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Semester VI
Submitted
1
DECLARATION
(Signature of Student)
61
2
CERTIFICATE
This is to certify that Mr./Ms.__________, Roll no: ___of Third
Year B.M.S., Semester V (2016- 2017) has successfully
completed the project on __________ ________under the
guidance of_____________.
Course Coordinator
External Examiner
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ACKNOWLEDGEMENT
To list who all have helped me is difficult because they are so
numerous and the depth is so enormous.
I would like to acknowledge the following as being idealistic
channels and fresh dimensions in the completion of this
project.
I take this opportunity to thank the University of Mumbai for
giving me chance to do this project.
I would like to thank my principal, __________for providing the
necessary facilities required for completion of this project.
I take this opportunity to thank our Coordinator_______________,
for her moral support and guidance.
I would also like to express my sincere gratitude towards my
project guide _____________ whose guidance and care made
the project successful.
I would like to thank my College Library, for having provided
various reference books and magazines related to my project.
Lastly, I would like to thank each and every person who directly or
indirectly helped me in the completion of the project
especially my Parents and Peers who supported me
throughout my project.
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INDEX
CHP.NO. TOPIC PAGE NO.
1 INTRODUCTION
2 Review of literature
EVOLUTION OF INVETMENT
BANKING
GROWTH OF INVESTMENT
BANKING
FUNCTIONS OF INVESTMENT
BANKING
TYPES OF INVESTMENT
ORGANISATION STRUCTURE
QUALITIES REQUIRED BY
INVESTMENT
INVESTMENT BANKING
REGULATION IN INDIA
GROWTH OF INVESTMENT
BAKING IN INDIA
NEED OF INVESTMENT BANKING
IN INDIA
ORGANIZATIONAL SETUP OF
INVESTMENT BANKERS IN INDIA
IPO PROCESS
DEBT SYNDICATION AND ITS
PROCESS
BUY BACK OF SHARES
MERGERS AND ACQUISITION
VENTURE CAPITAL FUNDING
3 RESEARCH AND METODOLOGY
4 DATA ANALYSIS AND
INTERPRETATION OF DATA
5 CONCLUSION
6 BIBLIOGRAPHY
7 Appendix
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CHAPTER 1
1.1 INTRODUCTION
Investment Banks assist corporation in raising funds in the public markets both
equity and debt, as well as provide strategic advisory services for managers,
acquisition and types of transactions. Investment banks differ from Commercial
Banks which serve to directly take deposits and make loans.
Investment banks also differ from brokerages, which in general assist in the
purchase and sale of stocks, bonds and mutual funds. However some firms
operate as both brokerage and investment banks; this includes some of the best
known financial services firms in the world.
Investment banks help companies and government and their agencies to raise
money by issuing and selling securities in the primary market. Investment
Banking is dedicated to fulfill the needs trade and includes by acting as an
intermediary and a financer too.
Investment bankers with the confidence of the investors of the General public,
command a high reputation for passing on accurate, adequate and timely
information which helps and facilitates in the functioning of capital markets,
money markets and international financial systems. Investment bankers
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preserve their skills as personal possession for their competitive strength in their
profession.
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1.2 DEFINITIONS
In the strictest definition, Investment banking helps in the raising of funds both
in debt and equity, and the division handing this in an investment bank is often
called the “Investment Banking Division”(IBD). However, any a few small
firms solely provide these services. Almost all investment banks are heavily
involved of fixed income, foreign exchange, commodity, and equity securities.
Investment banks help companies and government (or their agencies) raise
money by issuing and selling securities in the capital markets (both equity and
debt).
Almost all investment banks also offer strategies advisory services for mergers,
Acquisitions, divestiture or other financial services for clients, such as the
trading of derivatives, fixed income, foreign exchange, and commodity. Trading
securities for cash or the promotion of securities or referred to as “sell side.”
The “buy side” constitutes the pension funds, mutual funds, hedge funds, and
investing public who consume the products and services of the sell-side in order
to maximize their return on investment. Many firms have both buy and sell side
components.
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1.3 EVOLUTION OF INVETMENT BANKING
The term “ Investment bank ” does not have a precise definition, but is
generally applied to financial houses which, starting from trading as merchants,
expanded their role to financing the trading and commercial activities of others,
especially in the international market place. For many years, the British houses
were know as investment banks reflecting their origins, Investment banks have
retained this string international flavour and often have offices in many other
countries, particularly in the major financial centers.
For example, trading bonds and equities for customers is now a commodity
business, but structuring and trading derivatives is highly profitable. Each OTC
contract has to be uniquely and could involve complex pay-off and risk profiles.
Listed option contracts are traded through major exchanges, and are almost as
commoditized as general equity securities, products have been commoditized.
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Vertical Integration
The money from the sale of the bonds can be used to make new loans, while
the lenders accept loan payments and passes the payments on to the
bondholders. This process is called securitization. However, lenders have begun
to securitize loans themselves, especially in the areas of mortgage loans.
Because of this, and because of the fear that this will continue, many Investment
Banks have focused on becoming lenders themselves, making loans with the
goal of securitizing them.
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1.4 GROWTH OF INVESTMENT BANKS
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1.5 FUNCTION OF INVESTMENT BANKS
1) CORPORATE COUNSELLING
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It advises the company to raise fund through equity issue in the primary
market or issuing debentures or the public depending on the quantum of
capital required.
2) PROJECT COUNSELLING
3) LOAN SYNDICATION
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(B) Post-issue Management
(1) To verify and confirm that the issue is subscribed to the extent of
including development from underwriters in case of under subscription.
(2) To supervise and co-ordinate the allotment procedure of registrar to the
issue as per prescribed Stock Exchange guidelines.
(3) To ensure issue of refund order, allotment letters/ certificates within the
prescribed time limit of 10 weeks after the closure of subscription list.
(4) To report periodically to exchange regulatory about the progress in the
matters related to allotment and refunds.
(5) To ensure the listing of securities at Stock Exchange.
(6) To attend the investors grievances regarding the public issue. The
investment bankers for managing public issue can negotiate a fee
subject to a ceiling. This fee is to be shared by all lead managers,
advisers, etc.
(a) 0.5% of the amount of public issues up to Rs.25 cores and
(b) Investment bankers are managing the issue.
Cities are done by all categories of investment bankers except category-IV. This
activity is a good business option if due care is taken in selecting and marketing
the issue so that likely development is generated. The investment bankers are
authorized to take a maximum underwriting of 5 times its net worth at any point
of time.
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The portfolio management service can be rendered by category-I and II
investment bankers. The portfolio manger pursuant to a contract or
agreement with a client advices or director or undertakes on behalf of the
client the management of investment of different types of marketable
securities or investment papers ‘like shares, debentures, bonds, etc. with a
view to ensure maximum return, by such investments by minimum risk of
loss of return. Portfolio management should aim at investing in different
securities and financial instruments so as to earn best possible returns
besides safety and security of invested funds. There are certain guidelines
laid down by the exchange regulatory. These guidelines pertain to the duties
and responsibilities of the portfolio manager for reprisal of grievances and
penalties for non compliances. With more and more companies tapping the
capital markets, the investor is more likely than non-equipped to handle the
complexities of stock-trading. Portfolio management as a concept is catching
up in India.
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largest investment bank are in the low thousands. Success in the Investment
banking business depends on the ability to provide whatever financial
services a client may require, and people employed need particular qualities
of flexibility, innovativeness and client handling skills.
It should be understood that interest rates are not only definition of capital
costs. Restrictions on availability, prepayment terms, and operating
effectiveness can often outweigh what might appear to be inexpensive capital
with low interest rates. Too often, capital includes costs, which force an
entrepreneur or a business to undertake undesirable actions. In short- run, some
actions might be necessary, but often in the long run are detrimental.
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He also know how to substitute one type of capital for another, sometimes
utilizing internal sources from asset repositioning or cash creation from
improvements in working capital. He understands fully the risk versus return
elements necessary to complete the capital procurement process.
The investment bankers may act as factor organization with a view to earning a
great amount of commission.
1) Financing
2) Advisory services if necessary
3) Collection of bills / Account Receivable against sales produced.
4) Maintenance of sales ledger
5) Provide further if necessary
6) Covering losses if there are any.
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1.6 TYPES OF INVESTMENT BANKS
With the continued developmental activities in the country as well as
liberalization of the economy the industry and trade requires funds for its
expansion which are in excess of that, which is available from institutions.
Thus there is a need to collect the funds from capital market and investment
bankers are needed to help in mobilizing the funds. This factor has
contributed to the steady growth of investment banking in the country. In
order to regulate the market and check unfair trade practices on the stock
Exchange, the Government of India in 1992 passed the Securities and
Exchange Board of India (SEBI) Act. SEBI for the first time formally
defined investment banking and framed rules and regulations for investment
bankers.
(1) Category – I :
a) Carry on any activity of the issue management which will in turn consists of
preparation of prospectus and other information relating to the issue,
determining financial structure; tie up of financial, financiers and final
allotment and refund of the subscription.
b) Act as adviser, Consultant, manger, underwriter, portfolio manager.
(2) Category – II :
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(3) Category – III :
The Investment banker should have a minimum net worth of Rs.20 laths to
meet the capital adequacy requirement. The permissible activities are to act
as underwriter, adviser and consultant to an issue.
(4) Category – IV :
I Rs.1 Core
II Rs.50 Laths
III Rs.20 Laths
IV NIL
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(1) Dealing in money market instruments like placement of commercial
papers, fixed deposits, treasury bills, etc.
Non – fund based source of finance refers to those sources of finance which
only assure the supply of fund but does not get the fund in real terms.
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1.7 ORGANIZATION STRUCTURE
An investment bank is split into the so-called Front office, Middle Office
and Back Office. The individual activities are described below:
Front Office
Financial Markets is split into four key divisions: Sales, Trading, Research
and Structuring.
Sales and Trading is often the most profitable area of an investment bank,
responsible for the majority of revenue of most investment banks. In the process
of market making, traders will buy and sell financial products with the goal of
marketing an incremental amount of money on each trade.
Sales is the term for the investment banks sales force, whose primary job is
to call on institutional and high-net-worth investors to suggest trading ideas
(on caveat emptor basis) and take orders. Sales desks then communicate their
clients’ orders to the appropriate trading desks, which can price and execute
trades, or structure new products new that fit a specific need.
Research is the division which reviews companies and writes reports about
their prospects, often with “buy” or “sell” ratings. While the research
division generates no revenue, its resources are used to assist trades in
trading, the sales force in suggesting ideas to customers, and investment
bankers by covering their clients. In recent years the relationship between
investment banking and research has become highly regulated, reducing its
importance to the investment bank.
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Structuring has been a relatively recent division as derivatives have come
into play, with highly technical and numerate employees working on
creating complex structured products which typically offer much greater
margins and returns than underlying cash securities.
MIDDLE OFFICE
Risk management involves analyzing the market and credit risk that traders
are taking onto the balance sheet in conducting their daily trades, and setting
limits on the amount of capital that they are able to trade in order to prevent
‘bed’ trades having a detrimental effort to desk overall. Another key Middle
Office role is to ensure that the above mentioned economic risks are captured
accurately (as per agreement of commercial terms with the counterparty)
correctly ( as per standardized booking models in the most appropriate
systems) and on time (typically within 30 minutes of trade execution). In
recent years the risk of errors has become known as “optional risk” and the
assurance Middle Office provide now include measures to address this risk.
When this assurance is not place, market and credit risk analysis can
unreliable and open to deliberate manipulation.
BACK OFFICE
(6) Contacts :
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An Investment banking business mainly depends upon the sociable nature
and wider contacts. The scope of contract of an investment banker
covers:
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Investment banking in the country has come to be primarily associated with the
capital markets. With the de-regulation of the Indian economy since 1991, there
are several new sectors open to private investment which have consequently
created an opportunity for private financing.
The need for this banking was not met, by either commercial banks or the
financial institutions and hence there was a huge gap which needed to be
filled. This gap could be met through capital markets or a range of finance
products and hence a good scope existed for the various services offered by
an investment 1992 heralded an era free market pricing of equity shares.
Investment bankers in particular have been assigned a greater responsibility
in the fixation of issue price and premium, if any. In the CCI regime
investment bankers had restricted role to play in that regard. Their role was
confined mainly to getting clearances from the CCI and ensuring the success
of capital issues through their marketing efforts.
There were also no disclosure norms. Investment bankers were seldom held
accountable for the correctness of the information disclosed in the prospectus
and letter of offer. But with the issuance of comprehensive guidelines for
free market pricing, code of conduct for investment Bankers, etc. by SEBI
the role of investment bankers has considerably increased.
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Foreign Direct Investment (FDI) as also investment by NRIs has risen
considerable due to number of incentive offered to them. They need the services
of investment bankers to advise them for their investment in India. Further,
increasing investments in joint Ventures abroad by Indian Corporations also
require expert services of investment bankers. For the first time in India the
concept of debt market has set to work through NSE and OTCEL. Experts feel
that of the estimated capital issue a good portion may be raised through debt
instruments. The development of debt market will offer tremendous opportunity
to investment bankers.
Recently, Indian capital market has also witnessed innovations in the financial
instruments such as non-convertible debenture with detachable warrants,
cumulative convertible preference shares, zero coupon bonds deep discount
bonds, triple option bonds, floating rate bonds, secured premium notes, auction
rates bonds, etc. This has further” extended the role of investment bankers as
market markers for these instruments. Securities and Exchange Board of India
(SEBI) has laid certain guidelines to ensure fair business practices in the Indian
markets.
(1) Authorization :
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(3) Authorization Criteria :
All investment bankers are expected to perfume with high standards of integrity
& fairness in all their dealings. A code of conduct for investment bankers will
be prescribed by SEBI. Within this context, SEBI’s authorization criteria would
take into account mainly the following –
a) Professional competence
b) Personnel, their adequacy & quality, & other infrastructure
c) Capital adequacy
d) Past track record, experience, general reputation & fairness in all their
transaction
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j) SEBI shall prepare & prescribed a code of conduct for investment
bankers which they should adhere to.
(1) An Investment banker in the conduct of his business shall observe high
standards of integrity and fairness in all his dealing with his client and
other investment bankers.
(2) An Investment banker shall render at all times high standards of service,
exercise due diligence, ensure proper care and exercise independent
professional judgments.
(3) He shall wherever necessary, disclose to the client possible sources of
conflict of duties and interests, while providing unbiased services.
(4) An investment banker shall not make any statement or become privy to
any act, practice unfair competition, which is likely to be harmful.
a. To the interests of other investment bankers or
b. Is likely to place such other investment bankers in a
disadvantageous position in relation to the investment banker, while
competing for or executing any assignment.
(5) An Investment banker shall not make any exaggerated statement,
whether oral or written, to the client either about the qualification or the
capability to render certain services or his achievements in regard to
services rendered to other clients.
(6) An Investment banker shall always endeavor to:
a. Render the best possible advice to the client having regards to the
client’s needs and the environment and his own professional skills;
b. Ensure that all professional dealings are effective in a prompt,
efficient and cost effective manner.
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b. Deal in securities of any client company without making disclosure
to the Board as required under the regulations and also to the Board
of Directors of the company.
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Investment banking activates in India originated in 1969 with the
investment banking division set up by the Grind lay’s Bank, the largest
foreign bank in the country, at that time. The main service offered to the
corporate enterprises by the investment bank included management of public
issues and financial consultancy. Other foreign banks like Citibank,
Chartered Bank also assumed the investment banking activity in India. State
Bank of India started investment banking in 1973 followed by ICICI in
1974. Both emerged as leaders in investment banking with significant
business during the period of 1974-1985 in comparison to foreign banks.
Mid-seventies witnessed a growth of investment bank organizations in the
country with various commercial banks, financial institutions, broker firms
entering into the field of investment banking.
Now, various private sector investment bankers have emerged and some
of them are having international reputations.
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Important reasons for the growth of investment Banks in India has been
development activities throughout the country, exerting excess demand on the
sources of funds for ever expanding industries and trade, thus leaving a
widening gap un-bridged between the supply and demand of investible funds.
All India Financial Institution had experienced constraint of resources to meet
ever increasing demands for funds from the corporate sector enterprises. In such
circumstances corporate sectors had the only alternative to avail of the capital
market service for meeting their long term financial requirements through
capital issue of equity shares and debenture.
Growing demand for finds put pressure on capital market that enthused
commercial bank, share brokers and financial consultancy firms to enter into the
field of investment banking and share the growing capital market. As a result,
all the commercial banks in nationalized and public sector as well as in private
sector including foreign banks in India have opened their investment banking
and are competing in this field.
Need for investment banking is felt in the wake of huge public savings
lying untapped. Investment bankers can play highly significant role in
mobilizing funds of savers to investible channels assuring promising returns on
investment and thus can assist in meeting the widening demand for investible
funds for economic activity. With growth private and public sectors would be
able to raise required amount of funds annually from the capital market to meet
the growing requirement for funds for establishment for funds for establishing
new enterprises undertaking expansion, modernization, diversification of the
existing enterprises. This reinforces the need for a vigorous role to be played by
investment banking.
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Investment Bank advise the investors of the incentives available in the
form of tax relief’s, other statutory relaxations, good return on investment and
capital appreciation in such investment to motivation them to invest their
savings in securities of the corporate sector. Thus investment banks help
industries and trade to raise funds and the investors to invest their saved money
in sound and healthy concerns with confidence, safety and expectations for
higher yields. Finance is the backbone of business activities._ Investment Banks
make available finance for business enterprises acting as intermediaries between
them raising demand for funds and the supplies of funds besides rendering
various other services.
The following are some of the reasons why specialist investment banks have a
crucial role to play in India:
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1.12 ORGANISATION SET UP OF INVESTMENT BANKERS
IN INDIA:
(b)Banker Base :
In the recent past, there has been an inflow of qualified and professionally
skilled brokers in various Stock Exchange of India. These brokers undertake
investment banking related operations also like providing investment and
portfolio management services.
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(d) Private Base:
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IMPORTANT ACTIVICTIES UNDERTAKEN
An Investment bank through its various services provided, help customers
reap benefits of hiring their services. An investment bank provides apt and
services to the clients.
Specialized Services:
Advisory Services :
1. IPO Process
2. Debt Syndication
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4. Mergers & Acquisition
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1.13 IPO PROCESS
In Modern times IPO is considered as a major source for raising equity
finance by the companies. The Public Offerings are of 2 types. The process of
an IPO is in one way or the other similar to the process of an FTO.
Fixed Price Issue: A fixed price issue is where the issuing price of the share id
fixed in advance before the opening date of the issue.
Book Build Issue: In this type of issue, the issue of the share is stated in terms
of a range / price band. The final issuing price can be anything in between this
range. E.g. a Price Band of Rs.100 to 110.
STEP 1
The first step includes all activities prior to the IPO. The process followed
in this step is as follows:
Acceptance: After the offer by the Client Company, the Investment Bank
before accepting the offer conducts a Due Diligence of the client. They look at
the past record of this company and decide whether to take up the IPO or not.
Mandate Letter: Once the Investment Bank agrees to act as the Lead Manger
to the Issue, they are issued a Mandate Letter by the Client. This is the official
permission by the company to the merchant bank to act as the Lead Manager.
IPO Team & Various Appointments: In this case the Investment Banker and
the Client Company constitutes a dedicated IPO Team. This team works
together towards the execution is made of the company. This presentation
contains a past performance of the company.
Preparation of DRHP: Draft red herring prospectus has to be filed with the
SEBI, before the official announcement of the IPO. This is the most important
document of the entire IPO process, as the permission for an IPO depends on
this document. It is very lengthy process and has to be drafted very carefully. It
has different sections. The various agencies appointed above are asked to
prepare their relevant sections of DRHP, which is then compiled.
Here apt attention should be paid to the financials of the company. Every
bit of information mentioned in the DRHP should be true to the fullest extent;
otherwise it may attract heavy penalty. The contents of DRHP should be signed
by the relevant agencies.
a) Conduct and service on legal and financial due – diligence advised by the
legal counsel.
b) Discussion with the auditor for the final reporting requirement to SEBI.
c) Drafting and finalization of the DRHP for filling with SEBI.
d) Initiate the process of connectivity with depositories in co-ordination with
Registrations. NSDL, CSDL.
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e) Finalize communication strategy, corporate advertisement strategy and
issue advertisement strategy.
The last step in this section is filing the DRHP with SEBI, application for listing
of shares with the stock exchange.
STEP 2
(a) Preparation of a detailed research report on the company and the industry.
This report is always based n the past performance of the company and
does not include future projection.
(b) Circulation of this report to the Institutional Investors.
(c) Hold a meeting with the institutional investors. In this meeting they are
spoken to and convinced to buy the shares of the company. Also their
advice is taken on various issues such as the valuation of shares, etc.
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In this step the company primarily targets the Affix’s. This is due to the
following reasons:
STEP 3
Prior to the commencement of this step the following activities have been
completed.
(a) DRHP field with SEBI and comments and feedback have been received.
(b) Reply to the comments provided through the red herring prospectus.
(c) Permission obtained from SEBI for commencement with the Issue.
ISSUE MARKETING:
This is relatively the most important step, which might ensure the success
or failure of the issue. In this step the entire issue is marketed to the various
investors. The following are the major activities:
STEP 4:
Before the start of this step, the Issue has been opened, subscribed to and
also closed. During the issue, the Investment Banks have no major work. The
only activity that they undertake during that period is supervision as to the
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collection of subscription money and make sure everything is being carried out
smoothly.
They oversee the accounting aspects of the issue. In case the issue is
subscribed or oversubscribed, they proceed with the following steps. However
in case the issue is undersubscribed, then underwriting agreements is enforced
and shares are allotted to underwriters, and after that the following activities are
carried out:
(a) Issue–price advertisement: Under this the merchant bankers announce the
final issue price. This is the price at which the shares allotted to the
investors.
(b)Prepare a consolidated report applications received, publicize the
performance of the issue and decided the basis of allotment depending
upon the response from the formalities.
(c) Updating the prospectus for the prices, issue size, the basis of allotment
and other statutory formalities.
(d)File the updated prospectus and the underwriting agreement with SEBI.
(e) Submit the 3 day report to SEBI.
(f) Announce dates of allotment of shares, transfer of money from the
Escrow account to the public issue account.
(g) Allotment of shares to the general public in co-ordination with the
registrar, Stock Exchange and the public Representatives.
(h)Announcement of Allotment o shares, basis of allotment of shares and the
expected date of delivery of shares in the DEMAT A/c. and transfer of
money or dispatch of refund order as the case may be to the public.
(i) Obtain listing permission and Listing of shares on the stock Exchanges.
(j) Transfer of shares in the DEMAT A/c. Passing of ECS for refund in co-
ordination with bankers and dispatch of refund orders if any.
(k)Filing of the VS day report with SEBI.
(l) Obtain trading permission from SEBI and the Stock Exchange.
(m)During the entire IPO process, investment Banks have to comply with
many Rules and Regulations.
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1.14 DEBT SYNDICATION
Before we move on understanding the process of debt syndication let us
understand what debt syndication is all about?
When the requirement of funds is small / the amount to be raised via debt
is small, than it is possible to take the entire amount form one bank. However
when the requirement of loan is huge. Which cannot be financed by one bank,
than there is need for one or more banks join together and collectively provide
the required loan? The second phenomenon is called debt syndication and this
will be the crux of discussion in this case study.
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STEP 2: DUE DILIGENCE
After the receipt of the letter, before confirmation the Investment bank
carries out internal due diligence from its end. Here the task of the Investment
Bank becomes relatively simple if the client is an already existing one. However
in the case of a new client, proper credit rating needs to be done. For this
purpose various credit rating agencies are approached, information is found out
from other sources. After the analysis of this information, if the company is
found is worthy, then the offer is accepted.
The entire due diligence process is carried out by the credit rating
committee of JM Financial, which is a Board Level Committee.
Please take note that it is not necessary that Investment Banks has to be a
soul Investment banks to the syndication. There can also be co- Investment
Bank to the syndication process. However this does not make any different to
the process of syndication
After the receipt of the appointment Letter / Mandate, the following are
the activities undertaken by the Merchant Bank:
(a) The bank based on the requirement of the company decides the kind
of loan to be raised. In India there are 2 loan Markets. Rated and non
rated Markets. Rated markets are the bond market, whereas the non-
rated market is the Banks Loan Market.
The former is not very popular in the country. Bank loan market is the
one which is widely used the various companies. One of the biggest
reasons as to why companies prefer non- rated market is due to the case
of availability of loan at lower rate of interest compared to the rated
market. Also the rules and regulations in the non-rated market are far less
compared to the rated market. This is the reasons why the client company
as well as the Investment Banks, both prefer the non- rated market.
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(b)After deciding the type of market, the investment bank now proceeds
to find out whether the Balance sheet and the financial statements can
support the amount of loan required by the company. Here the
investment bank undertakes a detailed study of the past performance
of the company and compares it with the present performance. The
financial statements of the company are the most important tool used
to find out this information.
(c) After determining the quantum of loan that can be supported by the
company as per its statement of accounts, the Merchant banks proceed
to find out the possible banks that would be interested in funding the
requirements.
For this purpose they may approach the banks which the client companies
may specify in case of no specification, they approach the banks that have
a direct dealing with them. The banks are given various details about the
nature of company, amount of loan, expected rate of interest, etc.
(d)After the banks have been approached, the work of investment banks
is more or less complete. Now onwards they would merely act as
communicating links between the lending bank and the client
company.
I. The books take approximately 40-45 days to give their acceptance of the
loan. During this time in co-ordination with the Merchant bank, the lending
bank words out the Credit worthiness of the company. Various statistics of
the financial performance of the company. This gathered about financial
performance of the company. This information is deeply studied and various
ratios are found out, sensitivity testes are conducted, etc. also one of the
most important aspect is the valuation of the borrowing company,
assessment of the repayment capacity based on the revenues, etc.
II. All this while the Investment Bank is in constant co-ordination with the
lending bank and the borrowing company. They make available to the
lender all the information required by it and try their best make sure that the
loan is granted.
III. After the bank is satisfied that the company is worthy of the loan, the bank
proceeds with the legal formalities. It is made sure that the entire loan is
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secured by collaterals, guaranteed and everything company through the
merchant bank.
IV. The company gets the documents scrutinized form its end, with the help of
solicitors, etc. if the terms and conditions of the banks such as interest rates,
repayment period are acceptable, than the company givers its conformation.
V. Thereafter forms are filled, papers are signed and the loan is finally
disbursed.
VI. After the completion of all the formalities, the Investment bank is paid the
fees. This is a percentage of the total loan disbursed.
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1.15 BUY BACK OF SHARES
Before we move on to see the buyback process and services of
Investment banks in the buyback process, let first understand what buy back of
shares means?
There are a lot of rules and regulation enacted by SEBI to make sure that
there is no manipulation in the buyback process and investor’s rights are
protected. Therefore a lot of responsibility is assigned to an investment bank in
initiating the entire buy back process.
Let us move on to see the role of a Merchant Bank in the Buy Back process:
This step is the same as in the previous case study where the capital client
company approaches the Investment bank asking for assistance and advice in
completing the buyback process.
Here the Investment bank after receipt of the Mandate starts its work. It
determines the exact amount of shares the company can buy back from the
public. Decides the rates at which they can bought back and check whether the
financial statements of the company and various SEBI rules regarding the buy
back permit Buy Back, otherwise the company is likely to attract heavy penalty.
Once all the financial are worked out and the buyback price decided, The
Investment bank proceed with drafting the letter of offer. Before the drafting
can be started, the company and the investment Bankers have to get a resolution
passed by the Board and Shareholders in an EGM. Thereafter decided the
buyback date buy back period. After completing all these formalities, they can
start with the drafting of LOF.
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STEP 4: FILING OF LOF WITH SEBI
Once the LOF is drafted, it has to be field with the SEBI within the
prescribed time period after the passing of the resolution in the EGM and the
Board Meeting.
Once the LOF is filed with the SEBI, it gives its comments and
modification on the same. Within twenty-one days from the date of submission
of the draft letter of offer, SEBI specifies modifications, if any, in the draft letter
of offer. The investment banker and the company shall carry out such
modifications before the letter of offer is dispatched to the shareholders.
After the official nod is received from SEBI, the company and Merchant
Banks proceed to dispatch the OLF to the shareholders.
After dispatching the LOF to the shareholders, the company and the
Merchant Banks do to the statutory advertisement to provide information to the
shareholder about the buy back.
The offer for buy back shall remain open to the members for a period not
less than fifteen days and not exceeding thirty days. The date of the opening of
the offer shall not be earlier than seven days or letter than thirty days after the
specified date. The letter of offer shall be sent to shareholders so as to reach
them before the opening of the offer.
In case the number of shares offered by the share holders is more than the
total number of shares to be bought back by the company, the acceptances per
share holder shall be equal to the acceptances tendered by the share holders
dividend by the total acceptances received and multiplied by the total number of
shares to be bought back.
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deemed to be accepted unless a communication of rejection is made within
fifteen days from the closure of the offer.
The company shall immediately after the date of closure of the offer open
a special account with a bankers and deposit therein, such sum as would,
together with the amount lying in the escrow account make-up the entire sum
due and payable as consideration for buyback and for this purpose, may transfer
the funds from the escrow account.
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The securities offered for buyback if already dematerialized shall be
extinguished and destroyed in the manner specified under securities and
exchange board of India (Depositories and Participants) Regulations, 1996 and
the bye laws framed three under.
The company shall maintain a record of the share certificates, which have
been can celled and destroyed.
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1.16 MERGERS AND ACQUISITIONS
Mergers and Acquisitions, commonly referred to as M & A, are 2
separate and distinct activities. Many people confuse them to be synonymous,
however they are distinct from 1 another.
Acquisition happens when one company has been taken over by another
company. This means that the acquiring company after the takeover controls the
management of the acquired company, whereas this is not the case in mergers.
In case of mergers and acquisition, investment bankers may act from the
sell side or the buy side. The investment bankers collect data on various
companies, which are looking for mergers. They also identify potential targets
of takeover / acquisition, which could benefit their client.
Step 3: identify the potential targets for merger or acquisition as the case may
be.
Step 5: Proposal on behalf of the client for merger or acquisition as the case
may be.
Step 6: Receipt of confirmation from the 2nd party for regards merger or
acquisition.
Step 10: Negotiation between both the parties and try to reach a conclusion.
Step 11: Make changes in the agreement, prepare final agreement and get it
signed.
Step 12: Assist in the formation of a new entry in case of merger and assist in
the process of investment in the case of acquisition.
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1.17 VENTURE CAPITAL FUNDING
It is popularly believed that venture capitalists fund only established
players and proven products. There is a lot of cynicism amongst many about all
type that private equity and venture capital is getting in India of late.
Clients looking for setting up a venture capital fund take help and advice
of the investment banker on the various issues from selecting a business
proposal to legal framework, rule and regulations.
Initial Screening
Investment bankers are in the business of making more the then average
returns for their clients interested in venture capital funding and only the
proposals which can match or exceed the VCs expectation will get an attention
from them. Thus initial screening is a step in which the venture capitalist
reaches an initial decision to investigate the investment (or not)
For example, the screening process may limit projects to areas with which
the venture capitalist is familiar in terms of product, technology or market
scope. The size of investment, stage of financing and geographical location
could be as the broad screening criteria.
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Detailed Business Plan
If the plan manages to clear the initial screening round then the
investment bankers call for the detailed business plan from the entrepreneur.
This business plan is the main tool with the help of which client would make up
his mind. Thus the entrepreneur should present clarity of thinking about the
business in the plan as the “Surprises can be great for parties, but potentially
could be fatal for businesses.”
Due Diligence
In the next and the help most important phase, due diligence is conducted
by the client with help from investment bankers to verify the accuracy of the
statements made by the entrepreneur. The two main types of due diligence
conducted are business and legal.
Many feel that the integrity of the team members is the most important
criterion. Past research shows that trustworthiness, enthusiasm and expertise of
the entrepreneur are the most important factors considered by the VCs. It has
also been that about 50-60 per cent of the projects which are seriously
considered for financing but are ultimately rejected are due to the factors related
to the entrepreneur.
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Though visibility and transparency in a business may not necessarily inverse its
attractiveness, it is more of a necessity. One of the most important
considerations for investment bankers while judging an investment proposal is
clarity of the exit mode and the expected return from the project, which is
quality of the investment. This is because the VC is ultimately a fund and they
(like mutual fund managers) need to manage their portfolio to get maximum
return.
So, behind those mind boggling returns lies serious evaluation. Apart
from luck and being in the right business at the right time, venture capitalists
must also be given due credit for the detailed evaluation that they carry out
before deciding to invest.
CHAPTER 3
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RESEARCH METHODOLOGY
Exploratory research design is used to perform the study. The random
sampling method used to collect the primary data from the customers in
Mumbai city. The sample of 100 respondents was collected. Both primary and
secondary data is used to perform the study. A questionnaire was prepared for
customer’s survey.
The main purpose of the research was to confirm whether items loaded
correctly to the corresponding factors as identify by previous research. Through
objectives, hypothesis is tested to find out the relationship between factors
affecting towards malls shopping.
The study falls under the category of descriptive research and uses survey
method. Descriptive research includes survey and fact finding enquiries of
different kinds.
Primary data are those which are collected for the first time and which
could be original in character. There are several methods of data collection, be
particularly in descriptive researches. This includes following methods.
Observation method, Interview method, Collection of data through
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questionnaires, such as warranty cards, contract analysis, projective techniques,
depth interviews and systems audits etc. A structured questionnaire was built in
correlation with objective of research and hypotheses. Thus data using
questionnaire was collected from shoppers.
The total sample size decided by researcher was 100 across Mumbai city.
All clusters namely, students, service class, business class, professional and
others were considered for the same. Research had made an attempt that the
sample size was adequate, representative and estimator with sufficiently high
precision.
Secondary Date
The concept regarding consumer behavior and other literature were taken from
the different reference books and text books. The articles which were based on
the related topic were taken from newspapers & magazines which were
published. Literature from the research journals were taken on have an insight
of the research problems so that the gap in this research was identified and
hypotheses was formed. Last but not the least Literature from Websites was also
reviewed.
Sampling Unit: The sampling unit was identified by the researcher before
selection of a sample. A sampling Unit may a natural geographical unit such as
state, a district, a village. It may be a social entity such as a family or a school.
It may also be an individual.
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CHAPTER 3
58
DATA ANALYSIS AND INTERPRETATION OF DATA
1. Are you aware of the following investment avenues?
public provident
16% fund
post office
OBSERVATION:
According to the above pie-chart the more number of investments is done in
fixed deposit i.e. 29%, while the less numbers of investments is done in saving
accounts i.e. 10%.
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Mutual funds 31 31%
Life insurance 45 45%
Debentures 13 13%
Bonds 11 11%
Mutual
11% funds
31%
13% Life
insurance
Debentures
45% Bonds
OSERVATION:
According to the above pie-chart the more numbers of investments is done in
life insurance i.e. 45%, while the less numbers of investments is done in bonds
i.e. 11%.
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Equity risk market 45 45%
Commodity market 35 35%
FOREX market 20 20%
Equity risk
market
20%
Commodity
market
45%
FOREX market
35%
OBSERVATION:
According to the above pie-chart the more numbers of investment in traditional
avenues is done in real estate i.e. 63%, while the less numbers of investment is
done in chit funds i.e. 10%
61
Options Total Percentage
Real estate 63 63%
Gold/Silver 27 27%
Chit funds 10 10%
Gold/Silver
27%
Observation:
According to the above pie-chart the more number of investments is done in
private equity investment i.e. 41%, while the less numbers is in hedge funds i.e.
10%.
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Private sector 23 23%
Government sector 57 57%
Public sector 17 17%
Foreign sector 3 3%
3% Private sector
14% 24%
Government
sector
Public sector
Foreign sector
59%
Saving objectives
Children
education
14%
24%
Retirement
13% Children's
marriage
Obsevation:
According to the above pie-chart the more numbers of saving objectives is in
home purchase i.e. 29%, while the less number is retirement i.e. 13%.
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Long term growth 32 32%
Growth and income 43 43%
Short term growth 10 10%
Investmet objectives
Income and
10% 15% Capital
Growth and
Income
43% 32%
Short term
Growth
Observation:
According to the above pie-chart the more number of investment objectives is in
growth and income i.e. 43%, while the less number is in short-term growth i.e.
10%.
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Tax saving 16 16%
Earn returns 30 30%
Future expense 22 22%
Investment purpose
Wealth
creation
22%
32% Tax saving
Earn returns
Future
expense
30%
16%
Obsevation:
According to the above pie-chart the more numbers of investments purpose is in
wealth creation i.e. 32%, while the less numbers is tax saving i.e. 16%.
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6. Do you have a formal budget for family expenditure?
4%
Yes
No
96%
Obsevation:
According to the above pie-chart the more numbers of people have budget for
family expenditure i.e. 96%, while the less numbers is 4%.
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7. At which rate do you want your investment to grow?
Growth of investment
Steadily
45%
Fast
29%
Observation:
According to the above pie-chart the more numbers of people want their growth
of investment to be steadily i.e.45%, while the less numbers of peoples want
their growth of investment to be fast i.e. 26%.
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Options Total Percentage
Safety of principle 31 31%
Low risk 19 19%
High risk 29 29
Maturity period 21 21%
Safety of
21% principle
31%
Low risk
High risk
29%
19% Maturity
period
Obsevation:
According to above pie-chart the more numbers of factors before investing is in
safety of principle i.e. 31%, while the less numbers of factors before investing is
in low risk i.e.19%.
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Yes 72 72%
No 28 28%
Yes
28% No
72%
Obsrvation:
According to above pie-chart the more number of peoples invested in share
market is 72%, while the peoples who does not invested in share market is 28%.
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A) If yes: Imagine that stock market drops after you invest in it then what will
you do?
If yes
Withdraw your
money
19%
Wait to increase
45%
Invest more in it
35%
Observation:
According to above pie-chart the more numbers of people said yes will
withdrawn their money i.e. 42%, while the less numbers is 25%.
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Newspaper 21 21%
News channels 26 26%
Family friends 06 06%
Internet 34 34%
Advisors 13 13%
Magazines 00 00%
News
paper
24%
News
39% channels
Family
and
friends
30%
7% Internet
Observation:
According to above pie-chart the more numbers of peoples had sources of
Investment advice in internet i.e. 34%, while the less numbers is of magazines
i.e.0%.
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By yourself 17 17%
Take help of an investment bankers 83 83%
Decision in investment
17%
By yourself
Take help of an
investment bankers
83%
Observation:
According to the above pie-chart the more numbers of peoples takes help of
investment bankers i.e. 83%, while the less numbers of peoples invest
themselves in market i.e. 17%.
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Internet 46 46%
Friends and Family 11 11%
Newspaper 28 28%
News channel 15 15%
Knowing of advisor
Internet
13%
24%
Friends and
Family
18%
Newspaper
News cahnnel
45%
Observation:
According to above pie-chart the more numbers of peoples get to know about
the investments bankers by newspaper i.e.45%, while the less number is 13%.
13. Do you feel investments bankers are helpful in making good investments?
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No 14 14%
14%; 14%
86%; 86%
Observation:
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Bibliography
Web sites Referred:
1. WWW.GOOGLE.COM
2. SHODHGANGA.COM
3. WIKIPEIDIA
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Appendix
1. Are you aware of the following investment avenues?
o Savings account
o Bank fixed deposits
o Public provident fund
o National savings certificate
o Post office savings
o Government securities
B. Moderate risk investment avenues
o Mutual fund
o Life insurance
o Debenture
o Bonds
C. High risk investment avenues:
o Real estate
o Gold/Silver
o Chit funds
2. In which sector do you prefer to invest your money?
o Private sector
o Government sector
o Public sector
o Foreign sector
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o Children’s marriage
o Health care
o Wealth creations
o Tax saving
o Earn returns
o Future expense
o Yes
o NO
o Safety of principle
o Low risk
o High risk
o Maturity period
o Yes
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o No
A . If yes : Imagin that stock mrket drops after you invest in it then what will
you do ?
o Newspaper
o News channels
o Family friends
o Internet
o Advisor
o Magazines
o By yourself
o Take help of an investment bankers
o Intenet
o Friends and Family
o Newspaper
o News channel
o Yes
o No
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