ISSUE

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

 A “Merchant Banker” is able to raise capital from the

investing public and provide the same to the companies which
are in need of them.
Definition
 Rule 2(e) of SEBI (merchant bankers) Rules 1992, defines who
a merchant banker is.

“merchant banker means any person who is

engaged in the business of issue management
either by making arrangements regarding selling,
buying or subscribing to securities as manager-
consultant, advisor or rendering corporate
advisory services in relation to such issue
management”
Merchant Banking in India
 Till early 1960s there was no merchant banking in the Indian banking
system.

 It was the Grindlays Bank which started merchant banking services as far
back as 1967 in India. Others to follow were Citibank (1970), SBI (1972)

 The boom in the capital market in mid 1970s with the introduction of FERA
– 1973 encouraged other banks and financial institutions to set up MB
divisions.

 Private financial brokers also started private MB organizations

REGULATIONS OF SEBI
SEBI REFORMS:

 One equity merchant banker

 Allowed to perform underwriting
 To perform portfolio Manager ,separate registration
from SEBI
 Cannot undertake function of non-banking
financial company.
 confine only to capital market activities.
GUIDELINES FOR MERCHANT BANKERS :

Authorization criteria include

 Professional qualification in finance, law or business management
 Infrastructure like office space, equipment and man power
 Capital adequacy
 Past track of record,experience,general reputation and fairness in
all

transactions
Conditions by SEBI:
 Every merchant banker should maintain copies of balance
sheet,Profit and loss account,statement of financial position

 Half-yearly unaudited result should be submitted to SEBI

 Merchant bankers are prohibited from buying securities based

on the unpublished price sensitive information of their clients
SEBI has been vested with the power to suspend or cancel
the authorization in case of violation of the guidelines

Every merchant banker shall appoint a ‘Compliance Officer‘

to monitor compliance of the Act

SEBI has the right to send inspecting authority to inspect

books of accounts, records etc… of merchant bankers
Inspections will be conducted by SEBI to ensure that
provisions of the regulations are properly complied

An initial authorization fee, an annual fee and renewal

fee may be collected by SEBI

A lead manager holding a certificate under category I

shall accept a minimum underwriting obligation of
5% of size of issue or Rs.25 lakhs whichever is less
MECHANISM OF PUBLIC ISSUE
MANAGEMENT

Decision to raise Capital funds

Obtaining SEBI approval

Arranging Underwriting

Preparation and finalization of

prospectus
Selection of
Registrars,Brokers,Bankers,etc
Arranging Press and investor
conference
Printing and publicity of Public issue
Documents
SEBI Compliance

ISSUE
LAUNCH
CATEGORIES OF SECURITIES
ISSUE
2. Public issue

4. Right issue

6. Private placement
ISSUE MANAGER
 Requirements‘

 Categories of Issue Mangers

I. (I + A + C + U + P Mgr)
II. (A + C + U + P Mgr)
III. (A + C + U)
IV. (A or C)

 Restriction on Issue managers

ROLE OF ISSUE
MANAGER
2.Easy floatation
3.Financial consultant
4.Underwriting
5.Market makers
6.Due diligence
7.Coordination
8.Liaison with SEBI
PRE ISSUE ACTIVITIES
2. Signing of MoU
3. Obtaining appraisal note
4. Optimum Capital structure
5. Convening meeting
6. Appointment of financial intermediary
7. Preparing documents
8. Due diligence certificate
9. Submission of offer doc
10.Finalization of collection centres
11.Filing with RoC
12.Launching the issue
13.Promoters contribution
14.Issue closure
PROJECT APPRAISAL
1. Technical appraisal
2. Ecological appraisal
3. Financial appraisal
4. Financial tools
5. Promoters contribution
6. Economical appraisal
7. Commercial appraisal
8. Managerial appraisal
CAPITAL STRUCTURE
DECISIONS
“ Proportionate claims of DEBT AND EQUITY ”

OPTIMAL CAPITAL STUCTURE:

4.Simplicity
5.Low cost Maximum return & Minimum risk
6.Maximum control
7.Liquidity
8.Flexibility
9.equitable capitalization
10.Optimal leverage
PATTERN
2.Exclusively (E)
3.( E + P S )
4.( E+ D )
5.( E + D + PS )
TAKING DECISIONS ON
Cap Str..
2.Cost principle
3.Control principle
4.Return principle
5.Flexibility principle
6.Timing principle
 Capital Structure Decisions – FACTORS

Economy Industry Company

Characteristic Characteristics Characteristics
Size of business
Age of company
Business Activity Form of
Stock Market organization
Cyclical Fluctuations
Taxation Stability of
Levels of Competition
Regulations earnings
Life cycle of Industry
Credit Policy Credit standing
FIs Management
philosophy
CAPITAL MARKET
ISTRUMENTS
“Financial instruments used for raising capital r/s
in Capital Markets”

TYPES:
Preference Shares
Equity Shares
Non – voting E S
CCPS
Company Fixed Deposits
Warrants
Debentures and Bonds
PRICING OF ISSUES
Factor to be considered:

3.Qualitative factors

5.Quantitative factors
CCI MODELS:
NAV
NAV= total net worth / Total no. of
outstanding
(tot net worth={ E Cap + Free reserves – Contingent Liability} +
Fresh capital)

Profit Earning Capacity Value(PECV)

Share price = ___EPS * 100____

Capitalization rate

Average Market Price

SAFETY NET SCHEME:
This method aims at affording a measure of
protection while the pricing.

Here merchant banker provide a buy–back

facility to the individual investors.
PROSPECTUS
“ A document through which publicc are
solicited to subscribe to the share capital of a
corparate entity is called PROSPECTUS”
CONTENTS
PART I:
General information
Capital structure
Terms of issue
Particulars of the issue
Company ,management and project
Disclosure of public issues made by the
company
Disclosure of o/s litigation, criminal prosecution
and defaults
Perception of risk factors
PART II

General information
Financial information
Statutory information

PART III

Declaration
Application with prospectus
ABRIDGED PROSPECTUS
“ A memorandum containing such salient
features of a prospectus as may be prescribed
is called ABRIDGED PROSPECTUS”
SELECTION OF BANKERS
Short term source

Medium term source

Long term source

BIBILOGRAPHY
1.Merchant banking and financial services
– Dr S
Gurusamy
2.www.scribd.com
PREPARED & PRESENTED BY

B.MOHAN KUMAR.

THANK YOU