Page 210 - DMGT512_FINANCIAL_INSTITUTIONS_AND_SERVICES

Unit 14: Merchant Banking

changed rules last month, which put greater weight (70 per cent) on quality - technical Notes
expertise and experience - over that on quoted fees (30 per cent) has not influenced the
bidding pattern.
"The pool of registered merchant bankers sports almost similar qualitative standards.
Therefore, the quoted fee determines short-listing. Competitive pressure for public sector
offerings forces the merchant bankers to keep the fees low, often highly loss making or
stay out," said a top official of public sector enterprise.
Market sources say while the going rate for merchant banking fees for a private issuer of
a comparable size is around 3 per cent, the rate for PSU offerings remains close to zero.

"This is not a charitable exercise. Merchant bankers extract marketing mileage and seek
more future business from the Government-run organisations to serve their commercial
interest indirectly. But they also to make up for the huge cost, which runs into crores of
rupees, through other means, which are strictly not clean," said the managing director of
a listed private company.
Mr Prithvi Haldea, primary market expert and the Chairman of Prime Database, told
Business Line that the environment was not conducive to a fair and transparent method of
selecting quality services.
"The Government needs to pay a reasonable fee to merchant bankers for the best services
so that the issues do not suffer. In the context of the Government's plan to raise huge sum
( 40,000 crores) in 2010-11 through several offloading of shares or fresh issues, the technical
qualification should be the primary criterion for selection of merchant bankers. Fixing of
an upfront payment to the selected book-runners and lead managers for each issue
considering the cost involved can ensure better response and quality rendering of services."
This fiscal, the lead managers for the SJVN Ltd issue were JM Financial, IDFC Capital, IDBI
Capital and SBI Capital Markets. Citibank, Deutsche Bank, DSP Merrill Lynch, Morgan
Stanley, Enam Securities and Kotak Securities have been appointed to act as book running
lead managers for the Coal India Limited IPO.

For EIL, the government has short-listed HSBC Holdings Plc, ICICI Securities, SBI Capital
Markets and IDFC Capital to manage the public offering. UBS AG, Kotak Mahindra Capital,
Enam Securities and IDBI Capital Market Services, Avendus Capital, Edelweiss Capital
and Centrum Broking also competed for EIL issue. Hindustan Copper Ltd, which would
view the bids after June 24, has obtained several bids, according to sources.
Source: http://www.thehindubusinessline.in

Managers, Consultants or Advisers to the Issue

The managers to the issue assist in the drafting of prospectus, application forms and completion
of formalities under the Companies Act, appointment of Registrar for dealing with share
applications and transfer and listing of shares of the company on the stock exchange. Companies
can appoint one or more agencies as managers to the issue.

Portfolio Management

Portfolio refers to investment in different kinds of securities such as shares, debentures or bonds
issued by different companies and government securities. Portfolio management refers to
maintaining proper combinations of securities in a manner that they give maximum return
with minimum risk.

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