Page 209 - DMGT512_FINANCIAL_INSTITUTIONS_AND_SERVICES

Financial Institutions and Services

Notes All the aspects – origination, underwriting and distribution of the sale of industrial securities
are handled by them. They are experts and good judges of the type, timing and terms of issues
and make them acceptable to investors under prevailing preferences and market conditions,
and at the same time afford the borrowing company, flexibility and freedom that it needs to
meet possible future contingencies. They guarantee the success of issues by underwriting them.
They also provide all the services related to receiving applications, allotment, collecting money,
sending share certificates and so on.
The merchant banker normally does not assume all the risk himself while underwriting the
issue. Merchant banks offer services also to investors. The range of activities offered by merchant
banks is much wider than sponsoring public issues of industrial securities. They offer project
finance, syndication of credit, corporate advisory services, mutual fund investments, investment
management etc. Let us go through the most important services of Merchant Banks.

Project Counselling

Project counselling includes preparation of project reports, deciding upon the financing pattern
to finance the cost of the project and appraising the project report with the financial institutions
or banks. It also includes filling up of application forms with relevant information for obtaining
funds from financial institutions and obtaining government approval.

Issue Management

Management of issue involves marketing of corporate securities viz. equity shares, preference
shares and debentures or bonds by offering them to public. Merchant banks act as an intermediary
whose main job is to transfer capital from those who own it to those who need it. After taking
action as per SEBI guidelines, the merchant banker arranges a meeting with company
representatives and advertising agents to finalise arrangements relating to date of opening and
closing of issue, registration of prospectus, launching publicity campaign and fixing date of
board meeting to approve and sign prospectus and pass the necessary resolutions. Pricing of
issues is done by the companies in consultant with the merchant bankers.

Underwriting of Public Issue

Underwriting is a guarantee given by the underwriter that in the event of under subscription,
the amount underwritten would be subscribed by him. Banks/Merchant banking subsidiaries
cannot underwrite more than 15% of any issue.

Caselet Merchant Bankers willing to take less for
PSU Offerings

Seek to generate more business.
Merchant bankers continue to quote a nominal fee for book-running and lead managing
the public sector offering even after recent selection norm changes substantially lowered
the weight for bid price.
According to sources in the Government, one merchant banker had bid for the Coal India
IPO assignment at a fee as low as 0.000001 per cent. Public sector issuer sources said the
Contd...

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