A presentation report on

Role of Merchant Banker

(Subject – Banking & Financial Services Institutions)

Submitted by –

Siddhart Charsya(63
Sagar Chheda(64)
Abhishek Desai(65)
Chandranil Desai(66)
Dakshina Dewarkar(67)
Shivani Goenka(70)

Under the guidance of

Dr. Shuchi Gautam

Assistant professor
Finance
 Role of Merchant Banker

Introduction
 A merchant bank is a company that deals mostly in international
finance, business loans for companies and underwriting. These
banks are experts in international trade, which makes them
specialists in dealing with multinational corporations.
 A merchant bank may perform some of the same services as
an investment bank, but it does not provide regular banking services
to the general public.
 It also acts as an intermediary between the issuers and the ultimate
purchasers of the securities in the primary market.

History of Merchant Banker

 Italy- Medieval times

 France- Seventeenth century

 England- Eighteenth century

 South Africa- 1972

Types of Markets

PRIMARY MARKET
A primary market is a place where companies bring a new issue of
shares for being subscribed by the general public for raising funds to
fulfil their long-term capital requirement like expanding the existing
business or purchasing new entity. It plays a catalytic role in the
mobilisation of savings in the economy.

Various types of an issue made by the corporation are a Public issue,

Offer for Sale, Right Issue, Bonus Issue, Issue of IDR, etc.

The company who brings the IPO is known as the issuer, and the
process is regarded as a public issue. The process includes many
merchant bankers (investment banks) and underwriters through which
the shares, debentures, and bonds can directly be sold to the investors.
These investment banks and underwriters need to be registered with
SEBI (Securities Exchange Board of India).

The public issue is of two types, they are:

 Initial Public Offer (IPO): Public issue made by an unlisted

company for the very first time, which after making issue lists its
shares on the securities exchange is known as the Initial Public
Offer.
 Further Public Offer (FPO): Public issue made by a listed
company, for one more time is known as a follow-on offer.

SECONDARY MARKET

The secondary market is a type of capital market where existing shares,

debentures, bonds, options, commercial papers, treasury bills, etc. of
the corporates are traded amongst investors. The secondary market can
either be an auction market where trading of securities is done through
the stock exchange or a dealer market, popularly known as Over The
Counter where trading is done without using the platform of the stock
exchange.

The securities are firstly offered in the primary market to the general
public for a subscription where the company receives the money from
the investors and the investors get the securities; thereafter they are
listed on the stock exchange for the purpose of trading. These stock
exchanges are the secondary market where maximum trading of the
company is done. The top two stock exchanges of India are Bombay
Stock Exchange and National Stock Exchange.

An investor can trade in securities through the stock exchange with the
help of brokers who provide assistance to their client for purchasing
and selling. The brokers are the registered members of the recognised
stock exchange in which the investor is trading his / her securities. The
brokers are allowed to trade on the advanced trading system. The SEBI
issues a certificate of registration to the member brokers through which
an investor can identify whether a broker is registered or not.
DIFFERENCE BETWEEN PRIMARY MARKET AND
SECONDARY MARKET

BASIS FOR
PRIMARY MARKET SECONDARY MARKET
COMPARISON

Meaning The market place for new shares The place where formerly
is called primary market. issued securities are traded is
known as Secondary Market.

Another name New Issue Market (NIM) After Market

Type of Purchasing Direct Indirect

Financing It supplies funds to budding It does not provide funding to

enterprises and also to existing companies.
companies for expansion and
diversification.

How many times a Only once Multiple times

security can be sold?

Buying and Selling Company and Investors Investors

between

Who will gain the Company Investors

amount on the sale of
shares?

Intermediary Underwriters Brokers

Price Fixed price Fluctuates, depends on the

demand and supply force

Organizational Not rooted to any specific spot It has physical existence.

or geographical location.
Difference
Role of Merchant Bankers

The most familiar role of the merchant bank is stock underwriting.

A large company that wishes to raise money from investors through
the stock market can hire a merchant bank to implement and
underwrite the process.
The merchant bank determines the number of stocks to be issued,
the price at which the stock will be issued, and the timing of the
release of this new stock.
The merchant bank files all the paperwork required with the various
market authorities, and is also frequently responsible for marketing
the new stock, though this may be a joint effort with the company
and managed by the merchant bank.
For really large stock offerings, several merchant banks may work
together, with one being the lead underwriter.
 Services Provided
 Project counseling
 Loan syndication
 Managers to issue
 Underwriting
 Portfolio Management
 Advising on mergers and takeovers
 Offshore financing

1. Furnishing Information:
 Number of issues for which the merchant banker is engaged as
banker to issue.
 Number of applications received and details of application money
received
 Dates on which applications from investors were forwarded to
issuing company.
 Details of amount as refund to investors.
2. Books to be Maintained:

 Books of accounts for a minimum period of 3 years

 Records regarding the company
 Documents such as company applications, names of investors, etc.

3. Agreement with issuing company

Agreement with the issuing company by the merchant banker should
contain

 Number of collection centers

 Application money received
 Daily statement by each branch which is a collecting centre.

4. Action by RBI: Any action by RBI on merchant banker should be

informed to SEBI by the merchant banker concerned.

5. Code of Conduct having- It has a high integration in dealing with

clients.
 Disclosure of all details to the authorities concerned. Avoiding
making exaggerated statements.
 Disclosing all the facts to its customers.
 Not disclosing any confidential matter of the clients to third parties.

1. The merchant banker will ensure that when Rights issues are taken
up by a company, the merchant banker who is responsible for the
Rights issue shall see that an advertisement regarding the same is
published in an English national daily, in an Hindi national daily and
in a regional daily.These newspapers should be in circulation in the city
/ town where the registered office of the company is located.
2. It is the duty of the merchant banker to ensure that the application
forms for Rights issue should be made available to the shareholders and
if they are not available, a duplicate composite application form is made
available to them within a reasonable time.

3. If the shareholders are not able to obtain neither the original nor the
duplicate application for Rights shares, they can apply on a plain paper
through the merchant banker.

4. The details that should be furnished in the plain paper, while

applying for Rights shares should be provided by the merchant hanker.

5. The merchant banker should mention in the advertisement, the

company official to whom the shareholders should apply for Rights
shares.

6. The merchant banker should also inform that no individual can apply
twice, in standard form as well as in plain paper.

Merchant Bankers Categories

Category -1 Category -2
 Issue Management  Advisor

 Consultant  Consultant

 Manager  Co-manager

 Underwriter  Underwriter

 Portfolio manager  Portfolio manager

 Category -3 Category -4
 Advisor  Advisor

 Consultant  Consultant

 Underwriter

Key Foreign Players

 Goldman Sachs (India) Securities Private Ltd

 Morgan Stanley India Company Private Ltd
 Barclays Securities (India) Private Ltd
 Bank of America
 Citigroup Global Market India Pvt. Ltd

Types of Issues
 Companies generate funds from public and other options by issuing
the shares. The fund is beneficial as the company does not have to pay
the interest as in case of loans. Only dividend is to be distributed
depending upon the profits. The different ways of issuing shares have
its own benefits. You should know about the types and the
fundamentals behind them as an investor.
The different types of shares issues is based upon the who are the
perspective investors, purpose of the company like to generate funds
or for the benefit of its shareholders. The different types of shares
issues in India are as shown in the picture. Let us see them how they
differ from each other.

Public Issue: When the issue is for the general public and anyone
interested in to invest in the company can buy the shares. It can be
further of two types as follows:
1. Initial Public Offer (IPO): When an unlisted company wants to go
public for the first time, it can be done through Initial Public Offer.
Here, the investors bid for the company within a band (generally
given by the company). The bidding value depends upon the valuation
of the company. IPO helps the company to get listed and generate
funds from public. Sometimes, IPO is riskier than other stocks
investment as the small investors are not able to evaluate the correct
bid rate. So, the stock price decline (may also appreciate) just after
the final issue.
2. Further Public Offer (FPO): Here the already listed company
generate the funds from the public (anyone interested) for few
projects, expansion etc.
Rights Issue: The listed company issues the securities only to the
existing shareholders of its company. It is based on the ratio in which
the shareholders are holding number of shares on any fixed date.
Generally, the rights issue are on the discounted rate and are
beneficial for the shareholders, So, they prefer to invest.
Bonus Issue: The shares given to the existing shareholders only
without any consideration from them. These are issued on a fixed date
based on the ratio to the number on shares held by the shareholder.
 Private Placement: Here the company issues the securities to the
selected group of investors not exceeding more than 49. It can be
done in two ways as follows:
1. Preferential Issue: The listed company issues the equity shares
which have some more benefits over the normal equity shares like in
terms of dividends etc. These benefits are mentioned at the time of
issue. These are done as per Chapter XIII of SEBI (DIP)
guidelines.
2. Qualified Institutional Placement (QIP): Here, the listed company
issues equity shares or shares convertible into equity shares to
Qualified Institutional Buyers only as per Chapter XIIIA of SEBI
(DIP) guidelines.
 Merchant Banking
Merchant Banking is a combination of Banking and
consultancy services. It provides consultancy to its clients
for financial, marketing, managerial and legal matters.
Consultancy means to provide advice, guidance and
service for a fee. It helps a businessman to start a business.
It helps to raise (collect) finance. It helps to expand and
modernize the business. It helps in restructuring of a
business. It helps to revive sick business units. It also helps
companies to register, buy and sell shares at the stock
exchange. Merchant banking can be defined as a skill-
oriented professional service provided by merchant banks
to their clients, concerning their financial needs, for
adequate consideration, in the form of fee. Merchant banks
are a specialist in international trade and thus, excel in
transacting with large enterprises. Merchant banking helps
in reinforcing the economic development of the country,
by acting as a source of funds and information to the
business entities. Any person, indulged in issue
management business by making arrangements with
respect to trade and subscription of securities or by playing
the role of manager/consultant or by providing advisory
services, is known as a merchant banker. A merchant bank
is a company that deals mostly in international finance,
business loans for companies and underwriting. These
banks are experts in international trade, which makes them
specialists in dealing with multinational corporations. A
merchant bank may perform some of the same services as
an investment bank, but it does not provide regular
banking services to the general public.
BOOK BUILDING PROCESS
• Book Building refers to the process of generating, capturing and
recording investors demand for shares during an Initial Public Offering
(IPO), other securities during their issuance process, in order to support
efficient price discovery.

Process
Issuer Company

Book Runner

Syndicate Member

Mutual Stock Advisors Institutional Foreign

Funds Broker Investors

Institutional Investors
Types of Book Building:
• 75% Book-Building - Undеr this Procеss 25 pеr-cеnt is to bе sold at a
fixеd pricе and thе balancе of 75 pеr-cеnt through thе Book building
process.

Book Building Mеthod Fixеd Pricе

1. 75% of thе public issuе can bе
offеrеd to institutional invеstors who
havе participated in thе bidding
procеss.
2. Not lеss than 25% of thе nеt offеr to
thе public shall bе availablе for
allocation to non-qualifiеd institutional
buyеrs.
1. 25% of thе public issuе can bе
offеrеd through prospеctus and shall
bе rеsеrvеd for allocation to
individual invеstors who havе not
participated in thе bidding procеss.
2. Not morе than 50% of thе nеt offеr
to thе public shall bе availablе to
qualifiеd institutional buyеrs.
Examples of Book Building Process:
About Avenue Supermarkets IPO
Symbol DMART
Issue Period 08-Mar-2017 to 10-Mar-2017
Post issue Modification 11-Mar-2017 and 14-Mar-2017 (between 10.00 a.m. to
Period 1.00 p.m. only)
Issue Size Initial Public offer of [.] Equity Shares aggregating Up
to Rs 18,700 million (including anchor portion of
18,762,541 Equity Shares)
Issue Type 100% Book Building
Price Range Rs 295 to Rs 299
Face Value Rs 10
Tick Size Rs 1
Market Lot 50 Equity Shares and in multiples thereof
Minimum Order Quantity 50 Equity Shares
Maximum Subscription Rs. 2,00,000
Amount for Retail
Investor
Maximum Bid Quantity 44,372,850 Equity Shares (in multiples of 50 equity
shares and calculated at the lower end of the price band
of Rs. 295/-)
IPO Market Timings 10.00 a.m. to 5.00 p.m.

Book Run Lead Managers:

Global Co- Kotak Mahindra Capital Company Limited
coordinators and
Book Running Lead
Managers
Book Running Lead Axis Capital Limited, Edelweiss Financial Services Limited,
Managers HDFC Bank Limited, ICICI Securities Limited, Inga Capital
Private Limited, JM Financial Institutional Securities
Limited, Motilal Oswal Investment Advisors Private Limited
and SBI Capital Markets Limited

About Lemon Tree Hotel

Symbol LEMONTREE
Issue Period 26-Mar-2018 to 28-Mar-2018
Post issue Modification 31-Mar-2018 and 02-Apr-2018 (10.00 A.M. to 1.00
Period P.M.)
Issue Size Initial Public offer of 185,479,400 Equity Shares
(including anchor portion of 55,643,820 Equity
Shares)
Issue Type 100% Book Building
Price Range Rs 54 to Rs 56
Face Value Rs 10
Tick Size Re 1
Bid Lot 265 Equity Shares and in multiples thereof
Minimum Order Quantity 265 Equity Shares
Maximum Subscription Rs. 2,00,000
Amount for Retail Investor
Maximum Bid Quantity 129,835,425 Equity Shares adjusted for multiple of
265 Equity Shares
IPO Market Timings 10.00 a.m. to 5.00 p.m.
Global Co-coordinators and Kotak Mahindra Capital Company Limited, CLSA
Book Running Lead Managers India Private Limited and J.P. Morgan India Private
Limited.
Book Running Lead Managers YES Securities (India) Limited

About Bandhan Bank:

Symbol BANDHAN BNK

Issue Period 15-Mar-2018 to 19-Mar-2018
Post issue 20-Mar-2018 (10.00 A.M. to 1.00 P.M.)
Modification Period
Issue Size Initial Public offer of up to 119,280,494 Equity Shares
comprising of a Fresh Issue up to 97,663,910 and an Offer for
Sale up to 21,616,584 Equity Shares (including anchor portion
of 35,784,147 Equity Shares)
Issue Type 100% Book Building
Price Range Rs 370 to Rs 375
Face Value Rs 10
Tick Size Re 1
Bid Lot 40 Equity Shares and in multiples thereof
Minimum Order 40 Equity Shares
Quantity
Maximum Rs. 2,00,000
Subscription Amount
for Retail Investor
Maximum Bid 83,496,320 Equity Shares adjusted for multiple of 40 Equity
Quantity Shares
IPO Market Timings 10.00 a.m. to 5.00 p.m.

Book Running Kotak Mahindra Capital Company Limited, Axis Capital

Lead Managers Limited, Goldman Sachs (India) Securities Private
Limited, JM Financial Limited, and J.P. Morgan India
Private Limited.
 Functions of Merchant Banker

 Equity Underwriting: Large companies often employ the

services of merchant banks in acquiring capital through the
stock market. Equity underwriting is achieved by
evaluating the amount of stock to be issued, the value of the
business, the use of proceeds, and the timing of issuance of
the new stock. Merchant banks handle all the necessary
paperwork and liaison with the appropriate marketing
division to advertise the stock.
 Credit Syndication: Merchant banks help in processing
loan applications for short and long-term credit from
financial institutions. They provide these services by
estimating total costs involved, developing a financial plan
for the entire project, as well as adopting a loan application
for commercial lenders. Also, they assist in choosing the
ideal financial institutions to provide credit facilities and act
on the terms of the loan application with the financiers.
Merchant banks also ensure the lender’s willingness to
participate, organize bridge finance, and engage in legal
formalities regarding investment to be approved and
checking the working capital requirements.
 Portfolio Management: Merchant banks provide portfolio
management services to institutional investors and other
investors. They help in the management of securities to
enhance the value of the underlying investment. Merchant
banks may assist their clients in the purchase and sale of
securities to help them attain their investment objectives.
 Raising funds for clients: Merchant banking organisation
assist the clients in raising funds from the domestic and
international market, by issuing securities like shares,
debentures, etc., which can be deployed for starting a new
project or business or expansion activities.
 Promotional Activities: One of the most important
activities of merchant banking is the promotion of business
enterprise, during its initial stage, right from conceiving the
idea to obtaining government approval. There is some
organisation, which even provide financial and technical
assistance to the business enterprise.
 Leasing Services: Merchant Banking organisations renders
leasing services to their customers. There are some banks
which maintain venture capital funds to help entrepreneurs.
Merchant bankers also help in leasing services. Lease is a
contract between the lessor and lessee, whereby the lessor
allows the use of his specific asset such as equipment by
the lessee for a certain period. The lessor charges a fee
called rentals.
 Broker in Stock Exchange: Merchant bankers act as
brokers in the stock exchange. They buy and sell shares on
behalf of their clients. They conduct research on equity
shares. They also advise their clients about which shares to
buy, when to buy, how much to buy and when to sell. Large
brokers, Mutual Funds, Venture capital companies and
Investment Banks offer merchant banking services.
 Project Management: Merchant bankers help their clients
in the many ways. For e.g. Advising about location of a
project, preparing a project report, conducting feasibility
studies, making a plan for financing the project, finding out
sources of finance, advising about concessions and
incentives from the government.
 Advice on Expansion and Modernization: Merchant
bankers give advice for expansion and modernization of the
business units. They give expert advice on mergers and
amalgamations, acquisition and takeovers, diversification
of business, foreign collaborations and joint-ventures,
technology up-gradation, etc.
 Managing Public Issue of Companies: Merchant bank
advice and manage the public issue of companies. They
provide following services:
 Advise on the timing of the public issue.
 Advise on the size and price of the issue.
 Acting as manager to the issue, and helping in accepting
applications and allotment of securities.
 Help in appointing underwriters and brokers to the issue.
 Listing of shares on the stock exchange, etc.
 Handling Government Consent for Industrial Projects:
A businessman has to get government permission for
starting of the project. Similarly, a company requires
permission for expansion or modernization activities. For
this, many formalities have to be completed. Merchant
banks do all this work for their clients.
 Special Assistance to Small Companies and
Entrepreneurs: Merchant banks advise small companies
about business opportunities, government policies,
 incentives and concessions available. It also helps them to
take advantage of these opportunities, concessions, etc.
 Services to Public Sector Units: Merchant banks offer
many services to public sector units and public utilities.
They help in raising long-term capital, marketing of
securities, foreign collaborations and arranging long-term
finance from term lending institutions.
 Revival of Sick Industrial Units: Merchant banks help to
revive (cure) sick industrial units. It negotiates with
different agencies like banks, term lending institutions, and
BIFR (Board for Industrial and Financial Reconstruction).
It also plans and executes the full revival package.
 Portfolio Management: A merchant bank manages the
portfolios (investments) of its clients. This makes
investments safe, liquid and profitable for the client. It
offers expert guidance to its clients for taking investment
decisions.
 Corporate Restructuring: It includes mergers or acquisitions
of existing business units, sale of existing unit or
disinvestment. This requires proper negotiations,
preparation of documents and completion of legal
formalities. Merchant bankers offer all these services to
their clients.
 Money Market Operation: Merchant bankers deal with
and underwrite short-term money market instruments, such
as:
a) Government Bonds.
b) Certificate of deposit issued by banks and financial
institutions.
c) Commercial paper issued by large corporate firms.
d) Treasury bills issued by the Government (Here in India by
RBI).
 Management of Interest and Dividend: Merchant bankers
help their clients in the management of interest on
debentures / loans, and dividend on shares. They also
advise their client about the timing (interim / yearly) and
rate of dividend.