SECTORAL SPECIALIZATION MERCHANT BANKING

SUBMITTED BY
MS. PRITI BAHIRSETH ROLL NO.-04 MMS II year (2009-2010)

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ACKNOWLEDGEMENT

I wish to express my sincere thanks and deep sense of gratitude towards our Director Dr. GULNAR SHARMA and all the Professors for including this topic of MERCHANT BANKING in our curriculum and for unfailing advice and considerate understanding. I also thank them for giving me freedom to work, encouraging creative thinking and to help me to put my ideas into practice. I am thankful to my institue JankiDevi Bajaj Institute of Management Studies for giving me this opprtunity to undertake this study.

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DECLARATION

I hereby declare that this project report titled as Merchant banking It has been prepared by me as part of my academics. For the partial fulfillment of degree of "Master of Management Studies", under the guidance and supervision of Faculty of finance

Management at Jankidevi Bajaj Institute of Management Studies.

To the best of my knowledge and belief the matter presented in this report has not been submitted earlier for the award of any degree to any university. This report is prepared by me on my own efforts.

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INDEX

CHAPTER CONTENTS
1 2 3 4 5 6 7 8 9 10 11 EXECUTIVE SUMMARY INTRODUCTION HISTORY OF MERCHANT BANKING SCOPE FOR MERCHANT BANKING IN INDIA SEBI GUIDELINES MERCHANT BANKER-ROLES FUNCTIONS AND SERVICES OF MERCHANT ANKS SEBI REGULATIONS FOR MERCHANT BANKERS PROJECT FINANCE CONCLUSION BIBLIOGRAPHY

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5 6 8 15 22 27 33 40 43 46 47

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CHAPTER 1 EXECUTIVE SUMMARY

Merchant banking overview

Companies raise capital by issuing securities in the market. Merchant bankers act as intermediaries between the issuers of capital and the ultimate investors who purchase these securities. Merchant banking is the financial intermediation that matches the entities that need capital and those that have capital. It is a function that facilitates the low of capital in the market. Changing role of a merchant banker

In the past The role of the merchant banker was to arrange the necessary capital and ensure that the transaction would be implemented i.e. a financial intermediary facilitating the flow of capital among the concerned parties. Today A merchant banker plays multiple roles which include those of an entrepreneur, a management advisor, an investment banker, and a transaction broker. This shows that the breadth and depth of a merchant bankers activity has changed over the years. Different types of services and functions are mentioned in this project

Many companies that approach a merchant bank are looking to increase their financial stability or satisfy a particular, immediate capital need

A merchant banker follows SEBIs rules and regulations.

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CHAPTER 2 INTRODUCTION
MERCHANT BANK Merchant bank is a financial institution primarily engaged in offering financial services and advice to corporations and to wealthy individuals. The term can also be used to describe the private equity activities of banking. The chief distinction between an investment bank and a merchant bank is that a merchant bank invests its own capital in a client company whereas an investment bank purely distributes (and trades) the securities of that company in its capital raising role. Both merchant banks and investment banks provide fee based corporate advisory services, including in relation to mergers and acquisitions. Merchant Banking is an institution engaged in the business of issue management either by making arrangement regarding selling, buying or subscribing to securities or acting as manager, consultant, advisors or rending corporate advisory services in relation to issue management. The Amendment Regulation specifies that issue management consist of Prospectus and other information relating to issue, determining financial structure, tie-up of financiers and final allotment and refund of the subscriptions, underwriting and portfolio management services. DEFINITION OF A MERCHANT BANKER The merchant bankers are those financial intermediaries involved with the activity of transferring capital funds to those borrowers who are interested in borrowing. They guarantee the success of issues by underwriting them. Merchant Banks are popularly known as issuing and accepting houses. Unlike in the past, their activities are now primarily non-fund based (Fee based). They offer a package of financial services. The basic function of merchant banks is marketing corporate and other securities that are guaranteeing sales and Distribution of securities and also other activities such as management of customer services, portfolio management, credit syndication, acceptance credit, counselling, insurance, etc. NATURE OF MERCHANT BANKING Merchant banking is skill based activities and involves serving every financial need of every client. It requires focused skill-base to provide for the requirements of the client. SEBI has made the quality of man-power as one of the criteria for registration as merchant banker. These skills should not be concentrated in issue management and underwriting alone, which may have an adverse impact on business. Merchant bankers can turn to any of the activities mentioned above depending upon resources, such as capital, foreign tie-ups for overseas activities and skills. The depth and sophistication in merchant banking business are improving since the avenues for participating in capital market activities have widened from issue management and underwriting to private placement, bought out deals (BODS), buy-back of shares, mergers and takeovers.The services of merchant bank cover project counselling, pre investment activities, feasibility studies, project reports, design of capital structure, issue management, underwriting, loan syndication, mobilization of funds from Non6|Page

Resident Indians, foreign currency finance, mergers, amalgamation, takeover, venture capital, buy back and public deposits. A Category-1 merchant banker can undertake issue management only. Separate registration is not necessary to carry on the activity as underwriter.

SIGNIFICANT RECOMMENDATIONS OF THE STUDY Regulation requiring all issues to be managed and certified by a Merchant Banker could be relaxed in case of rights offerings. The set of issues, which are placed through a public offering, will include all high and low quality issues, will be placed through a rights offering.

For the set of issues, which are placed through a public offering, further screening can be achieved by making underwriting optional. For the screening mechanism in the preceding recommendation to be effective, the current 90% subscription rule should be strengthened. SEBI's objectives of improving disclosure of private information and investor protection can be achieved.

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CHAPTER 3 HISTORY OF MERCHANT BANKING

The history of merchant bank can be dated back to 17th & 18th centuries when it first started in Italy & France. This was started by the Italian grain merchants. It comprised of merchant bankers who intermediated or assisted in financing the transactions of other traders and their own trade too. With the passage of time the practices in evolved and the merchant banking in the modern era started from London where the merchants started to finance the foreign trade through acceptance of bill. Later they extended their services to the governments of under developed countries to raise the long term funds through the floatation of bonds in the London money market. Over the period they extended their services to loan syndication, underwriting the issues, portfolio management etc. The post war period witnessed huge increase in the merchant banking activities. For example, The East India Trading Company secured a Royal Warrant from England, providing the firm with official rights to lucrative trading activities in India. This company was the forerunner in developing the crown jewel of the English Empire. The English colony was started by what we would today call merchant bankers, because of the firm's involvement in financing, negotiating, and implementing trade transactions. The colonies of other European countries were started in the same manner. In particular, the merchant banker acted as a capital sources whose primary activity was directed towards a commodity trader/cargo owner who was involved in the buying, selling, and shipping of goods. The role of the merchant banker, who had the expertise to understand a particular transaction, was to arrange the necessary capital and ensure that the transaction would ultimately produce "collectable" profits. Often, the merchant banker also became involved in the actual negotiations between a buyer and seller in a transaction. MERCHANT BANKING IN INDIA Merchant banking activity was officially commenced into the Indian capital Markets when Grindlays bank received the license from reserve bank in 1967. Grindlays started its operations with management of capital issues, recognized the requirements of upcoming class of Entrepreneurs for diverse financial services ranging from production planning and system design to market research. Apart from this it also provides management consulting services to meet the Requirements of small and medium sector rather than large sector. Citibank Setup its merchant banking division in Indian in 1970. Indian banks Started banking Services from 1972. State bank of India started the merchant banking division in 1972 After that there were many banks which set up the merchant bank division such as; ICICI Bank of India Bank of Baroda Canara Bank Punjab National Bank UCO Bank 8|Page

The Merchant Bank got more importance in the year 1983 when there was a huge boom in the primary market where the companies were going for new issue. Merchant banking activities are organized and undertaken in several forms. Commercial banks and foreign development finance institutions have organized them through formation divisions, nationalized banks have formed subsidiary companies, share brokers and consultancies constituted themselves into public limited companies or registered themselves as private limited Companies. Some merchant banking companies have entered into collaboration with merchant bankers of foreign countries abroad with several branches.

merchant banking divisions

foreign banks

indian banks

private merchant bankers

financial institution

subsidiary

division in bank

MERCHANT BANKERS IN INDIA Merchant banking activity was formally initiated into the Indian capital Markets when Grind lays bank received the license from Reserve Bank in 1967. Grind lays started with management of capital issues, recognized the needs of emerging class of entrepreneurs for diverse financial services ranging from production planning and system design to market research. Even it provides management consulting services to meet the requirements of small and medium sector rather than large sector. Citibank Setup its merchant banking division in 1970. The various tasks performed by this divisions namely assisting new entrepreneur, evaluating new projects, raising funds through borrowing and issuing equity. Indian banks Started banking Services as a part of multiple services they offer to their clients from 1972. State bank of India started the merchant banking division in 1972. In the Initial years the SBIs objective was to render corporate advice And Assistance to small and medium entrepreneurs. Merchant banking activities is OF course organized and undertaken in several forms. Commercial banks and foreign development finance institutions have organized them through formation divisions, nationalized banks have formed subsidiaries companies and share brokers and consultancies constituted themselves into public limited companies or registered themselves as private limited companies. As of now there are 135 Merchant bankers who are registered with SEBI in India. It includes Public Sector, Private Sector and foreign players some of them are Public Sector Merchant Bankers SBI capital markets ltd Punjab national bank 9|Page

Bank of Maharashtra IFCI financial services ltd Karur Vysya bank ltd, State Bank of Bikaner and Jaipur

Private Sector Merchant Bankers ICICI Securities Ltd Axis Bank Ltd (Formerly UTI Bank Ltd.) Bajaj Capital Ltd Tata Capital Markets Ltd ICICI Bank Ltd Reliance Securities Limited Kotak Mahindra Capital Company Ltd Yes Bank Ltd.

Foreign Players in Merchant Banking Goldman Sachs (India) Securities Pvt. Ltd. Morgan Stanley India Company Pvt. Ltd Barclays Securities (India) Pvt. Ltd Bank Of America, N.A Deutsche Bank Deutsche Equities India Private Limited Barclays Bank Plc Citigroup Global Markets India Pvt. Ltd. DSP Merrill Lynch Ltd FEDEX Securities Ltd

THE MODERN MERCHANT BANK During the 20th century, however, European merchant banks expanded their services. They became increasingly involved in the actual running of the business for which the transaction was conducted. Today, merchant banks actually own and run businesses for their own account, and that of others. Since the 18th century, the term merchant banker has, therefore, been considerably broadened to include a composite of modern day skills. These skills include those inherent in an entrepreneur, a management advisor, a commercial and/or investment banker plus that of a transaction broker. Today a merchant banker is who has the ability to merchandise -- that is, create or expand a need -- and fulfil capital requirements. The modern European merchant bank, in many ways, reflects the early activities and breadth of services of the colonial trading companies. Most companies that come to a U.S. merchant bank are looking to increase their financial stability or satisfy a particular, immediate capital need. Professional merchant bankers must have:

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1) An understanding of the product, its industry and operational management; 2) An ability to raise capital which might or might not be one's own (originally merchant bankers supplied their own capital and thereby took an equity interest in the transaction); 3) And most importantly, effective skills in concluding a transaction - the actual sale of the product and the collection of profit. Some people might question whether or not there are many individuals or organizations who have the abilities to fulfil all three areas of expertise. RANKING OF MERCHANT BANKING IN INDIA Merchant Banker ICICI Securities IDBI SBI Caps DPS IFCI Bank of Baroda Jardine Fleming JM Finance ENAM PNB Caps OE 4.0 4.2 4.4. 6.1 6.1 6.7 5.8 6.0 6.3 6.8 FSS 4.0 3.2 3.9 5.7 5.7 6.5 6.2 6.5 6.8 6.8 QPS 4.2 4.5 4.6. 6.0 6.0 6.7 5.9 5.5 6.4 6.7 QM 3.8 4.0 6.7 6.0 6.0 6.6 5.0 5.9 6.3 6.8 INN 4.3 4.8 5.2 5.3 6.3 6.8 5.5 5.4 6.2 6.8

Note: OE: Overall Excellence; FSS: Financial Soundness; QPS: Quality Product/Service; QM: Quality Management; INN: Innovativeness.

GROWTH OF MERCHANT BANKING IN INDIA Merchant baking activities in India originated in 1969 with the merchant banking division set up by the grind lay bank, the largest foreign bank in the country, at the time. The main service offer to the corporate enterprises by the merchant bank includes management public issue and financial consultancy. Other forcing bank like city bank, chartered bank also assumed the merchant banking activity in India. State bank of India started merchant banking in 1973 followed by the ICICI in1974; both emerged as leader in merchant banking with significance business during the period of 1974-1985 in comparison to forcing banks. Mid seventies witnessed a growth of merchant banking organization in the country with various commercial banks, financial institutions, broker firms entering in to the field of merchant banking. The growth in merchant banking business during the early seventies was to forcing exchange regulation act 1973 [ FERA] where in large number of forcing companies operating in India were required to dilute their foreign holdings In order to continue business in the country his result in expansion in the capital markets providing enough opportunities to merchant 11 | P a g e

bankers to established themselves. The change in Indian economy opened new doors for merchant banking business enter in diversified area of activities, but at the same time this brought competition in merchant banking sector. This sector has traditionally been dominated by financial institution, banks and their subsidiaries. Now, various private sectors merchant bankers have emerged and some of them having international reputation. Till the end of 1990, the merchant banking sector was almost monopoly public sector institution and commercial banks, however since 1991 considerable number of private merchant banker have emerged on same. Various existing corporate entities and non-banking finance companies have also focused their activities in merchant banking business. Before 1990 there were less than 40 merchant banking concerns while in 199 this number has exceeded to more than 400 firms.

ORGANIZATIONAL SET UP OF MERCHANT BANKERS IN INDIA In India a common organizational set up of merchant bankers to operate is in the form of divisions of Indian and Foreign banks and Financial institutions, subsidiary companies established by bankers like SBI, Canada Bank, Punjab National Bank, Bank of India, etc. some firms are also organized by financial and technical consultants and professionals. Securities and exchanges Board of India has divided the merchant bankers into four categories based on their capital adequacy. Each category is authorized to perform certain functions. From the point of Organizational set up Indias merchant banking organizations can be categorized into 4 group on the basis of their linkage with parent activity. They are: a) Institutional Base:- Where merchant banks function as an independent wing or as subsidiary of various Private/ Central Governments/State Governments Financial institutions. Most of the financial institutions in India are in public sector and therefore such set up plays a role on the lines of governmental priorities and policies. b) Banker Base:- These merchant bankers function as division/ subsidiary of banking organization. The parent banks are either nationalized commercial banks or the foreign banks operating in India. These organizations have brought professionalism in merchant banking sector and they help their parent organization to make a presence in capital market.

C) Broker Base:- In the recent past there has been an inflow of Qualified and professionally skilled brokers in various Stock Exchanges of India. These brokers undertake merchant baking related operating also like providing investment and portfolio management services.

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d) Private Base:- These merchant banking firms are originated in private sectors. These organizations are the outcome of opportunities and scope in merchant banking business and they are providing skill oriented specialized services to their clients. Some foreign merchant bankers are also entering either independently or through some collaboration with their Indian counterparts. Private Sectors merchant banking firms have come up either as sole proprietorship, partnership, private limited or public limited companies. Many of these firms were in existence for quite some time before they added a new activity in the form of merchant banking services by opening new division on the lines of commercial banks and All India Financial Institution (AIFI).

QUALITIES OF A GOOD MERCHANT BANKER Merchant Bankers are individuals experts who organize and manage the merchant banks. The operation of a merchant bank is influenced by the personality, traits of its merchant bankers. Their qualities are:

Leadership:- In order to interact with their clients and communicate effectively merchant
bankers should possess all relevant skills and update knowledge.

Aggressive action:-

Merchant bankers always looking for new business opportunities. On locating a business opportunity and after obtaining the assignment from the clients, a merchant banker has to be prompt in grasping the clients problems and to provide a better choice amongst alternative solutions. A good merchant banker is one who does not allow his clients to think anything outside except what has been advised and thus holding the clients interest for the present as well as for the future.

Co-operation and Friendliness:-

Co-operation and friendliness coupled with persuasiveness must flow as natural traits in the merchant banker in order to win over the trust of their clients just like a doctor or a lawyer who retains their clients permanently. A good merchant banker has to share the thoughts of his clients with sympathetic gestures and offer suggestions without any greed or favors.

Contacts:-A

merchant banking business mainly depends upon the sociable nature and wider contacts. The scope of contact of a merchant banker covers: (a) His own organization (b) Central and State Government Offices (c) Banks, (c) Financial Institutions, (d) Promoters/Directors/Owners/Chief Executives of the public and private enterprises,

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(e) Printers, (f) Advertising Agencies, (g) Brokers and Stock Exchange Dealers, (h) Advocates and Solicitors (i) Members of the press, etc. Merchant bankers have to widen the contacts and continue to maintain them by meeting people in personal, in special gatherings and through writing to them.

Attitude towards problem solving:-A good quality of a merchant banker is to be

skilled in human relations particularly in the inter-personal behavior. A merchant banker should have a positive approach to understand the difficulties, adverse circumstances and the viewpoints of others. Effective communication and proper feedback are the pre-requisites for creating a positive attitude towards problem solving which could be gained partly through the learning process and partly as an inborn personality trait.

Inquisitiveness for acquiring new skills, information and knowledge:-Merchant bankers survive by providing the information required by their
needy clients. Therefore they must keep themselves updated with the latest information in the area of the service product which they market.

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CHAPTER 4 SCOPE FOR MERCHANT BANKING IN INDIA

Merchant banking activity helps:

In channelizing the financial surplus of the general public into productive investment avenues To coordinate the activities of various intermediaries to the share issue such as the registrar, bankers, advertising agency, printers, underwriters, brokers etc. To ensure the compliance with rules and regulations governing the securities market

Growth of New Issues Market The growth of new issue market is unprecedented since 1990-1991. Merchant banking can help with the further sophistication and penetration of the new issues market. Entry of Foreign Investors Foreign institutional investors were allowed to invest in the primary and secondary market in 1992 and also, Indian companies were allowed to directly tap foreign capital through euro issues. Further, foreign direct investment by NRIs has risen considerably due to number of incentives offered to them. They need the services of merchant bankers to advise them for their investment in India. The increasing number of joint ventures abroad by Indian companies also requires expert services of merchant bankers. Changing Policy of Financial Institutions The policy of decentralization, increase in demand for technical and financial services and encouragement of small and medium industries, requires the services of merchant bankers. Development of Debt Market The development of debt market will offer tremendous opportunity to Merchant Bankers. Innovations in Financial Instruments The Indian capital market has witnessed innovations in the introduction of financial instruments. This has further extended the role of merchant bankers as market makers for these instruments. Corporate Restructuring Due to liberalization and globalization, competition in the corporate sector is becoming intense. To survive and thrive, companies need new strategies, structures and methods of functioning. This has led to corporate restructuring including mergers, acquisitions, etc. These developments offer a good opportunity to merchant bankers to extend their area of operations. Disinvestment The government of India has raised Rs. 2000 crores through disinvestment of equity shares of selected public sector undertakings in 93-94. Merchant Bankers can help in the disinvestment process.

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CHARACTERISTICS OF MERCHANT BANKING

High proportion of decision makers as a percentage of total staff. Quick decision process. High density of information. Intense contact with the environment. Loose organizational structure. Concentration of short and medium term engagements. Emphasis on fee and commission income. Innovative instead of repetitive operations. Sophisticated services on a national and international level. Low rate of profit distribution. High liquidity ratio.

QUALITIES OF A MERCHANT BANKER

Ability to analyse Abundant knowledge Ability to built up relationship Innovative approach Integrity

TYPES OF MERCHANT BANKING ORGANIZATIONS According to the Securities and exchanges Board of India, four categories of the merchant banking organizations exist in the country: Institutional based merchant banking organizations operate as subsidiaries of private financial institutions or those recognized by the state or central governments. Banker based organizations are those that operate as divisions or subsidiaries of the nationalized commercial banks or the foreign banks functioning in the country. The third category consists of qualified brokers who provide skilled merchant banking services like portfolio management. The private merchant banking organizations work as sole proprietorships, private limited, public limited or partnership companies.

IMPORTANCE AND NEED OF MERCHANT BANKING IN INDIA Important reasons for the growth of merchant banks has been development activities throughout the country, exerting excess demand on the sources of fund for ever expanding industries and trade, thus leaving a widening gap unabridged between the supply and demand of invisible funds. All financial institutions had experienced constrain of resources to meet ever increasing demands for demands for funds frame corporate sector enterprises. In such circumstances corporate sector had the only alternative to avail of the capital market service for meeting their long term financial requirement through capital issue of equity shares and debentures. Growing demand for funds put pressure on capital market that enthused commercial banks, share brokers and financial consultancy firms to enter into the field of merchant banking and share the growing capital market. As a result all the

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commercial banks in nationalized and public sector as well as in private sector including foreign banks in India have opened their merchant banking windows and competing in this field. Need for merchant banking is felt in the wake of huge public saving lying untapped. Merchant banker can play highly significant role in mobilizing funds of savers to invisible channels assuring promising returns on investment and thus can assist in meeting the widening demand for invisible funds for economic activity. With growth of merchant banking profession corporate enterprises in both private sectors would be able to raise required amount of funds annually from the capital market to meet the growing requirement for funds for establishing new enterprises, undertaking expansion, modernization and diversification of the existing enterprises. This reinforces the need for a vigorous role to be played by merchant banking. In view of multitude of enactment, rules and regulation, gridlines and offshoot press release instructions brought out the government from time to time imposing statutory obligations upon the corporate sector to comply with those entire requirement prescribed there in the need of a skilled agency existed which could provide counseling in these matters in a package form. A merchant banker with their skills updated information and knowledge provide this service to the corporate units and advice them on such requirement to be complied with for raising funds from the capital market under different enactment viz. companies act, income tax act, foreign exchange regulation act, securities contracts corporate laws and regulations. Merchant bank advice the investors of the incentives available in the form of tax relief, other statutory relaxation, good return on investment and capital appreciation in such investment to motivate them to invest their savings securities of the corporate sector. Thus merchant banks help industries and trade to rise and the investors to invest their saved money in sound and healthy concern with confidence, safety and expectation for higher yields. Finance is the backbone of business activities. Merchant banker 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 merchant bank have a crucial role to play in India.

Growing complexity in rules and procedures of the government. Growing industrialization and increase of technologically advanced industries. Need for encouragement of small and medium industrialists, who require specialist services. Need to develop backward areas and states which require different criteria. Exploring the possibility of joint ventures abroad and foreign market. Promoting the role of new issue market in mobilizing saving from.

Where merchant banks function as an independent wing or as subsidiary of various private/central governments/ state government financial institution. Most of the financial institution in India is in public sector and therefore such setup plays a role on the lines of governmental priorities and policies. CLASSIFICATION OF MERCHANT BANKING Fees Based Merchant Banking: These banks dont take Balance Sheet Position i.e. these are only a service provider or in other words these are channel between two or more parties that comply each others requirements. (e.g. Public Issue, QIP)

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 Fund Based Merchant Banking: These Banks take Balance Sheet Position. They initially provide funds to the client from their own resources in exchange of securities (Bonds, debentures, Equity) and thereafter sell the same to others. These banks function mostly when funds requirement by client is urgent. (e.g. Bought out deal)

MERCHANT BANKING PROCESS For any given project other than Projects requiring funding Crown Financial & Merchant Bank Plc process draws on its many years of Corporate Finance experience to evaluate companies, prepare the proposed transaction materials, and close the transaction. There are six phases of the process for direct investments:
Assessing the Return on Investment Opportunities

Screening Referrals

Performing Due Diligence

Ensuring Ongoing Accountability

Supporting Closing Activity

Supporting Investors Review

Phase 1: Screening Referrals Crown Financial & Merchant Bank plc pursues Private Investment Opportunities referred through Banks, Venture Capital Firms, its network of Professional Banking Consultants, and Introducers - all of whom are protected for their commission. Crown financial & Merchant Bank Plc gathers insight into each Investment Opportunity, including its Business Model, Financial Prospects, Management Team, and of course the use of Funds. Crown Financial & Merchant Bank plc also consults Industry Experts (if appropriate) regarding the Business Model and assesses Market conditions. Phase 2: Assessing the Return on Investment Opportunities Using its standardized data sheets, Crown Financial & Merchant Bank Plc will gather complete details about the Client's business strategy, financial history, management structure, growth objectives, products, markets, competitive forces, and capital requirements. Crown Financial & Merchant Bank Plc then assesses the financing need in order to determine if the opportunity is compatible with the investment returns specific to the company's industry. Phase 3: Performing Due Diligence Crown Financial & Merchant Bank Plc will then assemble a Team of Investment Professionals and, if necessary, Outside Advisors to perform the appropriate Due Diligence. It is also common procedure to outsource specific Assignments to firms such as American Appraisal Associates, Ernst and Young International, The Law Firm of Baker - all of whom have a well-established professional relationship 18 | P a g e

with Crown Financial & Merchant Bank Plc. The Due Diligence includes a thorough review of any and all aspects of the Client's projects and review of any and all related documents. The outcome leads to a conclusion of "Go/ No Go", and if it's a No Go, Crown Financial & Merchant Bank Plc works with the client to assess the weaknesses of the Project and try, in cooperation with the client, to remedy to the situation. Phase 4: Supporting Investors Review At Crown Financial & Merchant bank plc, a transaction moves forward, further to a positive Due Diligence. The Project is then submitted to Crown Financial & Merchant Bank Plc Executive Committee, and further to a positive recommendation, Crown Financial & Merchant Bank Plc then establishes the "Amount of Funding" to be provided by third investors or partners. Phase 5: Supporting Closing Activity As "Principal" or "Advisor", Crown Financial & Merchant Bank Plc responds to Corporate Investors inquiries as they review the proposed transaction, until the "Closing" of the transaction. Phase 6: Ensuring Ongoing Accountability Once a Company / Client has received its funding, it submits an On-Going Performance Report to Crown Financial & Merchant Bank Plc and its Financial Partner / Funder / Corporate Investors.

CAREER PROSPECTS IN MERCHANT BANKING Merchant banking refers to investment management. The candidates have to manage mutual funds, public issues, trusts, securities and international funds. The work also include dealing with the corporate clients and providing them financial advice on various issues like - mergers, acquisitions, public issues, capital structure decisions etc.

DIFFERENCE BETWEEN INVESTMENT BANKING AND MERCHANT BANKS Merchant banks and investment banks, in their purest forms, are different kinds of financial institutions that perform different services. In practice, the fine lines that separate the functions of merchant banks and investment banks tend to blur. Traditional merchant banks often expand into the field of securities underwriting, while many investment banks participate in trade financing activities. In theory, investment banks and merchant banks perform different functions. Pure investment banks raise funds for businesses and some governments by registering and issuing debt or equity and selling it on a market. Traditionally, investment banks only participated in underwriting and selling securities in large blocks. Investment banks facilitate mergers and acquisitions through share sales and provide research and financial consulting to companies. Traditionally, investment banks did not deal with the general public Traditional merchant banks primarily perform international financing activities such as foreign corporate investing, foreign real estate investment, trade finance and international transaction 19 | P a g e

facilitation. Some of the activities that a pure merchant bank is involved in may include issuing letters of credit, transferring funds internationally, trade consulting and co-investment in projects involving trade of one form or another The current offerings of investment banks and merchant banks vary by the institution offering the services, but there are a few characteristics that most companies that offer both investment and merchant banking share. As a general rule, investment banks focus on initial public offerings (IPOs) and large public and private share offerings. Merchant banks tend to operate on small-scale companies and offer creative equity financing, bridge, mezzanine financing and a number of corporate credit products. While investment banks tend to focus on larger companies, merchant banks offer their services to companies that are too big for venture capital firms to serve properly, but are still too small to make a compelling public share offering on a large exchange. In order to bridge the gap between venture capital and a public offering, larger merchant banks tend to privately place equity with other financial institutions, often taking on large portions of ownership in companies that are believed to have strong growth potential Merchant banks still offer trade financing products to their clients. Investment banks rarely offer trade financing because most investment banking clients have already outgrown the need for trade financing and the various credit products linked to it

MERCHANT BANK VS COMMERCIAL BANK The world of banking and finance is one of many intricacies. Many types of financial institutions exist, including commercial banking and merchant banking. The difference between commercial banking and merchant banking lies mainly in the services they provide, and to whom they are provided.

Commercial banks are catering to the needs of the common man whereas the merchant banks cater to the needs of corporate firms. Any person can open a bank account in the commercial bank whereas it cannot be done in the merchant bank. Merchant bank deals with equities whereas the commercial bank deals with debt related finance which includes the activities like credit proposals, loan sanctions etc. The merchant bank is exposed to the market so it is more exposed to risk as compared to commercial banks. Merchant bank is related to the primary market whereas the commercial markets are more into secondary markets. Merchant banking activities are capital restructuring, underwriting, portfolio management etc whereas the commercial banks play the role of financers. The activities of merchant banks have a direct impact on the growth and liquidity of money markets. Merchant Bank is management oriented whereas the commercial banks are asset oriented. The commercial banks generally avoid risks and on the other hand the merchant banks are willing to take the risks.

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MERCHANT BANKING AND MANAGEMENT CONSULTANCY Institute of Chartered Accountants of India management consultancy does not include the functions of statutory periodical audits, tax representation or advice concerning matters or acting as liquidator, trustee, executor, administrator, arbitrator or receiver. The scope of management consultancy is much wider than 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 Organization

CORPORATE OBJECTIVES OF MERCHANT BANKING Corporate Objectives Guidance Project Formulations Implementation Modernization Diversification Mobilizing Resources Raising Working Capital Objectives of Merchant Banking in Prevailing Economy: To study the significance of Merchant Banking towards the development of securities industry. To analyze issue management regulations. To analyze the functions of Merchant Banking in relation to rules and regulations of SEBI. To evaluate the performance of Merchant Bankers, both activity performance and operational and financial performance. To draw a conclusion and suggestions based on the analysis and experiences. ACTIVITIES OF MERCHANT BANKER Wide range of activities are broadly classified under two heads - counselling and procuring finance Some of the important functions of a MB are Project counselling or reinvestment studies for investors Identify promising projects Prepare feasibility studies economic and financial Prepare in-depth project reports Assist investors in obtaining licenses

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CHAPTER 5 SEBI GUIDELINES

REGISTRATION OF MERCHANT BANKERS WITH SEBI 1) Application for grant of certificate. (1) An application by a person for grant of a certificate shall be made to the Board in Form A. (2) The application under sub-regulation shall be made for any one of the following categories of the merchant banker namely: (a) Category I, that is (i) To carry on any activity of the issue management, which will, inter alia, consist of preparation of prospectus and other information relating to the issue, determining financial structure, tie up of financiers and final allotment and refund of the subscriptions; and (ii) To act as adviser, consultant, manager, underwriter, portfolio manager; (b) Category II, that is to act as adviser, consultant, co-manager, underwriter, portfolio manager; (c) Category III, that is to act as underwriter, adviser, and consultant to an issue; (d) Category IV, that is to act only as adviser or consultant to an issue. (3) Notwithstanding anything contained in sub-regulation any application made by a merchant banker prior to coming into force of these regulations containing such particulars or as near thereto as mentioned in Form A shall be treated as an application made in pursuance of sub-regulation and dealt with accordingly. The various categories for which registration can be obtained are Category-I To carry on the activity of issue management and to act as adviser, consultant, manager, underwriter, portfolio manager. Category-II Category-III To act as underwriter, To act as adviser, adviser or consultant to consultant, coan issue manager, underwriter, portfolio manager. Category-IV To act only as adviser or consultant to an issue

The capital requirement depends upon the category. The minimum net worth requirement for acting as Merchant Banker is given below: The capital requirement for carrying on activity as merchant banker: Category-1 5 crores Category-2 50 lakhs Category-3 20 lakhs Category-4 Nil

2) Application to conform to the requirements. Subject to the provisions of sub-regulation of regulation 3, any application, which is not complete in all respects and does not conform to the instructions specified in the form shall be rejected: Provided

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that, before rejecting any such application, the applicant shall be given an opportunity to remove within the time specified such objections as may be indicated by the Board. 3) Furnishing of information, clarification and personal representation. (1) The Board may require the applicant to furnish further information or clarification regarding matters relevant to the activity of a merchant banker for the purpose of disposal of the application. (2) The applicant or its principal officer shall, if so required, appear before the Board for personal representation. 4) Consideration of application. The Board shall take into account for considering the grant of a certificate, all matters which are relevant to the activities relating to merchant banker and in particular the applicant complies with the following requirements, namely : (a) The applicant has the necessary infrastructure like adequate office space, equipments, and manpower to effectively discharge his activities; (b) The applicant has in his employment minimum of two persons who have the experience to conduct the business of merchant banker; (c) A person directly or indirectly connected with the applicant has not been granted registration by the Board. Explanation : For the purposes of this clause the expression directly or indirectly connected means any person being an associate, subsidiary or interconnected or group company of the applicant in case of the applicant being a body corporate; (d) The applicant fulfils the capital adequacy requirement specified in regulation 7; (e) The applicant, his partner, director or principal officer is not involved in any litigation connected with the securities market which has an adverse bearing on the business of the applicant; (f) The applicant, his director, partner or principal officer has not at any time been convicted for any offence involving moral turpitude or has been found guilty of any economic offence; (g) The applicant has the professional qualification from an institution recognised by the Government in finance, law or business management; (h) Grant of certificate to the applicant is in the interest of investors. 4A) Criteria for fit and proper person. For the purpose of determining whether an applicant or the merchant banker is a fit and proper person the Board may take into account the criteria specified in Schedule II of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008. 5) Capital adequacy requirement. The capital adequacy requirement referred to in clause of regulation 6 shall be a net worth of not less than five crore rupees. Explanation: For the purposes of this regulation, net worth means the sum of paid up capital and free reserves of the applicant at the time of making application under sub-regulation of regulation 3. 6) Procedure for registration. An application should be submitted to SEBI in Form A of the SEBI (Merchant Bankers) Regulations, 1992. SEBI shall consider the application and on being satisfied, issues a certificate of registration in Form B of the SEBI (Merchant Bankers) Regulations, 1992. 23 | P a g e

Registration fee payable to SEBI: Rs. 5 lakhs which should be paid within 15 days of date of receipt of intimation regarding grant of certificate. Validity period of certificate of registration is three years from the date of issue. Three months before the expiry period, an application along with renewal fee of 2.5 lakhs should be submitted to SEBI in Form A of the SEBI (Merchant Bankers) Regulations, 1992. SEBI shall consider the application and on being satisfied renew certificate of registration for a further period of 3 years. Merchant Bankers in India: There are 146 (as on Dec-2009) Merchant bankers who are registered with SEBI now in India. There are public sector, Private sector and foreign players registered with SEBI. The below are the examples of few of the Merchant bankers in each of the Public, private and foreign players. 7) Renewal of certificate. (1) Three months before the expiry of the period of certificate, the merchant banker may, if he so desires, make an application for renewal in Form A. (2) The application of renewal, under sub-regulation, shall be dealt with in the same manner as if it were a fresh application for grant of a certificate. (3) The Board on being satisfied that the applicant is eligible for renewal of certificate shall grant a certificate in Form B and sent intimation to the applicant (6) on the grant of a certificate the applicant shall be liable to pay the fees in accordance with Schedule II. 7A) Conditions of registration. (1) Any registration granted under regulation 8 or any renewal granted under regulation 9 shall be subject to the following conditions, namely: (a) Where the merchant banker proposes to change its status or constitution, it shall obtain prior approval of the Board for continuing to act as such after the change; (b) It shall pay the fees for registration or renewal, as the case may be, in the manner provided in these regulations; (c) It shall take adequate steps for redressal of grievances of the investors within one month of the date of the receipt of the complaint and keep the Board informed about the number, nature and other particulars of the complaints received; (d) It shall maintain capital adequacy requirements specified in regulation 7 at all times during the period of the certificate or renewal thereof; (e) It shall abide by the regulations made under the Act in respect of the activities carried on by it as merchant banker. (2) Nothing contained in clause of sub-regulation shall affect the obligation to obtain a fresh registration under section 12 of the Act in cases where it is applicable. 7B) Period of validity of certificate. The certificate of registration granted under regulation 8 and its renewal granted under regulation 9 shall be valid for a period of three years from the date of its issue to the applicant. 8) Procedure where registration is not granted.

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(1) Where an application for grant of a certificate under regulation 3 or of renewal under regulation 9 does not satisfy the criteria set out in regulation 6, the Board may reject the application after giving an opportunity of being heard. (2) The refusal to grant registration shall be communicated by the Board within thirty days of such refusal to the applicant stating therein the grounds on which the application has been rejected. (3) Any applicant may, being aggrieved by the decision of the Board under sub regulation (1), apply within a period of thirty days from the date of receipt of such intimation to the Board for reconsideration of its decision. (4) The Board shall reconsider an application made under sub-regulation (3) and communicate its decision as soon as possible in writing to the applicant. 9) Effect of refusal to grant certificate. Any merchant banker whose application for a certificate has been refused by the Board shall, on and from the date of the receipt of the communication under sub regulation (2) of regulation 10, cease to carry on any activity as merchant banker. 10) Payment of fees and the consequences of failure to pay fee. (1) Every applicant eligible for grant of a certificate shall pay such fees in such manner and within the period specified in Schedule II. (2) Where a merchant banker fails to pay the annual fees as provided in sub regulation (1), read with Schedule II, the Board may suspend the registration certificate, whereupon the merchant banker shall cease to carry on any activity as a merchant banker for the period during which the suspension subsists.

TYPES OF ISSUE OF SHARES IN INDIAN CAPITAL MARKET Under the Securities and Exchange Board of India (SEBI) Guidelines, the securities can be offered for sale in the primary market in different ways. Each method of issue has got procedure and mechanism. The methods of issues of securities are: 1 Public issue through Prospectus: This method is the most popular common and popular method of issue of securities. The securities are offered to the investors through a detailed statement of terms and conditions known as prospectus. The prospectus is also known as the offer document. The contents of prospectus are as per the requirements given in the SEBI Guidelines, 2000. These requirements are in respect of Name of the Company, Board of Directors, Existing and Proposed activities of the issuer, authorised, Issued and Paid-up Capital, Name of the Merchant Bankers, Lead Manager, Advisors, Registrar, Bankers, Underwriters, Minimum Subscription, Different Disclaimer Clauses, Terms of the Present Issue, Utilisation if Issue Proceeds, Analysis of Financial Conditions and Result of Operations, Financial Information of Group Companies, Issue Price and basis of that, Risk Factors, Other general and financial information. The issue by prospectus method is adopted when the company wants to issue fixed number of securities at a fixed price (which may be equal to, less than or more than the face value). The application forms together with the copy of prospectus are distributed among the public investors who offer to the company to buy a specific number of securities. In case of oversubscription, the securities are allotted to the investors, in consultation with the stock exchange where the securities are allotted to investors, in consultation with the stock exchange where the securities are proposed to be listed. 25 | P a g e

One of the shortcomings of this method is that it is an expensive method. High cost of advertisement, flotation, brokerage and underwriting are involved. In order to save the high cost of issue by prospectus, the companies are allowed to issue the securities through an abridged prospectus also. The contents of the abridged prospectus are less than the regular prospectus. 2 Offer for sale: In certain cases, the companies do not offer the securities directly to the investors. Instead, the securities are issued to an issue house or a merchant banker who will subsequently offer the securities for sale to the investors. Sometimes, the existing shareholders (a holding company or foreign parent company) may offer to offload their holding to the investors. The difference between the issue price by the company and the offer privet by the issue house is the gain to the latter. Disinvestment of shares in PSU by the Government is offer for sale. Contents of the Letter of Offer for Sale are given in the SEBI Guidelines, 2000. 3 issue through Private Placement if Securities: In this case, the issuing company does not offer the securities to investors in general. Instead, the securities are offered to selected big institutional clients only. The institutional investors may be selected in conformity with the merchant banker. The terms and conditions are agreed between the company and the institutional buyer. SEBI Guidelines, 2000 are not applicable in case of private placement, because there is no public offer involved. Unlisted companies may also adopt this method. Even listed companies may adopt private placement method for raising of funds through debt instruments. 4 Offer through Book-Building Process: Public issue of securities through the book-building proves is a relatively new concept for Indian capital market. In case of book-building, the company decided the funds to be raised. The number of securities and issue price are decided by the demand and supply forces. In this case, offer are invited from the public, stating the price as well as the numbers of shares, the investors are ready to buy. On the basis of bids received from the investors, the issue price is decided by the company. At the price, all the eligible investors are issued securities. It may be noted that in case of normal public issue, the issue price of securities is known to the investors in advance. But in case of book-building, the issue price is decided after the closure the book. The order book remains open for minimum period of 5 days and the securities are issued at the same price under the placement portion and net offer to public. Companies issuing securities through book building process declare a price band (price limit of highest and minimum price) within which the final price decided. There are specific guidelines issued by SEBI in respect of book building issues. Company issuing securities through book building process is required to issue a red harring prospects. 5 Public Offers through Stock Exchange On-line System: SEBI has also allowed offering shares through the on-line systems of stock exchange. In this case, the issuing company has to fulfil the general requirements of public offer as well as some other conditions. The company has to enter into an agreement with a stock exchange which has an on-line system. It has to appoint the requisite merchant bankers. The company shall announce the process of application and allotment, opening and closing dates of the subscription, etc. The applications are to be submitted through stock brokers. The brokers enter the application in the on0line system as a buy order. On the closure of the issue, the stock exchange and the merchant banker ensure that there is a fair and proper allotment of shares. The successful applicants may get the shares in physical form or dematerialised form. 26 | P a g e

CHAPTER 6 MERCHANT BANKER-ROLES

Many companies that approach a merchant bank are looking to increase their financial stability or satisfy a particular, immediate capital need Modern Manufacturing, a leading manufacturer of slat wall and other retail store fixtures has grown over the years into a niche manufacturer. The CEO Jerry Dagen saw opportunities to create additional value to the shareholders through either internal growth or acquisitions of other niche companies. The CEO also wanted to maintain the controlling stake in the company, hence did not offload part of the equity to others. Jerry approached Raymond James Capital, a merchant bank for a solution. The solution: The merchant banker carefully studied the system, understood the need of the client and offered a customised solution, which eventually resulted in a new financial structure. This recapitalisation allowed Modern Manufacturing:

Substantial liquidity Continuity of the operating control A source of additional capital to fund acquisitions, without dilution of ownership control

The above case highlights one of the services offered by a merchant banker i.e. (Financial structuring) Changing role of a merchant banker In the past The role of the merchant banker was to arrange the necessary capital and ensure that the transaction would be implemented i.e. a financial intermediary facilitating the flow of capital among the concerned parties. Today A merchant banker plays multiple roles which include those of an entrepreneur, a management advisor, an investment banker, and a transaction broker. This shows that the breadth and depth of a merchant bankers activity has changed over the years. IPO Role of Underwriter When a company wants to raise funds through initial public offering (IPO) it appoints an investment bank for underwriting the issue. An investment bank is also called as merchant bank. There is no regulatory restriction to use the services of a merchant bank for IPO. Since in an IPO a company participates for the first time, it doesnt have complete understanding of the rules and documentation, required to be submitted, to get a clearance from the regulator.

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Famous merchant bankers world over are Goldman Sachs, Credit Suisse and Morgan Stanley. Banks like Deutsche, Citi, and UBS etc have investment banking wings. Underwriters assesses and analyze firms current performance, firms future earning potential, industry scenario, competition in the same sector, current local and global market situations etc. to decide the issue price/price band. They also work on the activities like completion of the mandatory documentation as required by the regulatory body. Underwriters change a fee for this activity, which is generally a percentage of the issue size. If the issue is very large a syndicate of merchant banks takes up the task underwriting the issue. However one merchant bank leads the other. ROLE OF MERCHANT BANKER IN A PRIMARY MARKET ISSUE MANAGEMENT Merchant banker is the intermediary appointed by companies in the primary market issue. It has to look at the entire issue management and work as the Manager to the Public Issue. Principal steps that Merchant bankers have to perform in a bringing up a Public issue are as follows: Vetting of Prospects: The prospectus is a document to communicate information about the company and the proposed security issue to the investing public. The draft prospectus containing the disclosures has to be vetted by SEBI before a public issue is made. Appointment of Underwriters: An underwriter agrees to subscribe to a given number of shares in the event the public do not subscribe to them. The underwriter, in essence, stands guarantee for public subscription in consideration for the underwriting commission. Appointment of bankers: The bankers to the issue collect money on behalf of the company from the applicants. Appointment of Registrars: The registrars to issue perform a series of tasks from the time the subscription is closed to the time the allotment is made. Appointment of Brokers and Principal Brokers: The brokers to the issue facilitate its subscription. Filing of the Prospectus with the Registrar of Companies Printing and dispatch of prospectus and application form: After the prospectus is filed with the Registrar of Companies, the company should print the prospectus and the application form. Filing of Initial Listing Application: Within ten days of filing the prospectus, the initial listing application must be made to the concerned stock exchanges, along with the initial listing fees. Promotion of the Issue: The promotional campaign typically commences with the filing of the prospectus with the Registrar of Companies and ends with the release of the statutory announcement of the issue.

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 Statutory Announcement: The statutory announcement of the issue must be made after seeking the approval of the lead stock exchange. This must be published at least ten days before the opening of the subscription list. Collection of Applications: The statutory announcement (as well as the prospectus) specifies when the subscription would open when it would close, and the banks where the applications can be made. Processing of Applications: The application forms received by the bankers are transmitted to the registrars to the issue for processing. Establishing the Liability Underwriters: If the issue is undersubscribed, the liability of the underwriters has to be established. Allotment of Shares: If the issue is under-subscribed or just fully subscribed, the company may allot shares applied for by the applicants after securing the formal approval of the concerned stock exchanges(s) Listing of the Issue: The detailed listing application should be submitted to the concerned stock exchanges along with the listing agreement and the listing fee. Costs of Public Issue: The cost of public issue is normally between 8 and 12 per cent depending on the size of the issue and the level of marketing effort. The important expenses incurred for a public issue are Underwriting Expenses, Brokerage, Fees to the Managers of the Issue, Fees for Registrars to the Issue, Printing Expenses, Postage Expenses, Advertising and Publicity Expenses, Listing fees, Stamp duty. In addition to the above procedural matter, the most important issue relates to the pricing of the issue. The merchant banker has to see that the issue is priced properly. PENALTIES LEVIED BY SEBI ON MERCHANT BANKERS The Securities and Exchange Board of India (SEBI) notifies regulations pertaining to the procedure of holding enquiries and imposing penalties on Merchant Bankers. SEBI can appoint enquiry officers, can the officer will also be able to impose the penalty on which the SEBI chairman will give the final verdict. The regulations to be called Securities and Exchange Board of India (Procedures for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations (2002 )will cover not just merchant bankers but all market intermediaries like portfolio managers, registrars and share transfer agents, underwriters, debenture trustees, bankers to an issue, foreign institutional Investors, custodians, depository participants, venture capital funds, mutual funds, collective investment schemes (CIS) and foreign venture capital investors and bring them under the ambit of SEBI. According to the notification, the penalty an enquiry officer can impose will be both minor and major. Among the minor penalties, the enquiry officer can issue warnings or censure, prohibit the intermediary from taking up new assignments or launch a new scheme for a period of six months. It can also debar a partner or a whole time director of the intermediary from carrying out activities as an intermediary in the firm or company, and other capital market-related

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institutions for a period of six months. It can also suspend the certificate of registration for a period up to three months. Among the major penalties an enquiry officer can impose the cancellation of certificate of registration and suspension of certificate of registration. However, the regulations says that no order under these regulations shall be passed excepting after holding an enquiry by an officer. To implement these regulations, SEBI has amended regulations pertaining to various intermediaries and some of its regulations like Insider Trading Regulations, SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations and Takeover Code Regulations. Procedure for Inspection SEBI may inspect books of accounts, records and documents of merchant bankers to ensure that the books of accounts are maintained in the required manner, that the provisions act rules, regulations are compiled with, to investigate complaints against the merchant banker and to investigate suomoto in the interest of securities business or investors interest in to the affairs of Merchant banker. SEBI may either give a reasonable notice or undertake inspection without notice in the interest of investors. The findings of the inspection report are communicated to merchant banker. SEBI may appoint a qualified auditor to investigate in to the books of accounts or the affairs of merchant banker. Penalties of Non compliance of conditions for registration and contravention of the provisions of the MB regulations include suspension or cancellation of registration. A penalty of suspension of registration of a merchant banker may be imposed when: The merchant banker violates the provisions of act, rules or regulations The merchant banker: o Fails to furnish any information relating to his activities as merchant banker as required by the board. o Furnished wrong or false information o Does not submit periodical returns, as required by the board. o Does not cooperate in any enquiry conducted by the board. The merchant banker fails to resolve the complaints of the investors or fails to give satisfactory reply to the Board in this behalf. The merchant banker indulges in manipulating or price rigging or concerning activities. The merchant banker is guilty of misconduct or improper or un business like or unprofessional conduct which is not in co ordinance with the code of conduct specified in schedule 3 The merchant banker fails to maintain the capital adequacy requirement in accordance with the provisions of regulation 7. The merchant banker fails to pay the fees The merchant banker violates the conditions of registration. The merchant banker does not carry out his obligations as specified in the regulation.

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Defaults of The merchant banker and penalty points SEBI categorized defaults and the penalty points that they attract. _________________________________________________________ Defaults penalty points _________________________________________________________ 1. General Defaults 1 2. Minor Defaults 2 3. Major Defaults 3 4. Serious Defaults 4 __________________________________________________________ 1. General Defaults For the purpose of penalty point, the following activities fall under general default and attract one penalty point. Non receipt of draft prospectus/letter of offer from the lead manager by SEBI, before filing with registrar of companies/stock exchanges. Non receipt of inter se allocation of responsibilities of lead managers in an issue by SEBI prior to the opening of the issue. Failure to ensure submission of certificate of minimum 90 % subscription to the issue as required under Govt of India Failure to ensure publicizing of dispatch of refund orders, shares/Debentures certificates, filing of listing application by the issuer as required under Govt of India press notification. 2. Minor Defaults The following activities fall under minor default and attract two penalty points. Advertisement, circular, broacher, press release and other issue related materials not being in conformity with contents of the prospects. Exaggerated information or Information extraneous to the prospectus is given by the associated merchant bankers in any press conference, Investor conference, brokers conference or other such conference /meet prior to the issue for marketing of the issue arranged/participated by the merchant banker. Failure to substantiate matters contained in highlights to the issue in the prospectus. Violation of the Govt of India letter regarding advertisements on new capital issues. Failure to exercise due diligence in verifying contents of prospectus/ letter of offer. Failure to provide adequate and fair disclosure to investors and objective information about risk factors in the prospectus and other issue literature Delay in refund/allotment of securities. Non-handling of investor grievances promptly.

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3. Major default The following activities fall under major default and attract three penalty points. Mandatory underwriting not taken up by lead manager Excess number of lead managers than permissible under SEBI Association of unauthorized merchant banker in an Issue. 4. Serious Defaults The following activities fall under serious default and attract four penalty points. Unethical practice by merchant banker and/or violation of code of conduct. Non cooperation with SEBI in furnishing desired information documents, evidence as may be called for. A merchant banker on reaching the penalty points of eight (8) attracts action from SEBI in terms of suspension/ cancellation of authorization. To enable a merchant banker to take corrective action maximum penalty points awarded in a single issue managed by a merchant banker are restricted to four (4) In the event of joint responsibility same penalty point is awarded for all lead managers jointly responsible for the activity. In the absence of receipt of inter se allocation of responsibilities, all lead managers to the issue are awarded the penalty point. Defaults in prospectus If highlights are provided, the following deficiencies will attract negative points 1) Absence of risk factors in highlights. 2) Absence of listing in highlights. 3) Extraneous contents to prospectus, if stated in highlights. The maximum grading points of prospectus will be 10 and prospectus scoring greater than or equal to 8 points are categorized as A+, those with 6 or less than 8 as A, with 4-6 points as B, and score of less than 4 points, the prospectus falls in category C. General Negative Marks If at all "Highlights" are provided in an issue: Risk factors should form part of "Highlights", otherwise it will attract negative point of -1 Listing details, should form of part of " Highlights", otherwise it will attract negative point of -0.5 Any matter extraneous to the contents of prospectus, if stated in highlights, will attract negative point of -0.5

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CHAPTER 7 FUNCTIONS AND SERVICES OF MERCHANT BANKS

Below mentioned are the major services and functions offered by Merchant Bankers; Project Counselling- Project counselling services may be rendered independently or maybe, it relates to project finance and broadly covers the study of the project and offering advisory assistance on the project viability and procedural steps for its implementation broadly including following aspects:- general review of the project ideas/ project profile, advice on procedural aspects of project implementation, review of technical feasibility of the project on the basis of the report prepared by own experts by the outside consultants, selecting Technical consultancy Organization (TCO) for preparing project reports and market survey, or review of the project reports or market survey report prepared by the TCO, preparing project report form financial angle, and advice and act on various procedural steps including obtaining government consents for implementation of projects. This assistance can include obtaining of the following approvals/licenses/permission/grants etc form the govt. agencies viz. letter of intent, industrial license and DGTD registration and government approval for foreign collaboration. In addition to above, the facility providing guidance to Indian entrepreneurs for making investment projects in India and in Indian joint ventures overseas is also covered under this activity. Besides the above services, project counselling may include identification of potential investments avenues, precise capital structuring shaping the pattern of financing, arranging and negotiating foreign collaborations, amalgamations, mergers and takeover, financial study of the project and preparation of viability reports, to advice on the framework of institutional guidelines and laws governing corporate finance, assistance in the preparation of project profiles and feasibility studies based on preliminary project ideas in order to indicate the potential. These reports would cover the technical, financial and economic aspects of the project from the point of view of their acceptance by the financial institutions and banks; advising and assisting clients in preparing the applications for obtaining letters of intent, industrial license and DGTD registrations etc, seeking approvals form the government of India for foreign technical and financial collaboration agreements, guidance on investment opportunities for entrepreneurs coming to India. Pre-investment studies are directed mainly for the prospective investor. These are the objective and detailed feasibility explanation of which the principal aim is to arm the clients with the sound foundation of facts and figures to evaluate the alternative avenues open for capital investments from the point of view of growth and profit prospects. Some of the critical issues that a study of this genre deals will include an in-depth investigation of environment and regulatory factors, location of raw material, supplies, demand projections and financial requirements. Such a study would assess the financial and economic viability of a given project and help the clients to identify and short list those projects that are built upon his inherent strength son as to accentuate corporate profitability and growth in long run.

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Grind lays bank has specialization in pre investment studies and it conducts such studies for foreign companies wishing to participate in joint ventures in India and offers a package of services including advice on the extent of participation, government regulatory factors and an environmental scan of particular industries in India. Management of debt and equity offerings- This forms the main function of the merchant banker. He assists the companies in raising funds from the market. The main areas of work in this regard include: o Instrument designing o Pricing the issue o Registration of the offer document o Underwriting support o Marketing of the issue o Allotment and refund o Listing on stock exchanges. Issue Management- This is the primary function of merchant bankers. It refers to the management of securities offering of corporate to the general public and existing shareholders on rights basis. Merchant bankers act as lead managers and assists companies in arriving at quantum and nature of issue and obtaining consent/clearance from various statutory authorities, preparing draft prospectus, obtaining approval from appropriate authorities etc. it also assists companies in tying up with underwriters for the issue, appoint other intermediaries like brokers, bankers, advertising agents, registrar to the issue and co-ordinates the activities of these agencies and institutions from the successful flotation of the issue. It also helps in listing the securities in stock exchange, finalizing basis of allotment, arranging for refund, handling investor complaints etc. Merchant banks help companies raise funds by selling shares to the public by issuing prospectus, Shares may be issued at par, premium or discount. SEBI guidelines for pricing of public issues are as follows: o o New Co. set up by entrepreneurs without a track record = can issue shares only at par New Co. set up by an existing co with a 5-year track record of consistent profitability = is free to price its issue provided promoting company takes atleast 50% of the equity and the issue price is offered to all new investors uniformly. An existing private/closely held co with 3-year track record of consistent profitability is allowed to freely price the issue. Existing listed co. can freely price further issue.

o o

Process of public issues: o o o o o o 34 | P a g e Vetting of prospectus (by SEBI) Appointment of underwriters, bankers, registrars and brokers Filing and prospectus with registrar of companies Printing and dispatch of prospectus and application forms Filing of initial listing application (within 10 days of filing prospectus with ROC: initial listing application be made to concerned stock exchange) Promotion of issue

o o o o o o

Statutory announcement (opening and closing dates, announcement to be made atleast 10 days before opening subscription list) Collection of application Processing of allocation (by registrar to the issue) Establishing liability of underwriters (if issue is undersubscribed) Allotment of shares (after formal approval by concerned stock exchange) Listing of issue (with concerned stock exchange)

Managers, Consultants or Advisers to the Issue- The managers to the issue assist in the drafting of prospectus, application forms and completion of formalities under the Companies Act, appointment of Registrar for dealing with share applications and transfer and listing of shares of the company on the stock exchange. Companies can appoint one or more agencies as managers to the issue. Underwriting of Public Issue- Underwriting is a guarantee given by the underwriter that in the occurrence of under subscription, the amount underwritten would be subscribed by him. Banks/Merchant banking institutions cannot underwrite more than 15% of any issue. Portfolio Management- Portfolio indicates investment in different types of securities such as shares, debentures or bonds issued by different companies. Portfolio management means maintaining proper combinations of securities in a mode that they give maximum return with minimum risk. Restructuring strategies- A merger is a blending of two companies into a single company where one survives and other loses its corporate existence. A takeover is the purchase by one company obtaining controlling interest in the share capital of another existing company. Merchant bankers act as the middlemen in setting negotiation between the two companies. Merchant bankers assist the management of the client company to successfully restructure various activities such as mergers and acquisitions, divestitures, management buyouts, joint venture among others. Off Shore Finance- The merchant bankers help their clients in the following areas involving foreign currency. o Long term foreign currency loans o Joint Ventures abroad o Financing exports and imports o Foreign collaboration arrangements Non-resident Investment- The services of merchant banker includes investment advisory services to NRI in terms of classification of investment opportunities, selection of securities, investment management, and operational services like purchase and sale of securities. Loan Syndication- loan syndication is also known as credit syndication. Merchant bankers arrange to tie up loans for their clients. This takes place in a series of steps. Firstly they analyse the pattern of the clients cash flows, based on which the terms of borrowings can be defined. Then the merchant banker prepares a detailed loan memorandum, which is circulated to various banks and financial institutions and they are invited to participate in the syndicate.

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The banks then negotiate the terms of lending on the basis of which the final allocation is done. Credit syndication also known as credit procurement and project finance services. The main task involved in credit syndication is to raise to rupee and foreign currency loans with the banks and financial institutions both in India and abroad. It also arranges the bridge finance and the resources for cost escalations or cost Overruns. Broadly, the credit syndications include the following acts; (a) Estimating the total costs (b) Drawing a financing plan for the total project cost-conforming to the requirements of the promoters and their collaborators. Financial institutions and banks, government agencies and underwriters. (c) Preparing loan application for financial assistance from term lenders/financial institutions/banks and monitoring their progress including the pre-sanction negotiations. (d) Selecting the institutions and banks for participation in financing. (e) Follow-up of the term loan application with the financial institutions and banks and obtaining the satisfaction for their respective share of participation. (f) Arranging bridge finance. (g) Assisting in completion of formalities for drawl of term finance sanctioned by institution expediting legal documentation formalities drawing up inter-se agreements etc. prescribed by the participating financial institutions and banks. (h) Assessing the working capital requirements. (i) Preparing the necessary application for a successful issue management the close liaison and coordination with the various constituents of the public issue is an essential condition that warrants full cooperation of all the parties affecting the cost and prospects of the issue. Merchant banks, acting as Manager to the issue has to settle the fee for Advocate/solicitors advice, accountants certification, brokers and banks charges, underwriters commission, printers charges and advertising and publicity expenses and coordinates with syndicated merchant bankers and principal brokers, stock exchanges, etc. The responsibility for all this rests upon the merchant banker. If proper coordination is not done, the success of the issue may be rendered unassured. Corporate Counselling and advisory services- Merchant bankers offer customised solutions to their clients financial problems. The following are the main areas in which their advice is sought: Financial structuring includes determining the right debt-equity ratio and gearing ratio for the client, the appropriate capital structure theory is also framed. Merchant bankers also explore the refinancing alternatives of the client, and evaluate cheaper sources of funds. Another area of advice is rehabilitation and turnaround management. In case of sick units, merchant bankers may design a revival package in coordination with banks and financial institutions. Risk management is another area where advice from a merchant banker is sought. He advises the client on different hedging strategies and suggests the appropriate strategy. Corporate counselling denotes the advice provided by the merchant banking to the corporate unit to ensure better corporate performance in terms of image building among investors, steady growth through good working and appreciation in market value of its equity shares. 36 | P a g e

The scope of corporate counselling, capital restructuring and, portfolio management and the full range of financial engineering includes venture capital, public issue management, and loan syndication, working capital, fixed deposited, lease financing, acceptance credit, etc. However counselling is limited to only opinions and suggestions and any detailed analysis would form part of a specific service. The scope of corporate counselling is restricted to the explanations of concepts, procedures and laws to be observed by the clients company. Requirement of any action to be taken or compliance of statutory formalities to be made for implementation of those suggestions would mean the demand for a specific type of service other than corporate counselling being offered by the merchant bankers. An academic analysis of corporate counselling present a different pictue than that transpires from than literature of the merchant bankers firstly corporate counselling is the beginning of the merchant banking service which every clients whether new or existing has got to avail a different matter whether a merchant bank charges its clients separately for rendering he corporate counselling service or includes the element of fee in the other heads of service but for the angle of priority. Corporate counselling is first in line of the services which a merchant banker offers and than other services. Secondly the scope of the corporate counselling is very vast. Its coverage ranges from the managerial economics, investment and financial management to corporate laws and the related legal aspects of the organizational goals, locations factores, organizational size and operational scale, choice of product and market survey, forecasting product, cost reduction and cost analysis, allocation of resources, investment decisions, capital management and expenditure control, pricing methods and marketing strategy, etc. As financial and investment experts, a merchant banker has to guide the corporate clients in areas covering financial reporting, project measurement, working capital management, financial requirement and the sources of finance, evaluating financial alternatives, rate of return and cost of capital besides basic corporate change of financial rearrangement, reorganization, mergers and acquisitions, etc. Are the areas to be covered. Corporate aspects should basically cover the legal aspects including the various legal formalities involved in areas off corporate finance being raised from the financial institutions, banks and the general public in the form of loan, new issues of equity or debentures respectively. Placement and distribution- The merchant banker helps in distributing various securities like equity shares, debt instruments, mutual fund products, fixed deposits, insurance products, commercial paper to name a few. The distribution network of the merchant banker can be classified as institutional and retail in nature. The institutional network consists of mutual funds, foreign institutional investors, private equity funds, pension funds, financial institutions etc. The size of such a network represents the wholesale reach of the merchant banker. The retail network depends on networking with investors. Project advisory services- Merchant bankers help their clients in various stages of the project undertaken by the clients. They assist them in conceptualising the project idea in the initial stage. Once the idea is formed, they conduct feasibility studies to examine the viability of the proposed project. They also assist the client in preparing different documents like the detailed project report.

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 Providing venture capital and mezzanine financing- Merchant bankers help companies in obtaining venture capital financing for financing their new and innovative strategies. Bankers to the issue- Collection of subscription money/application money for an issue from the investors, acknowledgement, proper accounting of the money received, sending reports/certificates, and informing collection details are the services provided in the banker to the issue role. Investment Counselling- This activity involved assisting firms, companies, trusts, funds and associations in the choice of shares and stocks for investment depending upon the needs and the risk-return trade-off, as well as taxation and time considerations. Registrar and Transfer Agent- Transfer agency work involves carrying out transfer work in respect of securities after complying with stipulated formalities/procedures. Preparation and printing of dividend warrants and dispatching them to share holders is also covered here. Other services include attending to complaints of applicants/investors, coding and verification of applications, allotment, processing and dispatching allotment letters, providing various documents and certificates etc. Mergers, amalgamations and Acquisitions- Some companies desire to restructure themselves in order to effectively meet competition. Merchant bankers provide all requisite guidance and services for restructuring, to prepare due diligence, necessary clearance from statutory bodies like SEBI, ROC etc as per the statutory stipulations, for the process of mergers, acquisitions and amalgamations. Venture Capital- Merchant Bankers help co obtaining venture capital for financing their new and innovative strategies. (add points from FSM chapter on venture capital) Leasing Finance- (elaborate by using points from the FSM chapter on Leasing) Joint ventures- Merchant Bankers help corporates with joint ventures in India and abroad. Management of capital issues- the capital issue are managed are category-1 merchant banker and constitutes the most aspects of their services. The public issue of corporate securities involves marketing of capital issues of new and existing companies, additional issues of existing companies including rights issue and dilution of shares by letter of offer. The public issues are managed by the involvement of various agencies i.e. underwriters, brokers, bankers, advertising agency, printers, auditors, legal advisers, registrar to the issue and merchant bankers providing specialized services to make the issue of the success. However merchant banker is the agency at the apex level than that plan, coordinate and control the entire issue activity and direct different agencies to contribute to the successful marketing of securities. The procedure of the managing a public issue by a merchant banker is divided into two phases, viz; o Pre-issue management o Post-issue management Pre-issue management: Steps required to be taken to manage pre-issue activity is as follows; 38 | P a g e

1. Obtaining stock exchange approvals to memorandum and articles of associations. 2. Taking action as per SEBI guide lines. 3. Finalizing the appointments of the following agencies: o Co-manager/advisers to the issue o Underwriters to the issue o Brokers to the issue o Bankers to the issue and refund banker o Advertising agency o Printers and registrars to the issue 4. Advice the company to appoint auditors, legal advisers and broad base Board of Directors 5. Drafting of prospectus 6. Obtaining approvals of draft prospectus the companys legal advisers, underwriting financial institutions/banks 7. Obtaining consent from parties and agencies acting for the issue to be enclosed with the prospectus. 8. Approval of prospectus from SEBI. 9. Filling of the prospectus with Registrars of Companies. 10. Making an application for enlistment with Stock Exchange along, with copy of the prospectus. 11. Publicity of the issue with advertisement and conferences. 12. Open subscription list. Post-issue management: steps involved in post-issue management are: 1. To verify and confirm that the issue is subscribed to the extent of 90% 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 letter/certificates within the prescribed time limit of 10 weeks after the closures of subscription list. 4. To report periodically to SEBI about the progress in the matters related to allotment and refunds. 5. To ensure he listing of securities at Stock Exchanges. 6. To attend the investors grievances regarding the public issue. The merchant bankers for managing public issue can negotiate a fee subject to a ceiling. This fee if to be shared by all lead managers, advisers etc. 0.5% of the amount of public issues up to Rs. 25 crores 0.2% of the amount exceeding Rs. 26 crores, if more than one Merchant bankers are managing the issue.

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CHAPTER 8 SEBI REGULATIONS FOR MERCHANT BANKERS

Merchant Bankers have been barred from undertaking activities other than related to the securities market. The SEBI (Merchant Bankers) Regulations, 1992 have been amended on December 19, 1997 to provide that: a. The applicant should be a fit and proper person; b. A merchant banker has to seek separate registration for its underwriting or portfolio management activities; c. The categorization of merchant bankers I, II, III and IV has been dispensed with; d. A merchant banker, other than a bank or a public financial institution, has been prohibited from carrying any activities not pertaining to the securities market; and e. The applicant should be a body corporate other than non-banking finance company. The Merchant Bankers Regulations were amended on January 21, 1998 to provide time up to June 30, 1998 to sever its activities or hive off its activities not pertaining to the securities market. The Reserve Bank of India has exempted merchant banking companies from the provisions of Reserve Bank of India Act, 1934 relating to compulsory registration (section 451A), maintenance of liquid assets (section 451B), creation of reserve fund (section 451C ) and all the provisions of the recent Directions relating to deposit acceptance and prudential norms. Merchant banking companies, to be eligible for the above exemption, are required to satisfy the following conditions: i. such companies are registered with the SEBI under section 12 of the SEBI Act, 1992 and are carrying on the business of merchant banker in accordance with the Rules / Regulations framed by the SEBI; ii. they acquire securities only as part of their merchant banking business; iii. they do not carry on any other financial activities as mentioned in section 451 (c ) of the RBI Act, 1934; iv. they do not accept / hold public deposits.

Maintenance of books of accounts, records etc. (1)Every merchant banker shall keep and maintain the following books of accounts, records and documents namely:(a) a copy of balance sheet as at the end of each accounting period; (b) a copy of profit and loss account for that period; (c) a copy of the auditor's report on the accounts for that period; and (d) a statement of financial position. (2) Every merchant banker shall intimate to the Board the place where the books of accounts, records and documents are maintained. (3) Without prejudice to sub- regulation (1), every merchant banker shall, after the end of each accounting period furnish to the Board copies of the balance sheet, profit and loss account and such other documents for any other preceding five accounting years when required by the Board.

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Submission of Half-yearly results Every merchant banker shall furnish to the Board half-yearly unaudited financial results when required by the Board with a view to monitor the capital adequacy of the merchant banker. Maintenance of books of account, records and other documents The merchant banker shall preserve the books of accounts and other records and documents maintained under regulation 14 for a minimum period of five years. Report on steps taken on Auditor's report Every merchant banker shall within two months from the date of the auditors' report take steps to rectify the deficiencies, made out in the auditor's report. Appointment of lead merchant bankers (1) All issues should be managed by at least one merchant banker functioning as the lead merchant banker: Provided that, in an issue of offer of rights to the existing members with or without the right of renunciation the amount of the issue of the body corporate does not exceed rupees fifty lakhs, the appointment of a lead merchant banker shall not be essential. (2) Every lead merchant banker shall before taking up the assignment relating to an issue, enter into an agreement with such body corporate setting out their mutual rights, liabilities and obligations relating to such issue and in particular to disclosures, allotment and refund. Restriction on appointment of lead managers The number of lead merchant bankers may not, exceed in case of any issue of Size of issue No. of Merchant Bankers (a) Less than rupees fifty crores-Two (b) Rupees fifty crores but less than rupees one hundred crores-Three (c) Rupees one hundred crores but less than rupees two hundred crores-Four (d) Rupees two hundred crores but less than rupees four hundred crores-Five (e) Above Rupees four hundred crores five or more as may be agreed by the board Responsibilities of lead managers (1) No lead manager shall agree to manage or be associated with any issue unless his responsibilities relating to the issue mainly, those of disclosures, allotment and refund are clearly defined, allocated and determined and a statement specifying such responsibilities is furnished to the Board at least one month before the opening of the issue for subscription: Provided that, where there are more than one lead merchant bankers to the issue the responsibilities of each of such lead merchant banker shall clearly be demarcated and a statement specifying such responsibilities shall be furnished to the Board at least one month before the opening of the issue for subscription. (2) No lead merchant banker shall, agree to manage the issue made by any body corporate, if such body corporate is an associate of the lead merchant banker. Lead merchant banker not to associate with a merchant banker without registration A lead merchant banker shall not be associated with any issue if a merchant banker who is not holding a certificate is associated with the issue. Underwriting obligations (1) In respect of every issue to be managed, the lead merchant banker holding a certificate under Category I shall accept a minimum Underwriting obligation of five percent of the total underwriting commitment or rupees twenty-five lakhs, whichever is less: Provided that, if the lead merchant banker is unable to accept the minimum underwriting obligation, that lead merchant banker shall make 41 | P a g e

arrangement for having the issue underwritten to that extent by a merchant banker associated with the issue and shall keep the Board informed of such arrangement. Submission of due diligence certificate The lead merchant banker, who is responsible for verification of the contents of a prospectus or the Letter of Offer in respect of an issue and the reasonableness of the views expressed therein, shall submit to the Board at least two weeks prior to the opening of the issue for subscription, a due diligence certificate in Form C. Documents to be furnished to the Board (1) The lead manager responsible for the issue shall furnish to the Board, the following documents, namely: (i) Particulars of the issue; (ii) Draft prospectus or where there is an offer to the existing shareholders, the draft letter of offer; (iii) Any other literature intended to be circulated to the investors, including the shareholders; and (iv) Such other documents relating to prospectus or letter of offer as the case may be. (2) The documents referred to in sub-regulation (1) shall be furnished at least two weeks prior to date of filing of the draft prospectus or the letter of offer, as the case may be, with the Registrar of Companies or with the Regional Stock Exchanges, or with both. (3) The lead manager shall ensure that the modifications and suggestions, if any, made by the Board on the draft prospectus or the Letter of Offer as the case may be, with respect to information to be given to the investors are incorporated therein. Payment of fees to the Board The draft prospectus or draft letter of offer referred to in regulation 24 shall be submitted along with such fees and in such manner as may be specified in Schedule IV] Continuance of association of lead manager with an issue The lead manager undertaking the responsibility for refunds or allotment of securities in respect of any issue shall continue to be associated with the issue till the subscribers have received the share or debenture certificates or refund of excess application money; Provided that where a person other than the lead manager is entrusted with the refund or allotment of securities in respect of any issue, the lead manager shall continue to be responsible for ensuring that such other person discharges the requisite responsibilities in accordance with the provisions of the Companies Act and the listing agreement entered into by the body corporate with the stock- exchange. Acquisition of shares prohibited No merchant banker or any of its directors, partner or manager or principal officer shall either on their respective accounts or through their associates or relatives enter into any transaction in securities of bodies corporate on the basis of unpublished price sensitive information obtained by them during the course of any professional assignment either from the clients or otherwise. Information to the Board Every merchant banker shall submit to the Board complete particulars of any transaction for acquisition of securities of anybody corporate whose issue is being managed by that merchant banker within fifteen days from the date of entering into such transaction. 42 | P a g e

Disclosures to the Board A merchant banker shall disclose to the Board as and when required, the following information, namely: (i) His responsibilities with regard to the management of the issue; (ii) Any change in the information or particulars previously furnished, which have a bearing on the certificate granted to it; (iii) The names of the body corporate whose issues he has managed or has been associated with; (iv) The particulars relating to breach of the capital adequacy requirement as specified in regulation 7; (v) Relating to his activities as a manager, underwriter, consultant or adviser to an issue as the case is. Appointment of compliance officer (1) Every merchant banker shall appoint a compliance officer who shall be responsible for monitoring the compliance of the Act, rules and regulations, notifications, guidelines, instructions etc., issued by the Board or the Central Government and for redressed of investors grievances. (2) The compliance officer shall immediately and independently report to the Board any noncompliance observed by him and ensure that the observations made or deficiencies pointed out by the Board on \ in the draft prospectus or the Letter of offer as the case may be, do not recur.

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CHAPTER 9 PROJECT FINANCE

Project financing is a way of reducing risks by funding large-scale industrial or infrastructure projects off-balance-sheet. The debt is repaid by the projects cash flow, while the protected financial structure limits possible recourse. BNP Paribas Fortis advises, arranges, underwrites and participates in project finance, combining various types of facilities:

export finance/multisourcing; co-financing with multilateral institutions such as IFC, EIB, regional development banks; commercial lending. For projects in countries with higher political risk, we also structure political risk guarantees and breach-of-contract cover, together with risk-mitigating institutions like ADB, MIGA, World Bank and EIB, or with the private insurance market.

PROJECT APPRAISAL
Project Appraisal is one of the major service products that PNBISL offers to established as well as upcoming corporate clients. PNBISL has built its reputation in the area of Project Appraisal and Loan syndication. We have skilled and experienced, technical and professional staff, who have vast experience in conducting Viability Study/ TEV Study and preparing Information Memorandum. We also have team of experienced banker having vast experience in Loan Syndication. The Study conducted and Appraisal done by PNBISL have been appreciated by Financial Institutions/ Investment Banks, Private Equity, Venture Funds and its services in Loan Syndication have been acclaimed excellent by several satisfied clients. A complete understanding of the market dynamic and insight of the business scenario enables us to provide optimal pricing to company and investors. Having a long term vision which enables us to identify the star performances of the borrowers, and understanding approach is addressing their needs. The excellent rapport with banks/financial institutions (FIs) that PNBISL enjoys enables it to make placement of securities within stipulated time. DEVELOPMENT STAGES OF MERCHANT BANKING FIRMS In the merchant banking organization in the following chart, the firm of merchant banker and individual stock broker have been included as they have been contributing jointly to the growth of the profession of merchant banking. But most of these firms are not well developed to show stage of maturity. Most of them are still in the start-up and early growth stages. This is easily dissemble from the following projection of the development stages

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Unit

Stages in development of merchant banking

Principal financing source Organizational setup

Start-up

Very loose organization, founders and associates involved in the management Emerging formal organization, founders, or professional manager in management Formal organization with professional, manager or founder Complex organization with professional manager

Own investment

Early growth

Individual investment

Accelerating growth

Firms investment with banks backing in terms of loan Corporate finance from bank plus equity funds from public Matching finance available from all possible sources

Sustaining growth

maturity

Multilayer complex management organization

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CHAPTER 10 CONCLUSION
The above discussion highlights the ways merchant banks are promoting industrial development in India. The government in the country plays a significant role by issuing rules and regulations for merchant banks so that entrepreneurs can make most out of these services. A new competition has started among Merchant Banking outfits in approving higher and higher premium to attract the business. In many cases their pricing emphasis is one qualitative actor like promoters experience, marketing network, brand name and export potential and performance. The merchant banker plays a vital role in channelizing the financial surplus of the society into productive investment avenues. Hence before selecting a merchant banker, one must decide what the services for which he is being approached are. Selecting the right intermediary who has the necessary skills to meet the requirements of the client will ensure success. The merchant banking business has increased over a short period of time and with continued economic reforms. However, a stiff competition exists in this line and survival will depend upon the financial skills and spectrum of financial services and instruments offered by the Merchant Banker. Hence, Merchant Banking Service is taking shape for turbulent times. Merchant banking is an activity initially undertaken by a few large commercial banks in India, and it is now being adopted or undertaken by a few large commercial banks in India, and it is now being adopted or undertaken by practically every commercial bank through its Merchant Banking Department. The range of activities covered under merchant banking very wide indeed. The merchant banks offer a package of financial services. Unlike in the past, their activities are now primarily non-fund based. Therefore, they do not require much capital. One of the basic requirements of merchant banking is a highly professional staff and worldwide contacts. Merchant banking is usually international in character. Finally, it has been concluded that, there is no uniform pricing methodology and no Lead Manager is following the same methodology for all the issues handled.

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CHAPTER 11 BIBLIOGRAPHY

http://www.wisegeek.com/what-is-a-merchant-bank.htm http://en.wikipedia.org/wiki/Merchant_bank http://www.investopedia.com/terms/m/merchantbank.asp http://www.themanagementor.com/enlightenmentorareas/finance/FM/MerchantBanking.htm http://business-services.exportersindia.com/financial/merchant-services.htm

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