Académique Documents
Professionnel Documents
Culture Documents
Definition:
Merchant Bankers
Functions
1. Corporate Counseling
2. Project Counseling
3. Pre-investment Studies
4. Capital Restructuring
7. Portfolio Management
I. Corporate Counseling
2. Project Counseling
3. Pre-investment studies
2. Helping the client in identifying and short listing those projects which are
built upon the client’s inherent strength with a view to accentuate corporate
profitability and growth in the long run
Activities that are carried out to assist projects in achieving their maximum
potential through effective capital structuring and to suggest various strategies to
wide3n and restructure the capital base diversify operations and implement
schemes for amalgamations, merger or change in business status are collectively
known as Capital restructuring services.
1. Examining the capital restructuring services of the client and the company
to determine the extent of capitalization required.
5. Critically examining tax implications where the proposal involves offer for
sale.
6. Suggesting the ideal capital restructuring fir sick units and advising the
client companies on the ‘extent and means of bringing fresh capital into business’.
2. Drawing up a financial plan for the total project cost which conforms to the
requirements of the promoters and their collaborators, financial institutions and
banks, government agencies and underwriters
5. Follow-up of term loan application with the financial institutions and banks,
obtaining the approval for their respective share of participation
4. Drafting of prospectus
6. Selection of Issue Houses and advertising for undertaking pre and post-
issue publicity
12. Determining the quantum, terms and timing of the public issue of
different forms of securities, the extent and sources, loan finance and deployment
of internal resources etc in compliance with the requirements of the Companies
Act/Stock Exchanges, etc
14. Liasioning and coordinating with various constituents of the public isse to
make the function of issue management successful
7. Portfolio Management
8. Securing approval from RBI for the purchase /sale of securities(for NRI
clients)
11.Providing tax counseling and filing tax returns through tax consultants
In order that the bill accepting and discounting takes place on sound lines, it
is imperative that the firms involved command a good reputation and financial
standing. Further, collecting credit information and rating the credit-worthiness of
the parties concerned are very much a part of this function. In developed money
markets like London and New York, there are specialized agencies, such as discount
houses and acceptances houses, that play an active role in the promotion of this
function. In India, RBI takes special care in developing the bill market.
The various functions that form part of this activity are as follows:
3. Examining the pros and cons of proposals and formulating schemes for
financial reconstruction, merger and acquisition
There are many reasons for the recent trend towards mergers and
amalgamations, such as:
2. Lack of manufacturing space with the purchase company. The best solution
may be to buy the controlling interest in another company having excessive
manufacturing space or capacity.
1. Providing assistance for carrying out the study of turnkey and construction
contract jobs
5. Arranging foreign currency loans under buyer’s credit scheme for importing
goods
7. Providing assistance in obtaining export credit facilitates from the EXIM bank
for export of capital goods, and arranging for the necessary government
approvals and clearance
10.Helping the company to observe all the rules and regulations in this
connection
Assistance in provided under Sec.58 (A) of the Companies Act, 1956 and the
rules there under.
15. Mutual Funds
4. Assisting in obtaining approvals from the Board for Industrial and Financial
Reconstruction and other authorities under the Sick Industrial Companies
(Special Provisions) Act, 1985
Financial appraisal
Technical Appraisal
Economic Appraisal
The SEBI has brought about a number of regulative measures for the purpose
of disciplining the functioning of the merchant bankers in India. The objective is to
usher in an era of regulated financial markets and thereby pave way for the
development of the capital market in India. The measures were introduced by the
SEBI in the year 1992. The measures were revised by SEBI in 1997. Te salient
features of the regulative framework of merchant banking in India are described as
follows:
SEBI Regulations:
The relevant guidelines with regard to the registration of merchant bankers are
as follows:
With effect from 9th December, 1997 an application can be made only for
carrying on the activity mentioned in category I. An application can carry on the
activity as underwriter only if he obtains certificate of registration under the
provisions of Securities and Exchange Board of India Regulations, 1993.
Conformance to Requirements
Subject to the provisions of the regulations, any application, which is not
complete in all respects and does not conform to the instruction specified In the
form, shall be rejected. However, before rejecting any such application, the
applicant will be given an opportunity to remove within the time specified such
objections as may be indicated by the Board.
Furnishing of Information
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. The applicant or its principal officer shall, if so
required, appear before the Board for personal representation.
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 whether the applicant complies with the following requirements:
That the merchant banker who has been granted registration by the
Reserve Bank of India to act as a Primary or Satellite Dealer may carry on
such activity subject to the condition that it shall not accept or hold public
deposit
That the applicant has the necessary infrastructure like adequate office
space, equipments, and manpower to effectively discharge his activities
That the applicant has in his employment minimum of two persons who
have the experience to conduct the business of the merchant banker.
That a person directly or indirectly connected with the applicant has not
been granted registration by the Board
That the applicant, his partner, director, partner 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
That 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.
Category IV Nil
For the propose of this regulation “net worth” means in the case of an
applicant which is a partnership firm or a body corporate, the value of the capital
contributed to the business of such firm or the paid up capital of such body
corporate plus free reserves as the case may be at a time of making application.
The Board on being satisfied that the applicant is eligible shall grant a
certificate in Form B. On the grant of certificate the applicant shall be liable to pay
the fees in accordance with Schedule II.
Renewal of Certificate
Three months before the expiry of the certificate, the merchant banker, may
if he so desires, makes an application for renewal in Form A. The applicant for
renewal shall be dealt with in the same manner as if it were a fresh application for
the grant of certificate. In case of an application for renewal of certificate of
registration the provision of clause (a) of regulation 6 shall not e applicable up to
June 30th, 1998. The Board on being satisfied that the applicant is eligible for
renewal certificate shall grant a certificate in Form B and send intimation to the
applicant. On the grant of a certificate the applicant shall be liable to pay the fees
in accordance with Schedule II.
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 decision. The Board shall reconsider
an application made under sub-regulation (3) and communicate its decision as soon
as possible in writing to the applicant.
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 the activity as a Merchant
Banker.
Payment of Fees
Every applicant eligible for grant of a certificate shall pay such fees in such
manner and within the period specified in Schedule II. 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.
General Obligations
The 1992 SEBI Regulations have enunciated the following general obligations
and responsibilities for the merchant bankers:
Sole Function
Merchant Banker not to associate with any business other than that of the
securities market.
No merchant banker, other than a bank or a public financial institution,
who has been granted a certificate of registration under these regulation,
shall after June 30th, 1998 carry on any business other than that in the
securities market.
Maintenance of Books
A copy of the auditors report on the accounts for that period: and
> Rs. 100 Crores but < Rs. 200 Crores Four
> Rs. 200 Crores but < Rs. 400 Crores Five
> Rs. 400 Crores Five or more as agreed by
SEBI
No 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. 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 specifying such responsibilities shall be furnished to
the at least one month before the opening of the issue for subscription.
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. A
lead merchant banker shall not be associated with the issue if a merchant banker
who is not holding a certificate is associated with the issue.
Underwriting Obligations
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 therin, 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
The lead manager responsible for the issue shall furnish to the Board, the
following documents:
Particulars of issue:
The documents shall be furnished at least two weeks prior to date of filling
of the draft prospectus or the letter of offer, as the case may be, with
Registrar of Companies or with the Regional Stock Exchanges, or with both.
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.
Every merchant banker shall submit to the Board complete particulars of any
transaction for acquisition of securities of any body corporate whose issue is being
managed by that merchant banker within fifteen days from the date of entering into
such transaction.
A merchant banker shall disclose to the board as and when required, the
following information:
To ensure that the provision of the Act, rules, regulations are being
complied with:
To investigate into the complaints received from investors, other
merchant bankers or any other person on any matter having a bearing
on the activities of the merchant banker: and
It shall be the duty of every director, proprietor, partner, officer and employee
of the merchant banker, who is being inspected, to produce to the inspecting
authority such books, accounts and other documents in his custody or control and
furnish him with the statements and information relating to his activities as a
merchant banker within such time as the inspecting authority may require.
The merchant banker shall allow the inspecting authority to have reasonable
access to the premises occupied by such merchant banker or by any other person
on his behalf and also extend reasonable facility for examining any books, records,
documents and computer data in the possession of the merchant banker or any
such other person and also provide copies of documents or other materials which,
in the opinion of the inspecting authority are relevant for the purpose of the
inspection.
The inspecting authority, in the course of inspection, shall be entitled to examine
or record statements of any principal officer, director, partner, proprietor and
employee of the merchant banker. It shall be the duty of every director, proprietor,
partner, officer or employee of the merchant banker may reasonably be expected
to give.
Appointment of Auditor
The Board may appoint a qualified auditor to investigate into the books of
accounts or the affairs of the merchant banker. The auditor so appointed shall have
the same powers of the inspecting authority as are mentioned in regulation 29 and
the obligations of the merchant banker in regulation 31 shall be applicable to the
investigation under this regulation.
Communication of Findings
The Board shall after consideration of the inspection report communicate the
findings to the merchant banker to give him an opportunity of being heard before
any action is taken by the Board on the findings of the inspecting authority. On
receipt of the explanation if any, from the merchant banker, the Board may call
upon the merchant banker to take such measures as the Board may deem fit in the
interest of the securities market and for due compliance with the provisions of the
act, rules and regulations.
Suspension of registration
where the merchant banker violates the provisions of the Act, rules or
regulations; or
Where the merchant banker does not carry out his obligation as
specified in the regulation.
Cancellation of registration
For the purpose of holding an enquiry under regulation 38; the Board
may appoint an enquiry officer. The enquiry officer shall issue to the
merchant banker a notice the registered office or the principal place of
business of the merchant banker .
The merchant banker may within thirty days from the date of receipt
of such notice, furnish to the enquiry officer a reply together with copies of
document or other evidence relied on by him or sought by the Board from
the merchant banker.
On receipt of the report from the enquiry officer, the Board shall consider the
same and issue a show-cause notice as to why the penalty as proposed by the
enquiry officer should not be imposed. The merchant banker shall within twenty-
one days of the date of the receipt of the show-cause send a reply to the Board.
The Board after considering the reply to the show-cause notice, if recived,
shall as soon as possible but not later than thirty-says from the receipt of the reply,
if any, pass such order as it deems fit. Every order passed under sub-regulation (3)
shall be self contained and give reasons for the conclusion stated therein including
justification of the penalty imposed by that order The Board send a copy of the
order under sub-regulation (3) to the merchant banker
On and from the date of the suspension of the merchant banker he shall
cease to carry on any activity as a merchant banker during the period of
suspension. On and from the date of cancellation the merchant banker shall with
immediate effect cease to carry on any activity as a merchant banker. The order of
suspension or cancellation of certificate passed under sub-regulation (3) of the
regulation 40 shall be published in at least two daily newspapers by the Board.
Fees
Every merchant banker shall pay a sum of Rupees five Lacs as registration
fees at the time of the grant of certificate by the Board. The fee shall be paid by the
merchant banker within fifteen days from the date of receipt of the intimation from
the Board under sub-regulation (1) of regulation 8. A merchant Banker to keep
registration in force shall pay renewal fee of Rs. 2.5 lacs every three years from the
fourth year from the date of initial registration. The fee shall be paid by the
merchant banker within fifteen days from the date of receipt of intimation from the
board under sub-regulation (3) of regulation (9).
Every Merchant Banker shall pay registration fees as set out below:
A sum of Rs. 2.5 Lacs to be paid annually for the first two years
commencing from the date of initial registration and thereafter for the third
year a sum of Rs. 1 lakh to keep his registration in force:
Renewal Fees
In addition the merchant bankers have to pay the following fees towards
documentation:
A Merchant Banker shall make all efforts to protect the interests of investors.
A Merchant Banker shall at all times exercise due diligence, ensure proper care
and exercise independent professional judgment
A Merchant Banker shall endeavor to ensure that enquiries from investors are
adequately dealt with: grievances of investors are redressed in a timely and
appropriate manner: where a complaint is not remedied promptly, the investor
is advised of any further steps which may be available to the investor under
the regulatory system.
A Merchant Banker shall ensure that adequate disclosures are made to the
investors in a timely manner in accordance with the applicable regulations and
guidelines so as to enable them to make a balanced and informed decision.
A Merchant Banker shall endeavor to ensure that the investors are provided
with true and adequate information without making any misleading or
exaggerated claims or any misrepresentation and are made aware of the
attendant risks before taking any investments decision.
A merchant banker shall not discriminate amongst its clients, save and except
on ethical and commercial considerations.
A Merchant Banker shall make any statement, either oral or written, which
would misrepresent the services that the Merchant Banker is Capable of
performing for any client or has rendered to any client.
A Merchant Banker shall always endeavor to render the best possible advice to
the clients having regard to their needs.
A Merchant Banker shall not divulge ton anybody either orally or in writing,
directly or indirectly, any confidential information about its clients which has
come to its knowledge, without taking prior permission of its clients, except
where such disclosures are required to be made in compliance with any law for
the time being in force.
A Merchant Banker shall not indulge in any affair competition, such as weaning
away the clients on assurance of higher premium or advantageous offer price
or which is likely to harm the interests of the other merchant banker or the
investors or is likely to place other merchant banker in a disadvantageous
position while competing for or executing any assignment
A Merchant Banker shall have internal control procedures and financial and
operational capabilities which can be reasonably expected to protect its
operations, its clients, investors and other registered entities from financial loss
arising from theft, fraud and other dishonest acts, professional misconducts or
omissions.
A Merchant Banker shall not make untrue statement or suppress any material
fact in any documents, reports or information furnished to the board.
A Merchant Banker shall ensure that the board is the promptly informed about
any action, legal proceedings etc., initiated against it in respect of material
breach or non-compliance by it, of any law, rules, regulations, directions of the
Board or of any other regulatory body.
A Merchant Banker shall develop its own internal code of conduct for governing
its internal operations and laying down its standards of appropriate conduct for
its employees and officers in carrying out their duties. Such a code may extend
to the maintenance of professional excellence and standards, integrity,
confidentiality, objectivity, avoidance or resolution of conflict of interests,
disclosures of shareholdings and interests etc.
A Merchant Banker shall ensure that good corporate policies and corporate
governance are in place
SEBI Guidelines
Operational Guidelines
SEBI has pronounced the following guidelines for compliance by the eligible
merchant bankers:
The lead merchant banker shall make available 10 copies of the draft
offer document o the Board and 25 copies to the stock exchange(s) where the
issue is proposed to be listed. Copies of the draft offer document shall be
made available to the public by the lead merchant bankers/ Stock Exchange.
The lead merchant banker and the Stock Exchange(s) may charge for
providing a copy of the draft offer document.
The lead merchant banker shall also submit to the board the draft offer
document on a computer floppy in the format specified in Schedule XXII. The
lead Merchant Banker shall submit two copies of the printed copy of the final
offer document to dealing offices of the Board “within three days of filing offer
document with Registrar of Companies/ concerned Stock Exchange(s) as the
case may be.”
The lead merchant banker shall submit one printed copy of the final
offer document to the Primary Market Department, SEBI, Head Office, “within
three days of filing the offer document with Registrar of companies/
concerned Stock Exchange(s) as the case may be.” The lead merchant banker
shall submit a computer floppy containing the final prospectus/ letter of offer
to the Primary Market Department, SEBI, and Head Office, as specified in
Schedule XXII within three days of filing the final prospectus / letter of offer
with the Registrar of Companies / concerned Stock Exchange. Along with the
floppy, the lead manager shall submit an undertaking to SEBI certifying that
the contents of the floppy are in HTML format, and are identical to the printed
version of the prospectus/ letter of offer filed with the Registrar of Companies/
concerned Stock Exchange, as the case may be.
Whenever offer documents (for public/ rights, takeovers or for any other
purpose) are filed with any Department/ office of the Board, the following
details “certified as correct” shall be given by the lead merchant banker in
the forwarding letters:
a. Registration number
3. Underwriting:
4. Compliance obligations:
The merchant banker shall ensure compliance with the following post-
issue obligations:
The board may initiate action under the SEBI (Merchant bankers) Rules and
regulation against the merchant bankers, irrespective of whether any penalty
point is imposed or not. Imposing of penalty point is not a pre-condition for
initiation of proceedings against the merchant banker under SEBI (Merchant
bankers) Rules and regulation 1992.
Guidelines on Advertisement:
Following are the guidelines applicable to lead merchant bankers who shall
ensure due compliance by the issuer company:
An issue advertisement shall be truthful, fair and clear and shall not contain
any statement that is untrue or misleading. Any advertisement reproducing, or
purporting to reproduce, any information contained in an offer document shall
reproduce such information in full and disclose all relevant Facts. It should not be
restricted to select extracts relating to that item. An issue advertisement shall be
considered to be misleading, if it contains: a) Statements made about the
performance or activities of the company in the absence of necessary explanatory
or qualifying statements, which may give n exaggerated picture of the performance
activities. b) An inaccurate portrayal, or its portrayal in a manner which implies
that past gains or income will be repeated in the future.
3. Promise of profits:
4. Mode of advertising:
5. Financial Data:
If any advertisement carries any financial data it shall also contain data for
the past three years and shall include particulars relating to sales, gross profit, net
profit, share capital, reserves, earnings per share, dividends, and book values.
6. Risk Factors:
7. Issue Date:
8. Product advertisement:
9. Subscription:
No advertisement shall be issued stating that the issue has been fully
subscribed or oversubscribed during the period the issue is open for subscription,
except to the effect that the issue is open or closed.
11.Incentives:
12.Reservation:
In case there is a reservation for NRI’s, the issue advertisement shall specify
the same, and, also indicate the place in India from where the individual NRI
applicant can procure application forms.
13. Underwriting:
To ensure that the issuer company obtains approval for all issue
advertisements and publicity materials from the lead merchant banker responsible
for marketing the issue and also ensure the availability of copies of all issue related
materials with the lead merchant banker, at least until the allotment is completed.