top of page

Support Group

Public·94 members
Luke Yakushev
Luke Yakushev

Merchant Banking Financial Services: A Comprehensive Guide for 2023



Merchant Banking Financial Services: An Overview




Merchant banking financial services are specialized services that help corporate clients raise funds from the capital market, advise them on mergers and acquisitions, restructurings, valuations, and other corporate finance matters. Merchant bankers also act as intermediaries between issuers and investors, underwrite securities, arrange loans, and manage portfolios of clients.




Merchant Banking Financial Services Pdf 15


Download: https://www.google.com/url?q=https%3A%2F%2Ftweeat.com%2F2ucsbN&sa=D&sntz=1&usg=AOvVaw0rg_VN5JC6t7OkijNMVkHd



What are merchant banking financial services?




Merchant banking financial services can be broadly classified into four categories:



  • Issue management: This involves managing the process of raising funds from the public or private market by issuing equity or debt securities. Merchant bankers help the issuers in preparing the offer document, obtaining regulatory approvals, marketing the issue, pricing the issue, allotting the securities, and listing them on the stock exchange.



  • Underwriting: This involves guaranteeing the subscription of securities issued by the corporate clients. Merchant bankers undertake to buy the unsold portion of the issue in case of under-subscription. They charge a fee or commission for this service.



  • Loan syndication: This involves arranging loans from banks or financial institutions for the corporate clients. Merchant bankers help the borrowers in preparing the loan proposal, negotiating the terms and conditions, syndicating the loan among lenders, and ensuring timely disbursement.



  • Corporate advisory: This involves providing advice and assistance to the corporate clients on various aspects of corporate finance, such as mergers and acquisitions, restructurings, valuations, capital structure, dividend policy, project appraisal, feasibility studies, etc.



  • Portfolio management: This involves managing the investment portfolio of the corporate or individual clients. Merchant bankers help the clients in selecting the appropriate investment options, diversifying the portfolio, monitoring the performance, and rebalancing the portfolio as per the changing market conditions.



What are the types of merchant banking financial services?




The types of merchant banking financial services vary depending on the nature and size of the corporate clients. Some of the common types are:


Issue management




This is one of the most important and popular services offered by merchant bankers. It involves managing the entire process of raising funds from the capital market by issuing equity or debt securities. The steps involved in issue management are:



  • Pre-issue activities: These include conducting a market survey to assess the demand and supply of securities, preparing a draft offer document that contains all the relevant information about the issuer and the issue, obtaining approvals from various regulatory authorities such as SEBI, RBI, ROC, etc., appointing various intermediaries such as underwriters, bankers, brokers, registrars, etc., finalizing the issue size, price band, timing, etc.



  • Issue activities: These include launching the issue in the market, conducting roadshows, investor meetings, press conferences, etc., to create awareness and interest among the potential investors, collecting applications and bids from the investors, allotting the securities to the successful applicants, refunding the excess money to the unsuccessful applicants, listing the securities on the stock exchange, and ensuring post-issue compliance.



  • Post-issue activities: These include maintaining a regular communication with the investors, providing them with periodic reports on the performance of the issuer and the securities, handling investor grievances, facilitating corporate actions such as dividend payment, bonus issue, rights issue, etc., and advising the issuer on future fund-raising plans.



Underwriting




This is another important service offered by merchant bankers. It involves guaranteeing the subscription of securities issued by the corporate clients. Underwriting can be of two types:



  • Firm underwriting: This involves an unconditional and irrevocable commitment by the merchant banker to buy the entire or a specified portion of the securities in case of under-subscription. The merchant banker charges a fixed fee or commission for this service.



  • Best efforts underwriting: This involves a conditional and revocable commitment by the merchant banker to make all reasonable efforts to sell the securities to the public. The merchant banker does not guarantee the subscription of the securities and does not buy the unsold portion. The merchant banker charges a variable fee or commission based on the actual subscription.



Loan syndication




This is a service that involves arranging loans from banks or financial institutions for the corporate clients. Loan syndication can be of two types:



  • Single bank loan: This involves arranging a loan from a single bank or financial institution for the corporate client. The merchant banker acts as an agent or broker between the borrower and the lender and helps in preparing the loan proposal, negotiating the terms and conditions, and ensuring timely disbursement.



  • Multiple bank loan: This involves arranging a loan from multiple banks or financial institutions for the corporate client. The merchant banker acts as a lead manager or arranger and syndicates the loan among various lenders. The merchant banker also helps in preparing the loan proposal, negotiating the terms and conditions, coordinating among various lenders, and ensuring timely disbursement.



Corporate advisory




This is a service that involves providing advice and assistance to the corporate clients on various aspects of corporate finance. Some of the common areas of corporate advisory are:



  • Mergers and acquisitions: This involves advising and assisting the corporate clients in buying or selling other companies or businesses. The merchant banker helps in identifying potential targets or acquirers, conducting due diligence, valuing the deal, structuring the transaction, negotiating the terms and conditions, obtaining regulatory approvals, and closing the deal.



  • Restructurings: This involves advising and assisting the corporate clients in changing their capital structure, ownership structure, business model, or operational strategy. The merchant banker helps in analyzing the current situation of the client, identifying the problems and opportunities, designing alternative solutions, evaluating their feasibility and viability, implementing the chosen solution, and monitoring its impact.



  • Valuations: This involves advising and assisting the corporate clients in determining the fair value of their assets, liabilities, equity, or business. The merchant banker helps in selecting appropriate valuation methods, collecting relevant data and information, applying suitable assumptions and adjustments, calculating various valuation metrics, and presenting a valuation report.



  • Capital structure: This involves advising and assisting the corporate clients in deciding their optimal mix of debt and equity financing. The merchant banker helps in analyzing their current capital structure, assessing their cost of capital, evaluating their financial risk and return trade-off, determining their target capital structure, and devising a plan to achieve it.



  • Dividend policy: This involves advising and assisting the corporate clients in deciding their optimal dividend payout ratio. The merchant banker helps in analyzing their current dividend policy, assessing their dividend capacity and stability, evaluating their dividend relevance and signaling effects, determining their target dividend policy, and devising a plan to implement it.



  • Project appraisal: This involves advising and assisting the corporate clients in evaluating the feasibility and viability of new projects or investments. The merchant banker helps in conducting market research, preparing project report, estimating project cost and revenue streams, calculating project profitability indicators such as NPV, IRR, payback period, etc., analyzing project risk and sensitivity, and presenting project appraisal report.



Portfolio management




This is a service that involves managing the investment portfolio Merchant Banking Financial Services in India




Merchant banking financial services in India have a long and evolving history. They have played a significant role in the development of the Indian capital market and corporate sector. They have also faced various challenges and opportunities in the changing economic and regulatory environment. This section will provide an overview of merchant banking financial services in India, their history, regulatory framework, and future prospects.


What is the history of merchant banking in India?




The origin of merchant banking in India can be traced back to the 18th century when European merchant houses established their branches in India to trade with Indian merchants. These merchant houses acted as bankers and financiers for their Indian counterparts and also participated in foreign exchange transactions. However, the modern concept of merchant banking emerged in India in the 1960s with the entry of foreign banks such as Grindlays Bank, ANZ Bank, and Hong Kong Bank. These banks started offering issue management and underwriting services to Indian companies that wanted to raise funds from the capital market.


The first Indian bank to enter the merchant banking business was State Bank of India (SBI) in 1972. SBI set up a separate division to offer merchant banking services to its corporate clients. Soon, other public sector banks such as Bank of India, Punjab National Bank, Canara Bank, etc., followed suit and established their own merchant banking divisions. In 1976, ICICI became the first development financial institution to start a merchant banking division. In 1981, IDBI also entered the merchant banking arena.


The 1980s witnessed a rapid growth and diversification of merchant banking activities in India. Apart from issue management and underwriting, merchant bankers started offering other services such as loan syndication, corporate advisory, portfolio management, etc. The number of merchant bankers also increased significantly with the entry of private sector banks such as HDFC Bank, ICICI Bank, Axis Bank, etc., private financial institutions such as IL&FS, IDFC, etc., and non-banking financial companies such as Kotak Mahindra, Bajaj Capital, etc.


The 1990s marked a new era for merchant banking in India with the liberalization and globalization of the Indian economy and the capital market. The Securities and Exchange Board of India (SEBI) was established in 1992 as the regulator of the capital market and the merchant bankers. SEBI introduced various rules and regulations to govern the activities and conduct of merchant bankers and to protect the interests of investors. The capital market also witnessed several reforms such as dematerialization of securities, online trading, book-building process, etc., that increased the efficiency and transparency of the market. The scope and scale of merchant banking services also expanded with the emergence of new products and services such as depository services, credit rating services, mutual fund services, venture capital services, etc.


The 2000s saw further growth and innovation in merchant banking services in India. Merchant bankers started offering specialized services such as mergers and acquisitions advisory, private equity advisory, structured finance advisory, etc., to cater to the diverse and complex needs of their clients. They also leveraged technology to enhance their reach and efficiency. They adopted online platforms, mobile applications, artificial intelligence, blockchain, etc., to offer faster and better services to their clients. They also faced increased competition from domestic and foreign players who entered the Indian market with new products and strategies.


What are the regulatory framework and guidelines for merchant banking in India?




The regulatory framework and guidelines for merchant banking in India are mainly provided by two authorities: SEBI and RBI.


SEBI regulations




SEBI is the apex regulator of the capital market and the merchant bankers in India. SEBI has issued various regulations to govern the registration, eligibility criteria, code of conduct, duties and responsibilities, disclosures and reporting, inspection and penalties of merchant bankers. Some of the key regulations are:



  • SEBI (Merchant Bankers) Regulations, 1992: These regulations lay down the rules and procedures for the registration, renewal, cancellation, and suspension of merchant bankers. They also specify the eligibility criteria, capital adequacy norms, and general obligations of merchant bankers.



  • SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018: These regulations lay down the rules and procedures for the issue management, underwriting, book building, pricing, allotment, listing, and disclosure requirements of securities issued by the corporate clients. They also specify the roles and responsibilities, due diligence, disclosures, and reporting of merchant bankers as lead managers, book running lead managers, or co-managers.



  • SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011: These regulations lay down the rules and procedures for the acquisition of shares or voting rights or control of a listed company by any person or group of persons. They also specify the roles and responsibilities, disclosures, and reporting of merchant bankers as managers to the open offer.



  • SEBI (Buyback of Securities) Regulations, 2018: These regulations lay down the rules and procedures for the buyback of shares or other specified securities by a listed company from its existing shareholders. They also specify the roles and responsibilities, disclosures, and reporting of merchant bankers as managers to the buyback.



  • SEBI (Delisting of Equity Shares) Regulations, 2009: These regulations lay down the rules and procedures for the delisting of equity shares of a listed company from the stock exchange. They also specify the roles and responsibilities, disclosures, and reporting of merchant bankers as managers to the delisting.



  • SEBI (Prohibition of Insider Trading) Regulations, 2015: These regulations lay down the rules and procedures for preventing and penalizing insider trading in the securities market. They also specify the roles and responsibilities, disclosures, and reporting of merchant bankers as connected persons or intermediaries.



RBI guidelines




RBI is the apex regulator of the banking and financial sector in India. RBI has issued various guidelines to govern the activities and conduct of merchant bankers who are registered as banks or non-banking financial companies. Some of the key guidelines are:



  • RBI (Financial Services provided by Banks) Directions, 2016: These directions lay down the rules and procedures for banks to provide various financial services such as issue management, underwriting, loan syndication, corporate advisory, portfolio management, etc., to their clients. They also specify the eligibility criteria, capital adequacy norms, risk management framework, prudential limits, disclosures, and reporting of banks as merchant bankers.



  • RBI (Non-Banking Financial Company - Merchant Banking) Directions, 2016: These directions lay down the rules and procedures for non-banking financial companies to provide various financial services such as issue management, underwriting, loan syndication, corporate advisory, portfolio management, etc., to their clients. They also specify the eligibility criteria, capital adequacy norms, risk management framework, prudential limits, disclosures, and reporting of non-banking financial companies as merchant bankers.



  • RBI (Foreign Exchange Management) Regulations, 2019: These regulations lay down the rules and procedures for merchant bankers to deal in foreign exchange transactions such as foreign currency loans, foreign currency deposits, foreign currency derivatives, foreign currency investments, etc., with their clients. They also specify the eligibility criteria, approval requirements, prudential limits, disclosures, and reporting of merchant bankers as authorized dealers or authorized persons.



What are the challenges and opportunities for merchant banking in India?




Merchant banking in India faces various challenges and opportunities in the dynamic economic and regulatory environment. Some of the major challenges and opportunities are:


Challenges





  • Competition: Merchant banking in India faces intense competition from domestic and foreign players who offer similar or better products and services at lower costs or higher returns. The entry barriers for new entrants are low and the switching costs for customers are high. The competition also leads to price wars, margin erosion, and customer attrition.



  • Regulation: Merchant banking in India is subject to various rules and regulations from different authorities such as SEBI, RBI, ROC, etc. The regulations are often complex, stringent, and frequently changing. The compliance costs are high and the penalties are severe. The regulations also limit the scope and flexibility of merchant banking activities.



What are the benefits of merchant banking financial services?




Merchant banking financial services offer various benefits to different stakeholders, such as issuers, investors, and the economy. Some of the major benefits are:


For issuers





  • Access to capital markets: Merchant banking financial services help issuers to raise funds from the domestic and international capital markets by issuing equity or debt securities. They also help issuers to access alternative sources of financing such as private placement, venture capital, etc.



  • Expertise in financial products and services: Merchant banking financial services provide issuers with expertise in various financial products and services such as issue management, underwriting, loan syndication, corporate advisory, portfolio management, etc. They also help issuers to select the most suitable product or service for their needs and objectives.



  • Valuable advice: Merchant banking financial services provide issuers with valuable advice on various aspects of corporate finance such as mergers and acquisitions, restructurings, valuations, capital structure, dividend policy, project appraisal, etc. They also help issuers to comply with various rules and regulations and to deal with various risks and challenges.



For investors





Access to investment opportunities: Merchant banking financial services help investors to access various investment opportunities in the domestic and international capital markets by offering them equity or debt se


About

Welcome to the group! You can connect with other members, ge...

Members

bottom of page