MBFS[2].ppt
- 1. 11MB015- MERCHANT BANKING AND FINANCIAL SERVICES II MODULE
- 2. Greenshoe Option • A provision contained in an underwriting agreement that gives the underwriter the right to sell investors more shares than originally planned by the issuer. This would normally be done if the demand for a security issue proves higher than expected. Legally referred to as an over-allotment option. • A greenshoe option can provide additional price stability to a security issue because the underwriter has the ability to increase supply and smooth out price fluctuations if demand surges. • Greenshoe options typically allow underwriters to sell up to 15% more shares than the original number set by the issuer, if demand conditions warrant such action.
- 3. • The term “green shoe” came from the Gren shoe manufacturing(now stride rite corp), founded in 1919. It was the first company to implement the green shoe clause into their underwriting agreement. • Full, Partial, Reverse Green Shoe Option Benefits: • Reduce risk for the company issuing the shares. • Underwriter having buying power • Share price stable
- 4. Price Stabilization-Green Shoe Option • The underwriter works as a liaison (like a dealer), finding buyers for the shares that their client is offering. • A price for the shares is determined by the sellers (company owners and directors) and the buyers (underwriters and clients). • When the price is determined, the shares are ready to publicly trade. The underwriter has to ensure that these shares do not trade below the offering price. • If the underwriter finds there is a possibility of the shares trading below the offering price, they can exercise the green shoe option.
- 5. E-IPO • A company proposing to issue capital to public through the on-line system of the stock exchange for offer of securities can do so if it complies with the requirements under Chapter 11A of DIP Guidelines. The appointment of various intermediaries by the issuer includes a prerequisite that such members/registrars have the required facilities to accommodate such an online issue process.
- 6. E-IPO Locations • The Securities and Exchange Board of India (Sebi) informed, the e-initial public offering (e- IPO) facility would be implemented in two phases, with the first phase covering 400 locations by January 1, 2013. The facility would allow retail investors to submit bids for IPO electronically. • Sebi said the second phase of the programme would be completed by March 1, 2013. It plans to introduce the e-IPO facility for retail investors at about 1,000 locations.
- 7. E-IPO mechanism • This mechanism can be used to submit applications supported by blocked amounts (Asba), as well as non-Asba applications by investors. • Detailing the mechanism, Sebi asked stock exchanges to provide for downloading of application forms on their websites and broker terminals to ensure any investor or stock broker could download and print the forms directly.
- 8. e-IPO software • The e-IPO software facilitates online bidding for Retail/HNI/QIB clients of the member in different IPO’s, this software works as a single interface to bid for different IPO’s in NSE and BSE at one go and also do activities such as viewing the details of upcoming IPO’s , transferring funds etc..
- 9. Features of e-IPO • Facility to create and maintain the users and assign rights to them based on the member’s business modulate • Multiple users with enhanced user access and rights • Detailed price wise demand analysis of IPOs based on the files as received by the exchange • Facility to bulk upload of orders for institutional clients • Facilitates generation of bulk files online, through a single platform • Facilitates export of bids • Facilitates import of the bid confirmation file received from the exchange • Multiple reports are available to end clients with report formation and export to excel facility • Facilitate post IPO closure activities such as allocation etc. • Supports both Fixed Price and Book Building methods of IPO Bidding • Facility to print the IPO forms • Facility to print the cheque
- 10. Benefits e-ipo • Comprehensive functionality coverage • Customization / enhancements of Reports for IPO Analysis • Cost-effective maintenance • Email and Mobile Alerts can be customized as per the clients' requirements to receive emails when a bid is placed by the client or on his/her behalf by the member • Clients’ demand for detailed reporting and access to their financial snapshot at any given point of time can be achieved
- 11. Private placement • The sale of securities to a relatively small number of select investors as a way of raising capital. Investors involved in private placements are usually large banks, mutual funds, insurance companies and pension funds. Private placement is the opposite of a public issue, in which securities are made available for sale on the open market.
- 12. Private Placement • A method of marketing of securities whereby the issuer makes the offer of sale to individuals and institutions privately without the issue of a prospectus is known as Private Placement Method‘. This is the most popular method gaining momentum in recent times among the corporate enterprises. • Under this method, securities are offered directly to large buyers with the help of shares brokers. This method works in a manner similar to the Offer for Sale Method‘ whereby securities are first sold to intermediaries such as issues houses, etc. They are in turn placed at higher prices to individuals and institutions. Institutional investors play a significant role in the realm of private placing. The expenses relating to placement are borne by such investors.
- 13. Advantages of Private placement • Less expensive • Less troublesome for the issuer as there is not much of stock exchange requirements • Placement of securities suits the requirements of small companies. • The method is also resorted to when the stock market is dull and the public response to the issue is doubtful.
- 14. Disadvantages-Private Placement • Concentration of securities in a few hands. • Creating artificial scarcity for the securities thus jacking up the prices temporarily and misleading general public. • Depriving the common investors of an opportunity to subscribe to the issue, thus affecting their confidence levels.
- 15. Boughtout Deals • A method of marketing of securities of a body corporate whereby the promoters of an unlisted company make an outright sale of a chunk of equity shares to a single sponsor or the lead sponsor is known as ‗bought-out deals‘. • The following are the characteristics of Bought out deals • 1. Parties : There are three parties involved in the bought- out Deals-Promoters, Sponsor and Co-Sponsor(Merchant banker and Investors)
- 16. • 2. Outright sale-outright sale of a chunk of equity shares to a single sponsor or the lead sponsor. • 3. Syndicate- Sponsor forms syndicate with other merchant bankers • 4. Sale price -The sale price is finalized through negotiations between the issuing company and the purchaser. • 5. Fund-based • 6.Listing • 7. OTCEI
- 17. BOUGHT OUT DEALS Vs. PRIVATE PLACEMENTS
- 18. BENEFITS • Speedy sale • Freedom • Investor protection • Quality offer
- 19. LIMITATIONS • Loss of Control • Loss of sales • Wrong appraisal • Manipulation • No accountability • Windfall profits • Loss to investor
- 20. Advertising Strategies • SEBI GUIDELINES FOR ISSUE ADVERISEMENT (11.10.1993) • truthful fair and clear and do not contain statements to mislead the investors to imitate their judgment. • code of advertisement • Advertisement, means notices, brochures, pamphlets, circulars show cards, catalogues, boardings, placards, posters, insertions in newspapers, pictures, films, radio/television program or through any electronic media and would also include the cover pages of the offer documents.
- 21. CODE OF ADVERTISEMENTS- CAPITAL ISSUES • Advertisement shall be truthful fair and clear • Shall not be considered to be misleading- in accurate • investors may not be well versed in legal or financial matter • issue advertisement shall not contain statements which promise or guarantee an appreciation or rapid profits • Risk factors with the same print size. • No advertisement shall be issued stating that the issue has been fully subscribed or oversubscribed during the period the issue is open for subscription.
- 22. • No model, celebrities, fictional characters, landmarks or caricatures • No slogans, expletives or non factual and unsubstantiated titles should appear in the issue advertisement or offer documents. • No incentives, apart from the permissible underwriting commission and brokerages,
- 23. Placement with FIIs,MFs,FIIs etc • Government of India through Guidelines issued on September 14, 1992 has allowed reputed foreign Institutional Investors (FIIs) including pension funds, mutual funds, asset management companies, investment trusts, nominee companies and incorporated or institutional portfolio managers to invest in the India capital market subject to the condition that they register with the Securities and Exchange Board of India and obtain RBI approval under FERA.
- 24. • Portfolio investment by the FIIs are required to allocate their total investment between equities and debentures in the ratio of 70:30. FII s can make purchases and sales only for delivery. • Listed companies have been allowed by SEBI to make preferential allotment to registered FIIs subject to certain conditions.
- 25. NRI marketing • 1. Indian national holding Indian passports with non- resident status (INNR), • 2. Person of Indian origin, foreign nationals of Indian origin, living in foreign countries including such persons of Indian origin as is in the status of stateless, because no foreign country has as yet accepted them as their national and they are not Indian national either by birth or residence, (FNIO). The term NRI also includes companies, partnership firms, trusts, societies and other corporate bodies called OCBs where 60% of the equity is owned by the NRIs.
- 26. INVESTMENT POTENTIAL OF NRI‟s • It is estimated that currently about 25 million Indians living abroad would fall into the definition of NRI. Of these about 20 million have taken up foreign nationality (FNIOs) and the remaining 5 million are still Indian passport holders. • NRIs can have three different types of bank accounts, buy securities in the primary and secondary markets, and do business on non- reparable basis as well as reparable basis.
- 27. 0ff-Shore Issues • Offshore relates to managing, registering, conducting, or operating in a foreign country, often with financial, legal and tax benefits. Offshore Company is then a company incorporated for the purpose of operating outside the country of its registration and/or the place of residence of its directors, shareholders and beneficial owners. Again, this is typically pursued to realize various financial, legal or tax benefits.
- 28. • An offshore company is a legal entity established in a tax haven or offshore financial center, being protected by specific legislation which guarantees a status of partial or full tax exemption. • The most known type of an offshore company is the IBC or International Business Company, which are often found in offshore jurisdictions. Such a company is usually required to do business with non-residents of the jurisdiction where they are formed, in order to remain tax exempt.
- 29. Issue Marketing • Marketing the public Issue-Highly competitive • The Steps 1. Target Market 2. Target Concentration-Maximum subscription 3. Pricing 4. Mobilising intermediaries 5. Information contents 6. Launching advertising campaign 7. Brokers' and investors’ conferences 8. Timing of the Issue
- 30. POST ISSUE ACTIVITIES • Finalization of Basis of Allotment -If the public issue is oversubscribed to the extent of greater than five times, a SEBI nominated public representative is required to participate in the finalization of Basis of allotment (BoA). • Dispatch of Share Certificates- Immediately after finalizing the Boa, share certificates are dispatched. • Advertisement -basis of allotment, the number of applications received and the date of dispatch of share certificates and refund orders, etc.
- 31. OTHER FEE BASED MANAGEMENT • Mergers and Acquisitions (M&A) as forms of business combination are increasingly being used for undertaking restructuring of corporate enterprises the world over. • MERGERS: A type of business combination where two or more firms amalgamate into one single firm is known as a merger. In a merger, one or more companies may merge with an existing company or they may combine to form a new company. In India mergers and amalgamations are used interchangeably. • In the wider sense, merger includes consolidation, amalgamation, absorption and takeover.
- 32. Steps IN M & A • 1. Review of Objectives • 2. Data for analysis • 3. Analysis of information • 4. Fixing price • 5. Finding merger value • Merger-Horizontal, Vertical, Conglomerate, congeneric merger
- 33. Acquisitions and Take Overs • Take over is the case where one company obtains control over the management of another company. Under both acquisition and takeover, it is possible for a company to have effective control over another company even by holding minority ownership. • takeover usually takes the form of hostile‘ or forced‘ or unwilling acquisition and acquisition happens at the instance and the willingness of the company management and the shareholders.
- 34. HOSILE TAKEOVERS • Where in a merger one firm acquires another firm without the knowledge and consent of the management of the target firm, it takes the form of a hostile takeover‘. • Friend Takeover
- 35. Arguments in favour of M&A • Synergy argument-value of the firm is much greater • Growth argument • Profitability argument • Diversification argument • Tax benefit • Efficient cash use • Cash flow • Lower borrowing cost • Market value • Management control • National interest • Stockholder interest