1. Amity School Of Business MERCHANT BANKING IN INDIA

2. Amity School Of Business WHAT IS A MERCHANT BANK  A bank that deals mostly in (but is not limited to) international finance, long-term loans for companies and underwriting. Merchant banks do not provide regular banking services to the general public.  The lead merchant banker performs most of the post issue and pre- issue activities.

3. Amity School Of Business CONTINUED …  Coordinating, non institutional allocation, intimation of allocation, coordination with the registrar for dispatching of refunds,dematerialisation of securities  Listing and trading of securities and coordinating the work of other intermediaries involved in the issue process.

4. Amity School Of Business EVOLUTION OF INDIAN PRIMARY MARKET  To keep pace with the globalization and liberalization process, the government of India was very keen to bring the capital market in line with international practices through gradual deregulation of the economy.  Therefore, there was a vital need to strengthen the capital market which, it felt, could only be achieved through structural modifications, introducing new mechanism and instruments, and by taking steps for safeguarding the interest of the investors through more disclosures and transparency.

5. Amity School Of Business Early Liberalization Phase: 1992-1995 (Fixed Pricing)  The New Economic policy (1991) led to a major change in the regulatory framework of the capital market in India.  The Capital Issues (Control) Act 1947 was repealed and the Office of the Controller of Capital Issues (CCI) was abolished. The Securities and Exchange Board of India (SEBI), established in 1988 and armed with statutory powers in 1992, came to be established as the regulatory body.

6. Amity School Of Business CONTINUED ….  The offer was always at a fixed price, whether premium or par. The companies had to appoint intermediaries like merchant bankers, registrars, bankers etc.

7. Amity School Of Business Late Liberalization Period: 1996-2005 (Book Building)  The dormant primary issues market came alive after 2003 mostly because of the divestment programme of the government. The issue of Maruti Udyog, through which the government sold part of its stake in the company, rekindled retail investor interest in the primary market.  The year 2004 saw the primary market activity at its historic peak as some large private companies also came out with issues.

8. Amity School Of Business Methodologies for making issues: Fixed price issue:  The shares are directly offered to retail as well as institutional investor from public.  Floatation cost is more.  Price of issue is fixed.  Main advantage is that company does not have to approach QIBs, as it is very difficult to convince them Comparatively it is easy to attract retail investors by short term gains.

9. Amity School Of Business BOOK BUILDING PROCESS  Book Building is essentially a process used by companies raising capital through Public Offerings-both Initial Public Offers (IPOs) or Follow-on Public Offers ( FPOs) to aid price and demand discovery.  It is a mechanism where, during the period for which the book for the offer is open, the bids are collected from investors at various prices, which are within the price band specified by the issuer.

10. Amity School Of Business THE PROCESS:  The Issuer who is planning an offer nominates lead merchant banker(s) as 'book runners'.  The Issuer specifies the number of securities to be issued and the price band for the bids.  The Issuer also appoints syndicate members with whom orders are to be placed by the investors.  The syndicate members input the orders into an 'electronic book'. This process is called 'bidding' and is similar to open auction.  The book normally remains open for a period of 5 days.  Bids have to be entered within the specified price band.  Bids can be revised by the bidders before the book closes.

11. Amity School Of Business CONTINUED….  On the close of the book building period, the book runners evaluate the bids on the basis of the demand at various price levels.  The book runners and the Issuer decide the final price at which the securities shall be issued.  Generally, the number of shares are fixed, the issue size gets frozen based on the final price per share.  Allocation of securities is made to the successful bidders. The rest get refund orders.

12. Amity School Of Business Book building issue: 50 % to QIBs 15 % to non institutional investors 35 % for retail investors. For both type of book building process, underwriting is mandatory. Only for the shares which are allotted to QIBs, underwriting is not required.

13. Amity School Of Business PRE ISSUE OBLIGATIONS  Due diligence  Requisite Fee  Submission of Documents  Memorandum of Understanding(MOU)  Due diligence certificate  Certificate in case of further issues by listed companies  Undertaking  List of promoter’s group

14. Amity School Of Business APPOINTMENT OF INTERMEDIARIES  Merchant Bankers  Co-Managers  Other intermediaries  Underwriting

15. Amity School Of Business Intermediaries: Underwriter It is “Fund based service”, provided by market intermediary, which consists of taking a contingent obligation to subscribe to the agreed number of securities in an issue. If the issue is fully subscribed, the underwriter has no obligation.

16. Amity School Of Business Some facts about underwriting : Underwriters have to enter into legally binding agreements with the issuer companies. In case of book building issue, the lead book running manager assumes the responsibility of overall underwriting.

17. Amity School Of Business POST ISSUE DECISIONS  Post issue monitoring aspects  Redressal of investor’s grievances  Coordination with intermediaries  Basis of Allotment  Other responsibilities  Certificate regarding realization of Stockinvests

18. Amity School Of Business INITIAL PUBLIC OFFER  An Initial Public Offer (IPO) is the selling of securities to the public in the primary market.  It is when an unlisted company makes either a fresh issue of securities or an offer for sale of its existing securities or both for the first time to the public.  This paves way for listing and trading of the issuer’s securities. The sale of securities can be either through book building or through normal public issue.

19. Amity School Of Business GOING FOR IPO We have to analyze the situation from following point of views : Strategic dimension Financial dimension

20. Amity School Of Business Strategic dimensions Does the company need IPO as a liquidity route for existing shareholders, are there no private options available? Has the company mature enough to unlock the value? Is the company ’ s business model is retail-orientated with a strong brand presence? Is the company confident enough of strong financial growth in the future to sustain the pressure of constant market validation after IPO?

21. Amity School Of Business Financial Dimension: Financial constraints and capital intensive nature of the business force company to go for IPO route. Cement industry, automobiles, infrastructure and refineries, volume based pharma industry, it becomes inevitable for them to go for IPO route. The same is true for start – up firms.

22. Amity School Of Business Listing of company Listed company: the company whose shares are traded on the stock exchange is called as listed company. That gives its shareholders much require liquidity. Unlisted company: the company whose shares are not traded on the stock exchange. That will not give the shareholders liquidity. If they want to transfer the shares they have to approach private arrangement mechanism to find the exit and entry route.

23. Amity School Of Business Initial public offer (IPO) First time company is approaching capital market Before this the company was unlisted company. Two ways to take the company public: 1.Fresh issue of shares: equity base increases. 2.Offer for sale: no change in equity base, dilution of one ’ s stake and change of hands for shares.

24. Amity School Of Business REASONS FOR GOING PUBLIC  Raising funds to finance capital expenditure programs like expansion, diversification, modernization, etc.  Financing of increased working capital requirements  Financing acquisitions like a manufacturing unit, brand acquisitions, tender offers for shares of another firm, etc.  Debt Refinancing  Exit Route for Existing Investors

25. Amity School Of Business ADVANTAGES OF GOING PUBLIC  Facilitates future funding by means of subsequent public offerings  Enables valuation of company  Provides liquidity to existing shares  Increases the visibility and reputation of the company  Commands better pricing than placement with few investors  Enables the company to offer its shares as purchase consideration or as an exchange for the shares of another company

26. Amity School Of Business DISADVANTAGES  Dilution of Stake makes co vulnerable to future takeovers  Involves substantial Expenses  Need to make continuous disclosures  Increased regulatory monitoring  Listing fees and Documentations  Cost of maintaining Investor relations  Takes substantial amount of management time and efforts

27. Amity School Of Business ELIGIBILITY CONDITIONS FOR COMPANIES ISSUING SECURITIES  Filing of offer document  Companies barred not to issue security  Application for listing  Issue of securities in dematerialized form  IPO grading

28. Amity School Of Business DIP guidelines For unlisted companies to go public: 1.Track record of distributing profits at least for 3 out of last 5 years. 2.It should have a pre-issue net worth of not less than 1Cr. For 3 out of 5 preceding years. 3.The “Issue size”( offer through offer document + firm allotment + promoter’s contribution through offer document) does not exceed 5 times its pre-issue networth.

29. Amity School Of Business Before going public…. Company making a public issue has to file a draft prospectus with SEBI through eligible merchant banker, 21days prior to filling the document with register of company. Contract with stock exchange Dematerialization of shares

30. Amity School Of Business GREENSHOE OPTION  The GSO means an option of allocating shares in excess of the shares included in the public issue and operating a post listing price stabilizing mechanism through a stabilizing agent.  The company should appoint one of the merchant bankers or book runners as the SA who will be responsible for the price stabilization process, if required.  The SA should enter into an agreement with the promoters who will lend their shares.  The agreement should specify the maximum number of shares that may be borrowed from the promoters or the shareholders which should be in excess of 15% of the total issue size.

31. Amity School Of Business CONTINUED …..  The promoters and pre-issue shareholders, of both unlisted and listed company, holding more than 5% shares should lend the shares for the purpose of green-shoe option.  The allocation of shares should be on pro-rata basis to all applicants.  The stabilization mechanism should be made available for not more than 30 days form the day when trading is permitted on the exchange.

32. Amity School Of Business RIGHTS ISSUE  Rights Issue is when a listed company which proposes to issue fresh securities to its existing shareholders as on a record date. The rights are normally offered in a particular ratio to the number of securities held prior to the issue. This route is best suited for companies who would like to raise capital without diluting stake of its existing shareholders.

33. Amity School Of Business PRIVATE PLACEMENT  It is direct sale of securities to some selected people or to financial institutions.  If the issue of shares to select few people who are less than 50 in number, then issue is private placement.

34. Amity School Of Business DIFFERENCE BETWEEN PUBLIC ISSUE AND PRIVATE PLACEMENT When an issue is not made to only a select set of people but is open to the general public and any other investor at large, it is a public issue. But if the issue is made to a select set of people, it is called private placement. As per Companies Act, 1956, an issue becomes public if it results in allotment to 50 persons or more. This means an issue can be privately placed where an allotment is made to less than 50 persons.

35. Amity School Of Business REVERSE BOOK BUILDING It is a price discovery mechanism for companies who want to delist their shares or buy back shares from shareholders. In the reverse book building scenario, the acquirer or promoter of a company offers to get back shares from the shareholders. It is a mechanism where, during the period for which the reverse book building is open, offers are collected at various prices, which are above or equal to the floor price from the share holders through trading members appointed by the acquirer or promoter of a company.

36. Amity School Of Business Top IPO Markets in the World S. No.Country of origin 1USA 2China 3Russia 4Brazil 5Germany 6UK 7Italy 8Spain 9Saudi Arabia 10India

37. Amity School Of Business

39. LOAN SYNDICATION  A syndicated loan (or "syndicated bank facility") is a large loan in which a group of banks provide funds for a borrower, usually several but without joint liabilityloan  There is usually a lead bank or group of banks (the "Arranger/s" or "Agent/s") that takes a percentage of the loan and syndicates or sells the rest to other banks.syndicates  Syndicated loans can be underwritten or arranged on a best endeavours basis. Where a loan is underwritten the Arrangers or Agents guarantee the terms and conditions and costs of the loan before it is sold to other banks, essentially removing the market risk for the Borrower.underwritten

40. Amity School Of Business