Page 136 - DCOM208_BANKING_THEORY_AND_PRACTICE

Unit 8: Banking Systems

9. Carrying out precise capital structuring and shaping the pattern of financing. Notes
10. Arranging and negotiating foreign collaborations, amalgamations, mergers, and takeovers.

Pre-investment Studies

Pre-investment studies relate to the activities that are concerned with making a detailed
feasibility exploration to evaluate alternative avenues of capital investment in terms of growth
and profit prospects. Some of these activities are as follows:
1. Carrying out an in-depth investigation of environment and regulator factors, location of
raw material supplies, demand projections and financial requirements in order to assess
the financial and economic viability of a given project.
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.

Capital Restructuring Services

Merchant bankers assist the corporate enterprises in structuring their capital in such a way that
it would minimize the cost of capital and maximize its return on capital invested.
Following are the services that are covered in capital restructuring:
1. Examining the capital structure of the client company to determine the extent of
capitalization required.
2. Preparing a comprehensive memorandum for the controller of Capital issues, and securing
consent where the capitalization takes place through issue of bonus shares.
3. Suggesting an alternative capital structure conforming to legal requirements, viz., extent
of capitalization on reserve and quantum of disinvestments by ‘offer for sale’ and/or fresh
issues of corporate securities such as equity share, and preference share in the case of
FERA/FEMA companies.

4. Preparing a memorandum covering valuation of shares and justifying the level of premium
applied for.

Credit Syndication

Activities connected with credit procurement and project financing, aimed at raising Indian and
foreign currency loans from banks and financial institutions are collectively known as ‘credit
syndication’.
Activities that are covered under credit syndication are as follows:

1. Estimating the total cost of the project to be undertaken.
2. Drawing up a financing 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.
3. Preparing loan application for financial assistance from term lenders/financial institutions/
banks, and monitoring their progress, including pre-sanction negotiations.
4. Selecting institutions and banks for participation for financing.

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