Merchant bankers play an important role in issue management by assisting companies in raising funds from the capital markets through public issues of securities, providing services like preparing prospectuses and other legal documents, coordinating with intermediaries, and ensuring compliance with SEBI regulations throughout the issuance process.
Merchant bankers play an important role in issue management by assisting companies in raising funds from the capital markets through public issues of securities, providing services like preparing prospectuses and other legal documents, coordinating with intermediaries, and ensuring compliance with SEBI regulations throughout the issuance process.
Merchant bankers play an important role in issue management by assisting companies in raising funds from the capital markets through public issues of securities, providing services like preparing prospectuses and other legal documents, coordinating with intermediaries, and ensuring compliance with SEBI regulations throughout the issuance process.
Merchant bankers play an important role in issue management by assisting companies in raising funds from the capital markets through public issues of securities, providing services like preparing prospectuses and other legal documents, coordinating with intermediaries, and ensuring compliance with SEBI regulations throughout the issuance process.
Download as PPTX, PDF, TXT or read online from Scribd
Download as pptx, pdf, or txt
You are on page 1of 32
The management of issues for raising funds
though various types of instruments by
companies is known as Issue management. The function of capital issue management in India is carried out by Merchant Bankers who have the requisite professional skill and competence. One of the Main functions of MB is issue management. Factors such as the tremendous growth in the number and size of public listed companies, and the complexity arising due to the ever increasing SEBI requirements have all attributed to the increasingly significant role played by merchant bankers in the recent past. The definition of merchant banker as mentioned in SEBI (Merchant Banker) Rules and Regulations, 1992 clearly brings out the significance of Issue Management. A fast growing economy like India offers tremendous scope for issue management and the merchant bankers provide their skills and expertise to companies in the management of capital issues. This essentially aims at channeling household savings into the corporate sector through the issue of corporate securities. Companies raise funds for the purposes of financing new projects, expansion /modernization /diversification of existing units and augmenting long term resources for working capital purposes. 1. Obtaining approval for the issue from SEBI. 2. Arranging for underwriting the proposed issues. 3. Preparation of draft and finalization of the prospectus and obtaining its clearance from the various agencies concerned. 4. Preparation of draft and finalization of other documents such as application forms, newspaper advertisements and other statutory requirements. 5. Making a choice regarding registrar to the issues, printing press, advertising agencies brokers and bankers to the issue and finalization of the fees to be paid to them. 6. Arranging for press conference and the investors conferences, coordinating - printing, publicity and other work in order it get everything ready at the time of the public issue. 7. Complying with SEBI guidelines after the issue is over by sending various reports as required by the authorities. The issuer shall appoint one or more MB of which at least one should act as Lead Managers. SEBI regulations have prescribed restrictions on the number of issue managers who can be associated with an issue. Issue Size Permissible No. of Lead Managers Less than Rs 50 crores 2
Rs 50 Crores to less than Rs 100 Crores 3
Rs 100 Crores to less than Rs 200 Crores 4
Rs 200 crores to less than Rs 400 Crores 5
Rs 400 Crores and above 5 or more
All lead managers, before taking up the assignment relating to an issue, shall enter into an agreement with the concerned company setting out their rights and obligations. In case more than one lead manager is associated, demarcation of responsibilities is a must. A minimum underwriting agreement is to be made. No lead manager can exit during the issue period. The capital issues are managed by Category I MB. There are several activities that have to be performed by them in order to rise money from the capital market. The procedure for managing the public issue by a MB is divided into 2 stages , they are : ◦ Pre Issue Management ◦ Post Issue Management The client company and the MB have to Sign a Memorandum of Understanding (MoU) which clearly mentions the role and responsibility. The Appraisal Note containing the details of the proposed capital outlay of the project and the sources of funds is prepared. The Level Of Capital Structure that would maximize the shareholders value and minimize the overall cost of capital has to be determined. MB has to apply to stock exchanges where the issuing company intends to get its securities listed.
Following documents are required :
◦ Initial listing application ◦ MOU with registrar ◦ MOU with bankers, advisors to the issue ◦ Prospectus etc. Financial intermediaries such as underwriters, registrars, accountants, auditors, advertising agency etc. are appointed. The lead MB has to independently assess the capability of these intermediaries so that they carry out their obligations. After they are appointed MB get them registered with SEBI. In order to issue securities, an issuer has to file a draft offer document with SEBI thru MB and pay the requisite fees. The company has to file the offer document at least 30 days prior to registering the prospectus with ROC. If SEBI specifies changes in the offer document, the issuer and lead MB should make the changes. The lead MB when filling the offer document with SEBI should also file a copy of the document with recognised stock exchange where it is going to be listed. The draft offer document submitted to SEBI has to be made Public by posting it on SEBI website and proposed stock exchange. The MB has to wait for at least 21 days for comments and thereafter submit the comments to SEBI. The lead MB are responsible for the dispatch of the issue materials to stock exchange, underwriters, bankers, investors association etc. The MB has also to announce the opening of the IPO thru advertisement 10 days before the opening. The MB has to see that a minimum of 90% of the allotment amount is received thru subscription. In case the minimum is not received all the money should be refunded back to the applicants within 15 days from the date of closure of the issue. The MB has to ensure that specified securities are allotted with 15 days from the date of closure of the issue. If the issue is over subscribed to the extent of 5 times greater, then SEBI nominated public representative is required to participate in the finalization of basis of allotment If the shares are not allotted to the applicant then a refund need to be carried out by the MB within 15 days from the closure of the issue. If not then, an interest needs to be paid. The MB has to report to SEBI periodically about the progress of the allotment and refund. Ensure listing of the securities at the stock exchange. Attending the investors grievances regarding the public issue. MB also has to make an announcement in the newspaper regarding the basis of allotment, no of application recd, the date of dispatch of share certificate, refund order etc. 1. Prohibition of payment of Incentives : No person connected with the issue shall offer any incentives directly or indirectly, in any manner to any person for making an application for allotment of specified securities. 2. Public Communication : MB has to follow the regulations regarding advertisements. MB has to submit a compliance certificate to SEBI for the period between date of filing the offer document and the date of closure of the issue. 3. Publicly available document : MB along with the issuer shall ensure the content of the offer documents are available on their websites. MB has to submit a copy of the offer document to the investor as and when requested. 4. Redressal of Investors Grievances : MB is required to look into and monitor the redressal of investor grievances 5. Post Issue Reports : MB is required to submit the post issue report to SEBI. The initial post issue report has to be submitted within 3 days of closure of the issue and the final report within 15 days of the date of finalization of allotment. It should also submit due diligence certificate to SEBI. 6. Post Issue Advertisement : MB also has to make an advertisement in the newspaper regarding the basis of allotment, no of application recd, the date of dispatch of share certificate, refund order, percentage of successful allottees etc. 7. Coordination with other intermediaries MB has to maintain a close coordination with the registrars to the issue and arrange to depute its officers to the offices of various intermediaries at regular intervals to monitor process of application, collection of money allotted etc. 1. It shall be fair and truthful. It should not be manipulative and not contain any statement , promise which is untrue. 2. Slogans and brand names for the issue should not be used except the normal commercial name of the issues already in use. 3. Advertisement shall not use extensive technical terminology or complex language. 4. It should not contain statements with promise or guarantee rapid increase in profits. 5. It shall not display models, celebrities, factional characters, landmarks etc. 6. The advertisement regarding any issue on billboards should not contain information other then what is specified in the SEBI Regulations. 7. No advertisement shall be issued giving any impression that the issue has been fully subscribed or over subscribed during the period of issue. Refer to book