defaults Perception of risk factors

PART II General information Financial information Statutory information

PART III Declaration Application with prospectus

ABRIDGED PROSPECTUS “ A memorandum containing such salient features of a prospectus as may be prescribed is called ABRIDGED PROSPECTUS”

SELECTION OF BANKERS Short term source Medium term source Long term source

BIBILOGRAPHY 1.Merchant banking and financial services – Dr S Gurusamy 2.www.pdfcoke.com

PREPARED & PRESENTED BY B.MOHAN KUMAR.

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