KVSSNRAO's Handbook of Investment Banking

Investment Banking, Analysis and Portfolio Management Concepts Directory

2009-01-31T00:17:00.000-08:00

I am developing a directory of concepts on knol platform. Prsently I am setting up the framework or structure. I shall create individual knols for each concept over a period of time.

Investment Banking, Analysis and Portfolio Management Concepts Directory (Ua to Uz)
http://knol.google.com/k/narayana-rao-kvss/copy-of-investment-banking-analysis-and/2utb2lsm2k7a/835

Kepha Partners - Venture Builders

2008-05-09T04:39:00.000-07:00

Mission

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"Kepha" is Aramaic for "rock." As more and more venture capital is raised, many firms are pursuing new strategies and models. Some have become venture bankers. Kepha has a back-to-basics approach focused on pre-seed, seed and Series A companies. We call this "venture building," and it is what created the venture industry in the first place. It is the foundation, or rock, of venture capital.

Our mission is to:

1. Serve and partner with entrepreneurs to build companies that really matter

2. Aggressively build for our investors and management teams shareholder value that will last for many generations

3. Establish a new standard for venture capital and become the McKinsey & Co. of the industry

We seek entrepreneurs who have disruptive ideas and know that they can do it better. We recruit executives who are energized by making a difference in how they lead teams and out-execute incumbents. We want to work with people who would rather try and fail vs. not try at all.

http://www.kephapartners.com/mission.php

Contact

Kepha Partners
1050 Winter Street, Suite 1000
Waltham, MA 02451
781.577.0355

Building Investment Banking Pitchbooks Faster Using the Microsoft Office System

2008-03-14T18:30:00.000-07:00

An investment banking pitchbook solution can help companies decrease their pitchbook preparation time, improve pitchbook quality, and more effectively collaborate across pitchbook teams. Based on the Microsoft Office System, these solutions build upon familiar Microsoft technologies so they can be deployed quickly with minimal training costs.

Situation

Today, investment banking pitchbooks often use manual processes to assemble information and documents. The typical content components of a pitchbook include firm credentials, industry overview, team member biographies, relevant financial products and services, and client-specific financial information—key information that is likely to live in other parts of the organization in isolated systems.

The processes for creating and compiling this information are often time-consuming and labor-intensive, and depend on manual systems for compilation, approval, and production. These outdated systems and processes can lead to missed deadlines, inconsistent branding and messaging, lack of corporate compliance, and lost opportunities.

Solution

Investment banking pitchbook solutions based on the Microsoft Office System can help companies decrease pitchbook preparation time and improve the pitchbook quality. These solutions can help address specific pitchbook creation requirements by enabling:

• Presentation automation. By utilizing templates, content libraries and built-in features from desktop applications such as Microsoft Office PowerPoint 2003 and Microsoft Office Excel 2003, many time-consuming processes can be automated for faster pitchbook creation.

• Advanced modeling and data integration. By using key technologies such as Excel Web services and XML support, data from both internal and external information sources can be integrated directly and automatically into the pitchbooks.

• Single collaboration points. By enabling collaboration with Microsoft SharePoint Products and Technologies, the pitchbook creation process can be streamlined and organized around a common location for information sharing, task management, issue tracking, and scheduling.

Benefits

By adopting an investment banking pitchbook solution based on the Microsoft Office System, customers could:

• Save time and money by reducing pitchbook development cycle time.

• Improve corporate learning by promoting best practices and leveraging intellectual property.

• Raise pitchbook quality by ensuring consistency and compliance.

• Respond to opportunities more quickly by improving team communication, collaboration, and approval processes.

• Minimize deployment costs by taking advantage of existing investments in familiar Microsoft technology.

For Fact sheet of the solution
http://download.microsoft.com/download/9/C/F/9CFD362C-2523-4965-870F-38FB0E68E5F3/IPB_DataSheet.pdf

http://www.microsoft.com/office/showcase/pitchbooks/default.mspx

IPO Advertising and Communications

2007-12-24T08:27:00.000-08:00

India

IPO marketing in India has some unique features. IPOs here target retail investors, while abroad it is institutional investors who put in their money. The noise levels are predictably higher in India because of this.

Almost 35% of the size of an issue, incidentally, is reserved for retail investors. However, institutional investors play a bigger role in IPOs today than they did in the 90s, when the retail investor was king. Earlier, issues were at par and the retail investors and institutional used to participate on equal terms. Today, issues are sold at a substantial premium to face value, and the target is no longer just the retail investor. The focus has shifted from a retail to an institutional market today. Subsequently, the role of an agency has also changed over time.

Still, important role is played by specialist IPO agencies working in tandem with companies looking to go to the market. These specialists are given the communication mandate, right from corporate advertising to public relations, stretching for about two-three months. Merchant bankers involved with IPOs recommend a list of agencies to their clients, who then decide on the latter based on experience and merit. The trend at the moment is to consolidate the entire communication portfolio with a single agency as there is synergy in the message going out to various stakeholders including retail as well as institutional investors.

Besides Concept, a clutch of agencies including Adfactors, Pressman and Sobhagya, are key players in the IPO communication business valued at about Rs 250 crore. The overall financial communication business, for the record, of which IPO communication is a part, is about Rs 1,500 crore, say observers.

IPO marketing commences almost three to four weeks before the draft red herring prospectus (DRHP) of the company is filed with Sebi. The process begins with the release of corporate ads, which continues well after the DRHP is filed. In fact, corporate advertising is permitted for a period of 21 days after the filing of the DRHP. Once the draft red herring prospectus is cleared and the date for the issue is finalised the company is debarred from making any “futuristic statements”.

Hence, the first phase is critical because the company can send an unrestricted message to prospective investors As such, the overall communication package involves media and investor relations, liaising with fund managers, brokers and analysts. Roadshows, in particular, are undertaken by corporates to build interest and intrigue for the IPO. Target centres hve to be identified for roadshows.

Typically, IPO roadshows cover all the metros in the country. However, if the company is keen to target small investors then a visit to smaller towns and cities is not ruled out either. Unlike in the 90s, when corporate advertising was permitted right up to the launch of the issue with merely a few days gap between the issue-opening date and the close of the campaign, today, it is largely PR that calls the shots.

For selection of an agency, what is most important is that an agency should be able to understand all the statutory requirements and compliance norms. It should be able to deliver results under tight deadlines and schedules. So it must have the full knowledge beforehand.

Most issuers these days do corporate advertising only if the size of the issue is large or they have goals beyond the current offering.

The cost and complexity of media options has increased and small issuers can’t afford a pan-India image build-up.

The estimates for ad spends are that the spends on IPOs vary between 0.5 and 1% of the issue size. Agencies could either charge a flat fee for the entire package or a 15% commission for ads issued and additional fees for services rendered.

The companies and the advertising agency has to try and merge the short-term objectives of the IPO with the long-term growth story of the company. How well they do it determines the return on investment in IPO advertising.

References
http://www.financialexpress.com/old/fe_full_story.php?content_id=132915
financial express, net edition, Thursday, July 06, 2006

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USA 2000

IPO as spends

A study of 12 successful companies with successful IPOs seemed to split into two distinct groups: firms that spent more than $2 million on advertising before and during the IPO, and those that parted with less than $750,000.

All of the companies either initiated or bulked up ad expenditures just before the offering. But some of them, including Drugstore.com and Priceline.com, spent significantly more than others. This group spent from $2 million to upward of $8 million on advertising in the three-month period before and including the offering. After the IPO, ad money from these big spenders tended to taper off - with the exception of iVillage, which launched into an escalating ad campaign.

Another set of companies followed a different path, spending less than $1 million on advertising before the IPO. These companies, including MarketWatch.com and TheStreet.com, had modest ad expenditures before their IPOs, and gradually increased spending after going public. One exception was NetZero, whose post-IPO ad expenditures went through the roof.

Clearly, high spending wasn't a prerequisite for a successful IPO. Foundry Networks, the only b-to-b play on the list, soared with minimal ad money.

While certain companies did not spend on Large pre-IPO ad spending, Ask Jeeves spent almost 12 percent of the eventual amount raised by its IPO on ads before and during its offering.

Advertising For The IPO

http://theindustrystandard.com/article/0,1902,13013,00.html

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India SEBI UNDERWRITERS - RULES - 1

2007-12-23T23:26:00.000-08:00

MINISTRY OF FINANCE
(DEPARTMENT OF ECONOMIC AFFAIRS)
NOTIFICATION
NEW DELHI 8TH OCTOBER 1993
SECURITIES AND EXCHANGE BOARD OF INDIA
(UNDERWRITERS) RULES, 1993

S O 766 (E) In exercise of the powers conferred by section 29 of the Securities and Exchange Board of India, Act 1992, (15 of 1992) the Central Government hereby makes the following regulations, namely:-

Short title and commencement

1. (1) These regulations may be called the Securities and Exchange Board of India (Underwriters) Rules, 1993.

(2) They shall come into force on the date of their publication in the Official Gazette.

Definitions

2. In these regulations, unless the context otherwise requires -

(a) "Act" means the Securities and Exchange Board of India, Act 1992 (15 of 1992);
(b) "body corporate" means a body corporate as defined in clause (7) of section 2 of the Companies Act, 1956 (1 of 1956);

(c) "certificate" means a certificate of registration granted or renewed by the Board under the regulations;

(d) "issue" means an offer of sale of securities by any body corporate or by any other person or group of persons on its or his or their behalf, as the case may be, to the public or the holders of securities of such body corporate or person or group of persons;

(e) "regulations" means the Securities and Exchange Board of India (Underwriters) Regulations 1993;

(f) "underwriter" means a person, who engages in the business of underwriting of an issue of securities of a body corporate;

(g) "underwriting" means an agreement with or without conditions to subscribe to the securities of a body corporate when the existing shareholders of such body corporate or the public do not subscribe to the securities offered to them.

Not to act as underwriter without certificate
3. (1) No person shall act as underwriter unless he holds a certificate granted by the Board under the regulations

Provided that such person, who was engaged as underwriter prior to the coming into force of the Act, may continue to carry on activity as underwriter if he has made an application for such registration under the proviso to sub-section (1) of Section 12 of the Act till the disposal of such application

(2) Notwithstanding anything contained in sub-rule (1), every stock broker or merchant banker holding a valid certificate of registration under Section 12 of the Act, shall be entitled to act as an underwriter without obtaining a separate certificate for underwriting activities which shall be governed by these rules and regulations.

Conditions for grant or renewal of certificate to underwriter

4. The Board may grant or renew a certificate to an underwriter subject to the following conditions namely;

(a) in case of any change in the status and constitution, the underwriter shall obtain prior permission of the Board to continue to act as underwriter;
(b) without prejudice to the obligations under any other, the underwriter shall enter into a valid agreement with the body corporate on whose behalf he is acting as underwriter and the said agreement amongst other things may define the allocation of duties and responsibilities between him and such body corporate and;

(c) he shall pay the amount of fees of registration in the manner provided in the regulations;

(d) he shall abide by the rules and regulations made under the Act in respect of the activities carried on by him as an underwriter.

Period of validity of the certificate
5. The certificate of registration or its renewal, as the case may be, shall be valid for a period of three years from the date of its issue to the underwriter.

SECURITIES AND EXCHANGE BOARD OF INDIA (UNDERWRITERS)
REGULATIONS 1993

CHAPTER I
PRELIMINARY

Short title and commencement

1. (1) These regulations may be called the Securities and Exchange Board of India (Underwriters) Regulations, 1993.

(2) They shall come into force on the date of their publication in the Official Gazette.

Definitions

2. (1) In these regulations, unless the context otherwise requires :-

(a) "enquiry officer" means any officer of the Board, or any other person, having experience in dealing with the problems relating to the securities market, who is appointed by the Board under Chapter V;
(b) "form" means a form specified in Schedule I;

(c) "inspecting authority" means one or more persons appointed by the Board to exercise powers conferred under Chapter IV;

(d) "principal officer" means, -

(i) in relation to a proprietary concern, the proprietor himself;
(ii) in relation to a firm or an association of persons or any body of individuals or a body corporate, a secretary, treasurer, partner, manager or director of the firm, association, or body corporate;

(iii) any person connected with the management or administration of the firm, association or the body corporate upon whom the Board has served a notice of its intention of treating him as the principal officer thereof;

(e) regulations" means Securities and Exchange Board of India (Underwriters) Regulations, 1993;
(f) rules" means Securities and Exchange Board of India (Underwriters) Rules 1993;

(2) All other words and expressions used in these regulations but not defined, and defined in the Act and the rules shall have the same meanings respectively assigned to them in the Act or the rules, as the case may be.

CHAPTER II
REGISTRATION OF UNDERWRITERS

Application for grant of certificate

3. (1) An application by an underwriter for grant of a certificate shall be made to the Board in form A.

(2) Notwithstanding anything contained in sub-regulation (1), any application made by an underwriter prior to coming into force of these regulations containing such particulars or as near thereto as mentioned in form A shall be treated as an application made in pursuance of sub-regulation (1) and dealt with accordingly.

Furnishing of further information, clarification, etc.

4. (1) The Board may require the applicant to furnish further information or clarification regarding matters relevant to underwriting to consider the application for grant of a certificate.

1*[(2) If the Board, on receipt of further information, is of the opinion that the information so furnished is not sufficient to decide on the application and seeking further information through correspondence is likely to delay the matter, it may require the applicant or its principal officer to appear before the Board in order to give an opportunity to the applicant to give further clarifications on the application made under Regulation 3].

Application to conform to the requirements -

5. Subject to the provisions of sub-regulation (2) of regulation 3 , any application, which is not complete in all respects and does not conform to the instructions specified in the form, shall be rejected:

Provided that, before rejecting any such application, the applicant shall be given an opportunity to remove within 2*[one month] such objections as may be indicated by the Board.

3*[Provided further that the Board may, on sufficient reasons being shown extend the time by another one month in order to enable the applicant to comply with the requirements of the Board].

Consideration of application

6. The Board shall take into account for considering the grant of a certificate, all matters which are relevant to or relating to underwriting and in particular the following, namely, whether the applicant -

(a) has the necessary infrastructure like adequate office space, equipments, and manpower to effectively discharge his activities;
(b) has any past experience in underwriting or has in his employment minimum two persons who had the experience in underwriting;

(c) or any person, directly or indirectly connected with the applicant has not been granted registration by the Board under the Act;

4*[Explanation :- For the purposes of this clause the Board shall take into account whether a previous application for a certificate of any person directly or indirectly connected with the applicant has been rejected by the Board or any disciplinary action has been taken against such person under the Act or any of the Rules or any of the Regulations made under the Act]

(d) fulfils the capital adequacy requirements specified in regulation 7 ;

(e) or any of its director, partner or principal officer is or has at any time been convicted for any offence involving moral turpitude or has been found guilty of any economic offence.

5*[(f) is a fit and proper person."]

Capital Adequacy Requirement
7. (1) The capital adequacy requirement referred to in sub- regulation (d) of regulation 6 shall not be less than the networth of rupees twenty lakhs;

(2) Notwithstanding anything contained in sub-regulation (1),-

(a) every stock broker, who acts as an underwriter shall fulfil the capital adequacy requirements specified by the stock exchange of which he is a member;
(b) every merchant banker, who acts as an underwriter shall fulfil the capital adequacy requirements specified in regulation 7 of the Securities and Exchange Board of India (Merchant Banker) Regulations 1992.

Explanation: For the purposes of this regulation, "networth" means -
(a) in the case of an applicant being a proprietary concern or a firm or an association of persons or any body of individuals, the value of capital contributed to such business by the applicant and the free reserves of any kind belonging to the business of the applicant; and
(b) in the case of a body corporate, the value of the paid- up capital and the free reserves as disclosed in the books of accounts of the applicant at the time of making the application under sub-regulation (1) of regulation 3 .

Procedure for registration
8. The Board on being satisfied that the applicant is eligible, shall send an intimation 6*[within one month of such satisfaction] of the applicant mentioning that he has been found eligible for the grant of certificate and grant a certificate in form B subject to payment of fees as specified in regulation 12 .

Renewal of certificate

9. (1) An underwriter may, if he so desires, make an application in form A for renewal of certificate before three months of the expiry of the period of certificate.

(2) The application for renewal of certificate under sub-regulation (1) shall be dealt with in the same manner as if it were an application for grant of a certificate made under regulation 3.

Procedure where registration is not granted

10. (1) Where an application for grant of a certificate under regulation 3 or of renewal under regulation 9 does not fulfil the requirements set out in regulation 6 , the Board may reject the application, after giving an opportunity of being heard.

(2) 7*[The decision shall be communicated by the Board within thirty days of such decision stating therein the grounds on which the application has been rejected].

(3) Any applicant may, being aggrieved by the decision of the Board under sub-regulation (2), apply within a period of thirty days from the date of receipt of such intimation, to the Board for reconsideration of its decision.

(4) On receipt of the application made under sub-regulation (3), the Board shall reconsider its decision and communicate its findings thereon as soon as possible in writing to the applicant.

Effect of refusal to grant or renew certificate

11. Any underwriter whose application for grant or renewal of a certificate has been refused by the Board shall on and from the date of the receipt of the communication under sub - regulation (2) of regulation 10 cease to act as an underwriter.

8*[Provided that if the Board is satisfied that it is in the interest of the investors, it may permit the underwriter to undertake the underwriting commitments already entered into by him during the validity period of the certificate.]

Payment of fees and the consequences of failure to pay fees

12. (1) Every applicant eligible for grant or renewal of a certificate shall pay fees in such manner and within the period specified in Schedule II:

9*[***]

Provided 10*[***] that a stock broker or a merchant banker who, has been granted a certificate under Section 12 of the Act and pays fees under the Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Regulations, 1992 or Securities and Exchange Board of India (Merchant Bankers) Regulations 1992, shall not be required to pay fees under sub- regulation (1).

(2) Where an underwriter fails to pay the fees as provided in sub- regulation (1), the Board may suspend the certificate, whereupon the underwriter shall forthwith cease to act as an underwriter.

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1. Substituted for "The applicant or, its principal officer shall, if so required, appear before the Board for personal representation. Application to conform to the requirements" by Securities and Exchange Board of India (Underwriters) Amendment Regulations 1997 vide notification No . S.O.46(E) dated 17th January 1997 .

2. Substituted for "the time specified" by Securities and Exchange Board of India Amendment Regulations 1997 vide Notification No. S.O.46(E) dated 17th January, 1997.

3. Inserted by Securities and Exchange Board of India (Underwriters) Amendment Regulations, 1997 vide Notification No. S.O.46 (E) dated January 17, 1997.

4. Substituted for "The applicant or, its principal officer shall, if so required, appear before the Board for personal representation. Application to conform to the requirements" by Securities and Exchange Board of India (Underwriters) Amendment Regulations 1997 vide notification No . S.O.46(E) dated 17th January 1997 .

5. Inserted by SEBI (underwriters) Amendment Regulations, 1998 w.e.f. 5-1-1998

6. Inserted by Securities and Exchange Board of India (Underwriters) Amendment Regulations, 1997 vide Notification No. S.O.46 (E) dated January 17, 1997.

7. Substituted for, " The refusal to grant or renew the certificate shall be communicated by the Board within thirty days of such refusal to the applicant stating therein the grounds on which the application has been rejected" by Securities and Exchange Board of India (Underwriters) Amendment Regulations 1997 vide Notification No. S.O.46(E) dated 17th January, 1997.

8. Inserted by Securities and Exchange Board of India (Underwriters) Amendment Regulations, 1997 vide Notification No. S.O.46 (E) dated January 17, 1997.

9. The proviso "Provided that the Board may on sufficient cause being shown permit the underwriter to pay such fees at any time before the expiry of six months from the date on which such fees become due;" omitted by SEBI (Underwriters) Amendment Regulations, 1997 vide Notification No. S.O.46 (E) dated January 17, 1997.

10. The word "further" omitted by SEBI (Underwriters) Amendment Regulations, 1997 vide Notification No. S.O.46 (E) dated January 17, 1997.

CHAPTER III
GENERAL OBLIGATIONS AND RESPONSIBILITIES

To abide by the Code of Conduct

13. Every underwriter shall at all times abide by the Code of Conduct as specified in Schedule III.

Agreement with clients

14. Every underwriter shall enter into an agreement referred to in clause (b) of rule 4 with each body corporate on whose behalf he is acting as underwriter and the said agreement shall, amongst other things, provide for the following, namely :-

(i) the period for which the agreement shall be in force;
(ii) the amount of underwriting obligations;

(iii) the period, within which the underwriter has to subscribe to the issue after being intimated by or on behalf of such body corporate;

(iv) the amount of commission or brokerage payable to the underwriter;

(v) details of arrangements, if any, made by the underwriter for fulfilling the underwriting obligations.

General responsibilities of an underwriter
15. (1) The underwriter shall not derive any direct or indirect benefit from underwriting the issue other than the commission or brokerage payable under an agreement for underwriting.

(2) The total underwriting obligations under all the agreements referred to in clause (b) of rule 4 shall not exceed twenty times the networth referred to in regulation 7.

(3) Every underwriter, in the event of being called upon to subscribe for securities of a body corporate pursuant to an agreement referred to in clause (b) of rule 4 shall subscribe to such securities within 45 days of the receipt of such intimation from such body corporate.

To maintain proper books of accounts and records, etc.

16. (1) Subject to the provisions of any other law, every underwriter shall keep and maintain the following books of accounts and documents, namely :-

(a) in relation to underwriter being a body corporate -
(i) a copy of the balance sheet and profit and loss account as specified in sections 211 and 212 of the Companies Act, 1956 (1 of 1956);
(ii) a copy of the auditor's report referred to in section 227 of the Companies Act, 1956 (1 of 1956).

(b) in relation to an underwriter not being a body corporate -
(i) records in respect of all sums of money received and expended by them and the matters in respect of which the receipt and expenditure take place; and
(ii) their assets and liabilities.

(2) Without prejudice to sub-regulation (1), every underwriter shall, after the close of each financial year as soon as possible but not later than six months from the close of the said period furnish to the Board if so required copies of the balance sheet, profit and loss account, statement of capital adequacy requirement and such other documents as may be required by the Board under regulation 16 .
(3) Every underwriter shall also maintain the following records with respect to -

(i) details of all agreements referred to in clause (b) of rule 4;
(ii) total amount of securities of each body corporate subscribed to in pursuance of an agreement referred to in clause (b) of rule 4;

(iii) statement of capital adequacy requirements as specified in regulation 7 ;

(iv) such other records as may be specified by the Board for underwriting.

(4) Every underwriter shall intimate to the Board the place where the books of accounts, records and documents are maintained.
Period of maintenance of books of accounts, records and other documents

17. Every underwriter shall preserve the books of account and other records and documents mentioned under this chapter for a minimum period of five years.

1*[Appointment of Compliance Officer

17 A (1) Every underwriter shall appoint a compliance officer who shall be responsible for monitoring the compliance of the Act, rules and regulations, notifications, guidelines, instructions, etc. issued by the Board or the Central Government and for redressal of investors’ grievances.

(2) The compliance officer shall immediately and independently report to the Board any non-compliance observed by him]

Power to call for information

18. (1) The Board may at any time call for any information from an underwriter with respect to any matter relating to underwriting business.

(2) Where any information is called for under sub-regulation (1) it shall be the duty of the underwriter to furnish such information.

--------------------------------------------------------------------------------

1. Inserted by SEBI (Investment Advice by Intermediaries) (Amendment) Regulations, 2002, w.e.f. 29.05.2001.

India SEBI UNDERWRITERS - RULES - 2

2007-12-23T23:25:00.000-08:00

CHAPTER IV
INSPECTION AND DISCIPLINARY PROCEEDINGS

Board's right to inspect

19. (1) Where it appears to the Board so to do, it may appoint one or more persons as inspecting authority to undertake the inspection of the books of accounts, other records and documents of the underwriter for any of the purposes specified in sub-regulation (2).

(2) The purposes referred to in sub-regulation (1) shall be as follows, namely:-

(a) to ensure that the books of accounts and other records and documents are being maintained in the manner required;
(b) that the provisions of the Act, rules and regulations are being complied with;

(c) to investigate into the complaints received from investors, other underwriters or any other person on any matter having a bearing on the activities of the underwriter; and

(d) to investigate suo-moto in the interest of securities business or investors' interest into the affairs of the underwriter.

Procedure for inspection
20. (1) Before undertaking an inspection under regulation 19 the Board shall give a reasonable notice to the underwriter, for that purpose.

(2) Notwithstanding anything contained in sub-regulation (1), where the Board is satisfied that in the interest of the investors or in the public interest no such notice should be given, it may by an order in writing direct that the inspection of the affairs of the underwriter be taken up without such notice.

(3) On being empowered by the Board, the inspecting authority shall undertake the inspection and the underwriter against whom an inspection is being carried out shall be bound to discharge his obligations as provided under regulation 21 .

Obligations of underwriter on inspection by the Board

21. (1) It shall be the duty of every director, proprietor, partner, officer and employee of the underwriter who is being inspected to produce to the inspecting authority such books, accounts and other documents in his custody or control and furnish him with the statements and information relating to an underwriter within such time as the inspecting authority may require.

(2) The underwriter shall allow the inspecting authority to have a reasonable access to the premises occupied by such underwriter or by any other person, on his behalf and also extend reasonable facility for examining any books, records, documents and computer data in the possession of the underwriter or any such other person on their behalf and also provide copies of documents or other material which in the opinion of the inspecting authority are relevant for the purposes of the inspection.

(3) The inspecting authority shall in the course of inspection, be entitled to examine or record statements of any principal officer, director, partner, proprietor and employee.

(4) It shall be the duty of every director, proprietor, partner, officer or employee of the underwriter to give to the inspecting authority all assistance in connection with the inspection which the underwriter may reasonably be expected to give.

Submission of report to the Board

22. The inspecting authority shall, as soon as may be possible, submit an inspection report to the Board.

Communication of findings, etc. to the underwriter

23. (1) The Board shall after consideration of the inspection report communicate the findings to the underwriter to give him an opportunity of being heard before any action is taken by the Board on the findings of the inspecting authority.

(2) On receipt of the explanation, if any, from the underwriter the Board may call upon the underwriter to take such measures as the Board may deem fit in the interest of the securities market and for due compliance with the provisions of the Act, rules and regulations.

Appointment of Auditor

24. Notwithstanding anything contained above the Board may appoint a qualified auditor to investigate into the books of account of the affairs of the underwriter:

Provided that the auditor so appointed shall have the same powers of the inspecting authority as stated in regulation 19 and the obligation of the underwriter and his employees in regulation 21 shall be applicable to the investigation under this regulation.

Explanation: For the purposes of this regulation, the expression "qualified auditor" shall have the same meaning as given to it in section 226 of the Companies Act, 1956 (1 of 1956).

CHAPTER V
PROCEDURE FOR ACTION IN CASE OF DEFAULT

Liability for action in case of default
25. (1) An underwriter or a stock broker or a merchant banker entitled to carry on business of underwriting without obtaining a separate certificate under rule 3 who, -

(a) fails to comply with any conditions subject to which certificate has been granted;
(b) contravenes any of the provisions of the Act, rules or regulations; shall be liable to any of the penalties specified in sub- regulation (2).

(2) The penalties referred to in sub-regulation (1) may be either:
(a) suspension of registration 1*[under the grounds specified] in sub-regulation (1) of Regulation 26 after enquiry for a specified period; or
(b) cancellation of registration 2*[under the grounds specified] in sub-regulation (2) of Regulation 26.

Suspension, cancellation of certificate
26. (1) A penalty of suspension of certificate granted to an underwriter or a certificate of registration granted under section 12 of the Act to a stock broker or a merchant banker entitled to carry on business of underwriting without obtaining a certificate under rule 3, may be imposed where an underwriter or such stock broker or merchant banker -

(i) violates the provisions of the Act, rules or regulations;
(ii) does not follow the code of conduct specified at Schedule III;

(iii) (a) fails to furnish any information relating to his business as underwriter as required by the Board;

(b) furnishes wrong or false information,
(c) does not submit periodical returns as required by the Board;

(d) does not co-operate in any enquiry conducted by the Board;

(iv) indulges in manipulating or price rigging or cornering activities;
(v) is guilty of misconduct or improper or un-business like or unprofessional conduct;

(vi) fails to maintain the capital adequacy requirement in accordance with the provisions of regulation 7.

(vii) fails to pay the fees as specified in regulation 12;

(viii) violates the conditions of registration;

(ix) fails to fulfil his underwriting obligations.

Provided that the Board for reasons to be recorded in writing may in case of repeated defaults of the type mentioned above impose a penalty of cancellation of certificate on the underwriter or cancellation of certificate of registration granted under section 12 of the Act on a stock broker or a merchant banker.

(2) A penalty of cancellation of certificate granted to an underwriter or a certificate of registration granted under section 12 of the Act to a stock broker or a merchant banker entitled to carry on the business of underwriting under rule 3, may be imposed where they.
(i) indulge in deliberate manipulation or price rigging or cornering activities affecting the securities market and the investors interest;
(ii) fail to fulfil the capital adequacy referred to in regulation 7;

(iii) are guilty of fraud, or is convicted of a criminal offence;

(iv) violate any provision of Securities and Exchange Board of India (Insider Trading) Regulations, 1992; or

(v) violate the provisions of the Act, rules and regulations;

(vi) fails to fulfil more than once their underwriting obligations.

Manner of making order of suspension and cancellation of certificate
27. No order of penalty of suspension or cancellation shall be imposed except after holding an inquiry in accordance with the procedure specified in regulation 28 .

Manner of holding enquiry before suspension or cancellation

28. (1) For the purpose of holding an enquiry under regulation 27, the Board may appoint an enquiry officer.

(2) The enquiry officer shall issue to the underwriter a notice at the registered office or the principal place of business of the underwriter.

(3) The underwriter may, within thirty days from the date of receipt of such notice, furnish to the enquiry officer a reply together with copies of documentary or other evidence relied on by him or sought by the Board from the underwriter.

(4) The enquiry officer shall, give a reasonable opportunity of hearing to the underwriter to enable him to make submissions in support of his reply made under sub-regulation (3).

(5) Before the enquiry officer, the underwriter may either appear in person or through any person duly authorised by the underwriter:

Provided that no lawyer or advocate shall be permitted to represent the underwriter at the enquiry:

Provided further that where a lawyer or an advocate has been appointed by the Board as a presenting officer under sub-regulation (6), it shall be lawful for the underwriter to present its case through a lawyer or advocate.

(6) If it is considered necessary, the enquiry officer may ask the Board to appoint a presenting officer to present its case.

(7) The enquiry officer shall, after taking into account all relevant facts and submissions made by the underwriter, submit a report to the Board and recommend the penalty to be awarded as also the justification of the penalty proposed.

Show-cause notice and order

29. (1) On receipt of the report from the enquiry officer, the Board shall consider the same and issue a show-cause notice as to why the penalty as it considers appropriate should not be imposed.

(2) The underwriter shall within 3*[thirty days] of the date of the receipt of the show-cause notice send a reply to the Board.

(3) The Board after considering the reply to the show-cause notice, if received, shall as soon as possible but not later than thirty days from the receipt of the reply, if any, pass such order as it deems fit.

(4) Every order passed under sub-regulation (3) shall be self- contained and give reasons for the conclusions stated therein including justification of the penalty imposed by that order.

(5) The Board shall send a copy of the order under sub-regulation (3) to the underwriter.

Effect of suspension and cancellation of certificate granted to underwriter

30. (1) On and from the date of the suspension of the certificate or certificate of registration granted to a stock broker or a merchant banker under section 12 of the Act, the underwriter shall cease to act as an underwriter during the period of suspension:

Provided that the Board may in the interest of the investors and securities market, permit the underwriter to complete his underwriting obligations specified in the agreement referred to in clause(b) of rule 4.

(2) On and from the date of cancellation of certificate or certificate of registration granted to a stock broker or a merchant banker under section 12 of the Act, the underwriter shall with immediate effect cease to act as an underwriter.

Publication of order of suspension

31. The order of the Board passed under sub-regulation (3) of regulation 29, shall be published in atleast two daily newspapers by the Board.

Appeal to the Securities Appellate Tribunal

32. 4*[Any person aggrieved by an order of the Board made, on and after the commencement of the Securities Laws (Second Amendment) Act, 1999, (ie., after 16th December 1999), under these regulations may prefer an appeal to a Securities Appellate Tribunal having jurisdiction in the matter

--------------------------------------------------------------------------------
1. Inserted by Securities and Exchange Board of India (Underwriters) Amendment Regulations, 1997 vide Notification No.S.O.46(E) dated January 17, 1997.
2. Ibid

3. Substituted for "twenty one days" by Securities and Exchange Board of India (underwriters) Amendment Regulations 1997 vide Notification No.S.O.46(E) dated January 17, 1997.

4. Substituted for the earlier provision vide SEBI (Appeal to the Securities Appellate Tribunal) (Amendment) Regulations, 2000 vide S.O.278(E) dated March 28, 2000

--------------------------------------------------------------------------------

SCHEDULE I

FORM A
SECURITIES AND EXCHANGE BOARD OF INDIA
(UNDERWRITERS) REGULATIONS 1993
( REGULATION 3)

APPLICATION FOR REGISTRATION AS UNDERWRITER

NAME OF APPLICANT AND ITS STATUS
(Whether proprietary concern/ firm/ association of persons/ body of persons/ body corporate)

NAME AND DESIGNATION OF PRINCIPAL

OFFICER

DESIGNATION:

TELEPHONE NO.

INSTRUCTIONS :-

1. Applicants must submit a completed application form together with supporting documents to the Securities and Exchange Board of India.
2. All columns of the application should be filled in. In case a column is not relevant then `NOT APPLICABLE' should be specified.

3. Information which needs to be supplied in more details may be written on separate sheets which should be attached to the application form.

4. Original copy of form duly signed should be submitted for registration.

PART - I
GENERAL INFORMATION

1. APPLICANTS DETAILS

1.1 Name of the Applicant:

1.2 Address of Applicant:

Pin code: _____________________ Telephone No:_____________

Telex No: _____________________ Fax No: _________________

1.3 Address of the applicant for Correspondence:

Pin code: _____________________ Telephone No:_____________
Telex No: _____________________ Fax No: _________________

1.4 Address of Branch Offices (in India) of the applicant, if any:
1.5 Whether any other application under Securities and Exchange Board of India Act, 1992 has been made for grant of Certificate, if so, details thereof

2. ORGANISATION STRUCTURE :

2.1 Objects of the organisation of the applicant. (Attach extracts from relevant documents like, Partnership deed/Charter/Memorandum of Association/Articles of Association etc) in support of objects of the organisation.

2.2 Date and Place of Incorporation/Establishment of the organisation of the applicant.

Day Month Year Place

2.3 Status of the applicant (specify whether proprietary, partnership, association of persons, body of individuals, limited company - public/private, others. If listed, name the stock exchange and latest share price:-high and low.)

2.4 Organisation Chart stating the functional responsibility at various levels

2.5 Particulars of all Proprietors/ Partners/ Managers/ Officers/ Directors.
[Name, Qualification, Experience, Date of Appointment, Other directorship, (Name and ate of Appointment), Previous positions held.]

2.6 Number of employees

2.7 Name and activities of associate companies/ concerns.
Name Address/Phone number/ Type of activity/ Ownership details /Nature and Quantum of financial trading.

2.8 In case the applicant is a body corporate, please give list of major share holders (holding 5% or more voting rights)

3.0 DETAILS OF INFRASTRUCTURAL FACILITIES

3.1 Office Space (mention the extent of area and ownership details available).

3.2 Office Equipment (mention the details of electronic office equipment, typewriters, telecommunication equipment, Furniture & Fixtures, other communication facilities etc.)

4.0 BUSINESS PLAN ( FOR THREE YEARS)

4.1 History, Major achievements and present activity

5.0 FINANCIAL INFORMATION

5.1 Capital Structure (Rs. in lakhs)
Current Year Last Year Previous Year Second Year Third Year
a) Paid-up capital
b) Free reserves (excluding revaluation reserves)
c) Total (a) + (b)
d) Loans (Details)
e) Net profit (i) General
(ii)Specific

Note:- In case of partnership or proprietary concerns, please indicate capital minus drawings.

5.2 Deployment of Resources

a) Fixed Assets

b) Plant & Machinery and office equipment

c) Investments (Details should be given separately)

d) Others

5.3 Major Source of Estimated Profit from various sources (Rs. in lakhs)
Current Year Last Year Previous Year Second Year Third Year

5.4 Please enclose three years of audited annual accounts and where unaudited reports are submitted, give reasons.

5.5 Name and Address of the Principal Bankers

5.6 Name and Address of the Auditors (Internal, External & Tax auditor, if any, as applicable)

6.0 OTHER INFORMATION

6.1 Indicate involvement in any offence relating to moral turpitude/economic offenses in the last three years.

6.2 Any other information considered relevant to the nature of services rendered by the company.

PART-II

7.0 BUSINESS INFORMATION
7.1 Indicate marketing capability for Capital Issues.

7.2 Indicate How decision on Underwriting is usually taken.

7.3 Indicate various research & database facilities available.

7.4 Enclose a copy of typical contract entered with the issuer for Underwriting activity.

8.0 EXPERIENCE :

8.1 Experience in Underwriting activities. (Indicate Name of the company, Particulars of the issue, Amount of underwriting done in last three years)

8.2 Experience in other financial services rendered:- (Period, Area and Date of Commencement of Activity).

8.3 Details of all Un-settled and pending devolvement/disputes regarding Underwriting:
Nature of dispute Name of the party Pending/settled.

8.4 Indicate underwriting defaulted with any company and reasons for the same.

DECLARATION

THIS DECLARATION MUST BE SIGNED BYPRINCIPAL OFFICER/S.

I/We hereby apply for GRANT OF CERTIFICATE OF ____________________________________ REGISTRATION by the Board. I/We warrant that I/We will carry out my/our duties in accordance with the Act, Rules and Regulations. I/We warrant that I/We have truthfully and fully answered the questions above and provided all the information which might reasonably be considered relevant for the purposes of my/our grant of certificate for registration and I/We will promptly notify the Board of any changes in the information during the period that my/our registration is being considered and if my/our registration is accepted, thereafter.

I/We understand that misleading or attempting to mislead the Board shall render the applicant liable to disciplinary proceedings.

I/We certify that the above information and information supplied in the application form is true, complete and correct.

For and on behalf of

(Name of Applicant)

(Name of Applicant)

PLACE :

Date :

SCHEDULE I - FORMS
FORM B
SECURITIES AND EXCHANGE BOARD OF INDIA
(UNDERWRITERS) REGULATIONS, 1993
( Regulation 8)

CERTIFICATE OF REGISTRATION
I. In exercise of the powers conferred by sub-section (1) of section 12 of the Securities and Exchange Board of India Act, 1992, read with the rules and regulations made thereunder for the underwriters, the Board hereby grants a certificate of registration to ________________________ as an underwriter subject to the conditions in the rules and in accordance with the regulations.

II. Registration Code for the underwriter is __________

III. Unless renewed, the certificate of registration is valid from ________ to _________.

Place :

Date :

By Order

For and on behalf of

Security Exchange Board of India

SCHEDULE II
SECURITIES AND EXCHANGE BOARD OF INDIA
(UNDERWRITERS) REGULATIONS, 1993
( REGULATION 12 )
FEES
1*[1. Every underwriter shall pay a sum of Rs.5 lakhs as registration fees at the time of grant of certificate by the Board:

2. Every underwriter to keep registration in force shall pay renewal fee of Rs.2 lakhs every three years from the fourth year from the date of initial registration.

3. (a) The fee referred to in paragraph 1 shall be paid by the underwriter within fifteen days from the date of receipt of intimation from the Board under regulation 8.

(b) The fee referred to in paragraph 2 shall be paid by the underwriter within fifteen days of receipt of intimation from the Board disposing of the application for renewal made under sub-regulation (1) of regulation 9.
4. The fees specified in paragraphs 1 and 2 shall be payable by the underwriter by a demand draft in favour of "Securities and Exchange Board Of India" payable at Mumbai or at the respective regional office.]

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1. Substituted by SEBI(Underwriters) Amendment Regulations, 1999 w.e.f. 30-9-1999. Earlier paragraph 4 was substituted by the SEBI (Payment of Fees) (Amendment) Regulations, 1995, w.e.f 28.11.1995

SCHEDULE III
SECURITIES AND EXCHANGE BOARD OF INDIA
(UNDERWRITERS) REGULATIONS, 1993
CODE OF CONDUCT
[REGULATION 13]
1. Every underwriter shall maintain high standards of integrity, dignity and fairness in all his dealings with his clients and other Underwriters in the conduct of his business.

2. An underwriter shall ensure that he and his personnel will act in an ethical manner in all his dealings with a body corporate making an issue of securities (hereinafter referred to in the schedule as "the issuer").

3. Every underwriter shall, at all times, render high standards of service, exercise due diligence, ensure proper care and exercise independent professional judgement.

4. Every underwriter shall disclose to the Issuer Company his possible source or potential areas of conflict of duties and interest while providing underwriting services.

5. Underwriter shall not indulge in any unfair competition, which is likely to be harmful to the interest of other underwriters carrying on the business of underwriting or likely to place such other underwriters in a disadvantageous position in relation to the underwriter while competing for, or carrying out any assignment.

6. No underwriter shall make any statement, either oral or written, which would misrepresent -

(a) the services that the underwriter is capable of performing for the, or has rendered to other Issuer Company;
(b) his underwriting commitment.

7. No underwriter shall divulge to other Issuer, Press or any party any confidential information about his Issuer Company, which has come to his knowledge and deal in securities of any Issuer Company without making disclosure to the Board as required under the regulations and also to the Board of Directors of the Issuer Company.
8. No underwriter shall willfully make untrue statement or suppress any material fact in any documents, reports, papers or information furnished to the Board.

1*[9 (a) [An underwriter or any of his employees shall not render, directly or indirectly any investment advice about any security in the publicly accessible media, whether real-time or non-real-time, unless a disclosure of his interest including his long or short position in the said security has been made, while rendering such advice.

(b) In case, an employee of the underwriter is rendering such advice, he shall also disclose the interest of his dependent family members and the employer including their long or short position in the said security, while rendering such advice].

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1. Inserted by SEBI (Investment Advice by Intermediaries) (Amendment) Regulations, 2002. w.e.f. 29.5.2001.

India SEBI DIP - 1

2007-12-23T22:48:00.004-08:00

SEBI (Disclosure and Investor Protection) Guidelines, 2000 - Amended up to December 3, 2007

Investment Banking Regulations - India - Part 1

2007-12-23T17:16:00.003-08:00

SECURITIES AND EXCHANGE BOARD OF INDIA
(MERCHANT BANKERS) REGULATIONS, 1992

http://inv-banking.blogspot.com/2007/12/investment-banking-regulations-india_1584.html

Investment Banking Regulations - India - Part 2

2007-12-23T17:16:00.001-08:00

Merchant Banking Regulations in India

SECURITIES AND EXCHANGE BOARD OF INDIA
(MERCHANT BANKERS) REGULATIONS, 1992
CONTENTS

CHAPTER I: PRELIMINARY

1. Short title and commencement
2. Definitions

CHAPTER II: REGISTRATION OF MERCHANT BANKERS

3. Application for grant of certificate
4. Application to conform to the requirements
5. Furnishing of information, clarification and personal representation
6. Consideration of application
7. Capital Adequacy Requirement
8. Procedure for Registration
9. Renewal of certificate
10. Procedure where registration is not granted
11. Effect of refusal to grant certificate
12. Payment of fees and the consequences of failure to pay fees

CHAPTER III: GENERAL OBLIGATIONS AND RESPONSIBILITIES

13. Code of Conduct
13A. Merchant banker not to associate with any business other than that of the securities market
14. Maintenance of books of accounts, records etc.
15. Submission of Half-yearly results
16. Maintenance of books of account, records and other documents
17. Report on steps taken on Auditor's report
18. Appointment of lead merchant bankers
19. Restriction on appointment of lead managers
20. Responsibilities of lead managers
21. Lead merchant banker not to associate with a merchant banker without registration
22. Underwriting obligations
23. Submission of due diligence certificate
24. Documents to be furnished to the Board
24A. Payment of fees to the Board
25. Continuance of association of lead manager with an issue
26. Acquisition of shares prohibited
27. Information to the Board
28. Disclosures to the Board

CHAPTER IV: PROCEDURE FOR INSPECTION

29. Board's right to inspect
30. Notice before inspection
31. Obligations of merchant banker on inspection by the Board
32. Submission of Report to the Board
33. Action on inspection or investigation report
34. Appointment of Auditor

CHAPTER V: PROCEDURE FOR ACTION IN CASE OF DEFAULT

35. Liability for action in case of default

SCHEDULE I: FORMS

FORM A: APPLICATION FOR GRANT OF CERTIFICATE / RENEWAL OF CERTIFICATE
FORM B: CERTIFICATE OF REGISTRATION
FORM C: DUE DILIGENCE CERTIFICATE

SCHEDULE II: FEES

SCHEDULE III: CODE OF CONDUCT FOR MERCHANT BANKERS

SCHEDULE IV

THE GAZETTE OF INDIA
EXTRAORDINARY

PART III - SECTION 4

PUBLISHED BY AUTHORITY

NOTIFICATION

THE 22 ND DAY OF DECEMBER, 1992

BOMBAY

SECURITIES AND EXCHANGE BOARD OF INDIA

(MERCHANT BANKERS) REGULATIONS, 1992

No.LE/11112/92. In exercise of the powers conferred by Section 30 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Board with the previous approval of the Central Government hereby makes the following regulations, namely: -
CHAPTER I

PRELIMINARY

Short title and commencement

1. (1) These regulations may be called the Securities and Exchange Board of India (Merchant Bankers) Regulations, 1992.
(2) They shall come into force on the date of their publication in the Official Gazette.

Definitions
2. In these regulations, unless the context otherwise requires, -

1*[******]
(b) "form " means a form specified in Schedule I;
(c) "inspecting authority" means one or more persons appointed by the Board to exercise powers conferred under Chapter IV;

(d) "principal officer " means ?

(i) proprietor, in the case of a proprietary concern;
(ii) partner, in the case of a partnership firm;

(iii) director, in the case of a body corporate, who is responsible for the activities of the merchant banker;

(e) "rules" means Securities and Exchange Board of India (Merchant Bankers) Rules, 1992;
(f) Words and expressions used and not defined in these regulations but defined in the Act and the rules shall have the meanings respectively assigned to them in the Act or the rules as the case may be.

Foot notes
1. Following clause (a) of regulation 2 was deleted by the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 published in the Official Gazette of India dated 27.09.2002

(a) "enquiry officer" means any officer of the Board, or any other person, having experience in dealing with the problems relating to the securities market, who is authorised by the Board under Chapter V;

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CHAPTER II
REGISTRATION OF MERCHANT BANKERS

Application for grant of certificate

3. (1) An application by a person for grant of a certificate shall be made to the Board in Form A.
(2) The application under sub- regulation (1) shall be made for any one of the following categories of the merchant banker namely:-

(a) Category I, that is ?
(i) to carry on any activity of the issue management, which will inter-alia consist of preparation of prospectus and other information relating to the issue, determining financial structure, tie-up of financiers and final allotment and refund of the subscription; and
(ii) to act as adviser, consultant, manager, underwriter, portfolio manager.

(b) Category II, that is, to act as adviser, consultant, co-manager, underwriter, portfolio manager;
(c) Category III, that is to act as underwriter, adviser, consultant to an issue;

(d) Category IV, that is to act only as adviser or consultant to an issue.

2*[(2A) Notwithstanding anything contained in this regulation, with effect from 9th December, 1997,
(i) an application under sub-regulation (2) can be made only for carrying on the activities mentioned in clause (a) therein, and
(ii) an applicant can carry on the activity as underwriter only if he obtains separate certificate of registration under the provisions of Securities and Exchange Board of India (Underwriters) Regulations, 1993, and

(iii) an applicant can carry on the activity as portfolio manager only if he obtains separate certificate of registration under the provisions of Securities and Exchange Board of India (Portfolio Manager) Regulations, 1993.]

(3) Notwithstanding anything contained in sub-regulation (1), any application made by a merchant banker prior to coming into force of these regulations containing such particulars or as near thereto as mentioned in Form A shall be treated as an application made in pursuance of sub-regulation (1) and dealt with accordingly.
Application to conform to the requirements
4. Subject to the provisions of sub-regulation (3) of regulation 3, any application, which is not complete in all respects and does not conform to the instructions specified in the form, shall be rejected:
Provided that, before rejecting any such application, the applicant shall be given an opportunity to remove within the time specified such objections as may be indicated by the Board.

Furnishing of information, clarification and personal representation
5. (1) The Board may require the applicant to furnish further information or clarification regarding matters relevant to the activity of a merchant banker for the purpose of disposal of the application.
(2) The applicant or its principal officer shall, if so required, appear before the Board for personal representation.

Consideration of application
6. The Board shall take into account for considering the grant of a certificate, all matters, which are relevant to the activities relating to merchant banker and in particular the applicant complies with the following requirements, namely: -
3*[(a) the applicant shall be a body corporate other than a non- banking financial company as defined under clause (f) of section 45-I of the Reserve Bank of India Act, 1934, (2 of 1934) as amended from time to time,]
4*[Provided that the merchant banker who has been granted registration by the Reserve Bank of India to act as a Primary or Satellite dealer may carry on such activity subject to the condition that it shall not accept or hold public deposit]

5*[(aa)] the applicant has the necessary infrastructure like adequate office space, equipments, and manpower to effectively discharge his activities;]

(b) the applicant has in his employment minimum of two persons who have the experience to conduct the business of the merchant banker;

(c) a person directly or indirectly connected with the applicant has not been granted registration by the Board;

Explanation: For the purposes of this clause the expression "directly or indirectly connected" means any person being an associate, subsidiary, inter-connected or group Company of the applicant in case of the applicant being a body corporate.

(d) the applicant fulfils the capital adequacy requirement specified in regulation 7;

(e) the applicant, his partner, director or principal officer is not involved in any litigation connected with the securities market which has an adverse bearing on the business of the applicant;

(f) the applicant, his director, partner or principal officer has not at any time been convicted for any offence involving moral turpitude or has been found guilty of any economic offence;

(g) the applicant has the professional qualification from an institution recognised by the Government in finance, law or business management;

6*(gg) the applicant is a fit and proper person,]

(h) grant of certificate to the applicant is in the interest of investors.

Capital Adequacy Requirement
7. (1) The capital adequacy requirement referred to in sub- regulation (d) of regulation 6 shall not be less than the net worth of the person making the application for grant of registration.
(2) For the purposes of sub- regulation (1), the networth shall be as follows, namely: -

Category Minimum Amount

Category I 7*[Rs. 5, 00, 00, 000]

Category II Rs. 50, 00, 000

Category III Rs. 20, 00, 000

Category IV Nil

Explanation: For the purposes of this regulation "networth" means in the case of an applicant which is a partnership firm or a body corporate, the value of the capital contributed to the business of such firm or the paid up capital of such body corporate plus free reserves as the case may be at the time of making application under sub-regulation (1) of regulation 3.

Procedure for Registration
8. (1) The Board on being satisfied that the applicant is eligible shall grant a certificate in Form B 8*[******].
9*[******]
10*[******]

(4) On the grant of a certificate the applicant shall be liable to pay the fees 11*[******] in accordance with Schedule II;
12*[******]

Renewal of certificate
9. (1) Three months before expiry of the period of certificate, the merchant banker, may if he so desires, make an application for renewal in Form A.
(2) The application for renewal, under sub-regulation (1) shall be dealt with in the same manner as if it were a fresh application for grant of a certificate.

13*[Provided that in case of an application for renewal of certificate of registration, the provisions of clause (a) of regulation 6 shall not be applicable upto June 30th, 1998]

(3) The Board on being satisfied that the applicant is eligible for renewal of certificate shall grant a certificate in Form B and send intimation to the applicant 14*[***]

15*[***]

16*[***]

(6) On the grant of a certificate the applicant shall be liable to pay the fees 17*[***] in accordance with Schedule II;

18*[***]

Procedure where registration is not granted
10. (1) Where an application for grant of a certificate under regulation 3 or of renewal under regulation 9, does not satisfy the criteria set out in regulation 6, the Board may reject the application after giving an opportunity of being heard.
(2) The refusal to grant registration shall be communicated by the Board within thirty days of such refusal to the applicant stating therein the grounds on which the application has been rejected.

(3) Any applicant may, being aggrieved by the decision of the Board, under sub-regulation (1), apply within a period of thirty days from the date of receipt of such intimation to the Board for reconsideration of its decision.

(4) The Board shall reconsider an application made under sub- regulation (3) and communicate its decision as soon as possible in writing to the applicant.

Effect of refusal to grant certificate
11. Any merchant banker whose application for a certificate has been refused by the Board shall on and from the date of the receipt of the communication under sub-regulation (2) of regulation 10 cease to carry on any activity as merchant banker.
Payment of fees and the consequences of failure to pay fees
12. (1) Every applicant eligible for grant of a certificate shall pay such fees in such manner and within the period specified in Schedule II.
(2) Where a merchant banker fails to pay the Annual fees as provided in sub-regulation (1), read with Schedule II, the Board may suspend the registration certificate, whereupon the merchant banker shall cease to carry on any activity as a merchant banker for the period during which the suspension subsists.

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Foot notes
2. Sub-regulation 2A to regulation 3 was inserted by SEBI (Merchant Bankers) (Amendment) Regulations, 1996 published in the Official Gazette of India dated 09.12.1997.
3. Clause (a) to regulation 6 was inserted by SEBI (Merchant Bankers) (Amendment) Regulations, 1996 published in the Official Gazette of India dated 09.12.1997.

4. Proviso to clause (a) to regulation 6 was inserted by SEBI (Merchant Bankers) (Amendment) Regulations, 1996 published in the Official Gazette of India dated 17.11.1999.

5. Clause (a) to regulation 6 was renumbered as (aa) by SEBI (Merchant Bankers) (Amendment) Regulations, 1996 published in the Official Gazette dated 09.12.1997.

6. Clause (gg) to regulation 6 was inserted by SEBI (Merchant Bankers) (Amendment) Regulations, 1996 published in the Official Gazette of India dated 09.12.1997.

7. The figure "1, 00, 00, 000" in sub-regulation (2) of regulation 7 was Substituted by SEBI (Merchant Bankers) (Amendment) Regulations, 1995 published in the Official Gazette of India dated 07.09.1995.

8. The following part of sub-regulation (1) of regulation 8 was omitted by SEBI (Merchant Bankers) (Amendment) Regulations, 1996 published in the Official of India Gazette dated 09.12.1997

"and send an intimation to the applicant mentioning the category for which the Board has granted certificate"

9. Sub-regulation (2) of regulation 8 was omitted by SEBI (Merchant Bankers) (Amendment) Regulations, 1996 published in the Official Gazette of India dated 09.12.1997.

10. Sub-regulation (3) of regulation 8 was omitted by SEBI (Merchant Bankers) (Amendment) Regulations, 1996 published in the Official Gazette of India dated 09.12.1997.

11. The following part of sub-regulation (4) of regulation 8 was omitted by SEBI (Merchant Bankers) (Amendment) Regulations, 1996 published in the Official Gazette of India dated 09.12.1997

"for the category for which the registration is granted"

12. Following proviso to sub-regulation (4) of regulation 8 was omitted by SEBI (Merchant Bankers) (Amendment) Regulations, 1996 published in the Official Gazette of India dated 09.12.1997

"Provided that the amount of fees payable shall be proportionately reduced by the amount of fees already paid by the merchant banker for the year in which the registration is granted in the higher category."

13. Proviso to sub-regulation (2) of regulation 9 was inserted by SEBI (Merchant Bankers) (Amendment) Regulations, 1996 published in the Official Gazette of India dated 21.01.1998.

14. Following part of sub-regulation (3) of regulation 9 was omitted by SEBI (Merchant Bankers) (Amendment) Regulations, 1996 published in the Official Gazette of India dated 09.12.1997

"mentioning the category for which the Board has granted certificate"

15. Following sub-regulation (4) of regulation 9 was omitted by SEBI (Merchant Bankers) (Amendment) Regulations, 1996 published in the Official Gazette of India dated 09.12.1997

"Notwithstanding anything contained in sub-regulation (1), where a certificate has been granted for a category lower than for what has been applied for, the applicant, may make an application to the Board at any time after the expiry of one year from the date of grant of such registration."

16. Following sub-regulation (5) of regulation 9 was omitted by the SEBI (Merchant Bankers) (Amendment) Regulations, 1996 published in the Official Gazette of India dated 09.12.1997

"An application made under sub-regulation (4) shall be considered in the same manner as an application made under regulation 3."

17. Following part of sub-regulation (6) of regulation 9 was omitted by SEBI (Merchant Bankers) (Amendment) Regulations, 1996 published in the Official Gazette of India dated 09.12.1997

"for the category for which the registration is granted"

18. Following proviso to sub-regulation (6) of regulation 9 was omitted by SEBI (Merchant Bankers) (Amendment) Regulations, 1996 published in the Official Gazette of India dated 09.12.1997

"Provided that the amount of fees payable shall be proportionately reduced by the amount of fees already paid by the merchant banker for the year in which the registration is granted in the higher category."

Investment Banking Regulations - India - Part 3

2007-12-23T17:15:00.000-08:00

Merchant Banking Regulations in India

SECURITIES AND EXCHANGE BOARD OF INDIA
(MERCHANT BANKERS) REGULATIONS, 1992
CONTENTS

CHAPTER III
GENERAL OBLIGATIONS AND RESPONSIBILITIES

Code of Conduct

13. Every merchant banker shall abide by the Code of Conduct as specified in Schedule III.
19*[Merchant banker not to associate with any business other than that of the securities market
13A ? No merchant banker, other than a bank or a 20*[public financial institution], who has been granted a certificate of registration under these regulations shall 21*[after June 30th, 1998] carry on any business other than that in the securities market.
Notwithstanding anything contained above, a merchant banker who prior to the date of notification of the securities and exchange board of India (Merchant Bankers) Amendment Regulations, 1997, has entered into a contract in respect of a business other than that of the securities market, may, if he so desires, discharge his obligations under such contract.

Explanation - for the purposes of this regulation:

(i) A "bank" shall mean a banking company as defined under section 5 of the Banking Regulation Act, 1949 (10 of 1949) and the corresponding new bank set up under the Banking Companies (Acquisition and Transfer of Undertaking) Act, 1970 (5 of 1970) and Banking Companies (Acquisition and Transfer of Undertaking) Act, 1980 (40 of 1980), State Bank of India Act, 1955 (23 of 1955) and State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959)
(ii) A "public financial institution" shall have the same meaning as assigned to the term under Section 4A of the Companies Act, 1956 (1 of 1956) and shall include Industrial Development Corporations and Financial Corporations established by the Central Government or State Governments as the case may be]

22*[Provided that a merchant banker who has been granted certificate of registration to act as primary or satellite dealer by Reserve Bank of India, may carry on such business as may be permitted by Reserve Bank of India]
Maintenance of books of accounts, records etc.
14. (1) Every merchant banker shall keep and maintain the following books of accounts, records and documents namely:-
(a) a copy of balance sheet as at the end of each accounting period;
(b) a copy of profit and loss account for that period;

(c) a copy of the auditor's report on the accounts for that period; and

(d) a statement of financial position.

(2) Every merchant banker shall intimate to the Board the place where the books of accounts, records and documents are maintained.
(3) Without prejudice to sub- regulation (1), every merchant banker shall, after the end of each accounting period furnish to the Board copies of the balance sheet, profit and loss account and such other documents for any other preceding five accounting years when required by the Board.

Submission of Half-yearly results

15. Every merchant banker shall furnish to the Board half-yearly unaudited financial results when required by the Board with a view to monitor the capital adequacy of the merchant banker.
Maintenance of books of account, records and other documents
16. The merchant banker shall preserve the books of accounts and other records and documents maintained under regulation 14 for a minimum period of five years.
Report on steps taken on Auditor's report
17. Every merchant banker shall within two months from the date of the auditors' report take steps to rectify the deficiencies, made out in the auditor's report.
Appointment of lead merchant bankers
18. (1) All issues should be managed by atleast one merchant banker functioning as the lead merchant banker:
Provided that, in an issue of offer of rights to the existing members with or without the right of renunciation the amount of the issue of the body corporate does not exceed rupees fifty lakhs, the appointment of a lead merchant banker shall not be essential.

(2) Every lead merchant banker shall before taking up the assignment relating to an issue, enter into an agreement with such body corporate setting out their mutual rights, liabilities and obligations relating to such issue and in particular to disclosures, allotment and refund.

Restriction on appointment of lead managers
19. The number of lead merchant bankers may not, exceed in case of any issue of Size of issue No. of Merchant Bankers
(a) Less than rupees fifty crores Two
(b) Rupees fifty crores but lessthan rupees one hundred crores Three
(c) Rupees one hundred crores but less than rupees two hundred crores Four
(d) Rupees two hundred crores but less than rupees four hundred crores Five
(e) Above Rupees four hundred crores five or more as may be agreed by the board

Responsibilities of lead managers
20. (1) No lead manager shall agree to manage or be associated with any issue unless his responsibilities relating to the issue mainly, those of disclosures, allotment and refund are clearly defined, allocated and determined and a statement specifying such responsibilities is furnished to the Board at least one month before the opening of the issue for subscription:
Provided that, where there are more than one lead merchant bankers to the issue the responsibilities of each of such lead merchant banker shall clearly be demarcated and a statement specifying such responsibilities shall be furnished to the Board at least one month before the opening of the issue for subscription.

(2) No lead merchant banker shall, agree to manage the issue made by any body corporate, if such body corporate is an associate of the lead merchant banker.

Lead merchant banker not to associate with a merchant banker without registration
21. A lead merchant banker shall not be associated with any issue if a merchant banker who is not holding a certificate is associated with the issue.
Underwriting obligations
22. (1) In respect of every issue to be managed, the lead merchant banker holding a certificate under Category I shall accept a minimum Underwriting obligation of five percent of the total underwriting commitment or rupees twenty-five lacs, whichever is less:
Provided that, if the lead merchant banker is unable to accept the minimum underwriting obligation, that lead merchant banker shall make arrangement for having the issue underwritten to that extent by a merchant banker associated with the issue and shall keep the Board informed of such arrangement.

Submission of due diligence certificate
23. The lead merchant banker, who is responsible for verification of the contents of a prospectus or the Letter of Offer in respect of an issue and the reasonableness of the views expressed therein, shall submit to the Board at least two weeks prior to the opening of the issue for subscription, a due diligence certificate in Form C.
Documents to be furnished to the Board
24. (1) The lead manager responsible for the issue shall furnish to the Board, the following documents, namely: -
(i) particulars of the issue;
(ii) draft prospectus or where there is an offer to the existing shareholders, the draft letter of offer;

(iii) any other literature intended to be circulated to the investors, including the shareholders; and

(iv) such other documents relating to prospectus or letter of offer as the case may be.

(2) The documents referred to in sub-regulation (1) shall be furnished at least two weeks prior to date of filing of the draft prospectus or the letter of offer, as the case may be, with the Registrar of Companies or with the Regional Stock Exchanges, or with both.
(3) The lead manager shall ensure that the modifications and suggestions, if any, made by the Board on the draft prospectus or the Letter of Offer as the case may be, with respect to information to be given to the investors are incorporated therein.

23*[Payment of fees to the Board
24A. The draft prospectus or draft letter of offer referred to in regulation 24 shall be submitted along with such fees and in such manner as may be specified in Schedule IV]
Continuance of association of lead manager with an issue
25. The lead manager undertaking the responsibility for refunds or allotment of securities in respect of any issue shall continue to be associated with the issue till the subscribers have received the share or debenture certificates or refund of excess application money;
Provided that where a person other than the lead manager is entrusted with the refund or allotment of securities in respect of any issue, the lead manager shall continue to be responsible for ensuring that such other person discharges the requisite responsibilities in accordance with the provisions of the Companies Act and the listing agreement entered into by the body corporate with the stock- exchange.

Acquisition of shares prohibited
26. No merchant banker or any of its directors, partner or manager or principal officer shall either on their respective accounts or through their associates or relatives enter into any transaction in securities of bodies corporate on the basis of unpublished price sensitive information obtained by them during the course of any professional assignment either from the clients or otherwise.
Information to the Board
27. Every merchant banker shall submit to the Board complete particulars of any transaction for acquisition of securities of any body corporate whose issue is being managed by that merchant banker within fifteen days from the date of entering into such transaction.
Disclosures to the Board
28. A merchant banker shall disclose to the Board as and when required, the following information, namely: -
(i) his responsibilities with regard to the management of the issue;

(ii) any change in the information or particulars previously furnished, which have a bearing on the certificate granted to it;

(iii) the names of the body corporate whose issues he has managed or has been associated with;

(iv) the particulars relating to breach of the capital adequacy requirement as specified in regulation 7;

(v) relating to his activities as a manager, underwriter, consultant or adviser to an issue as the case may be.

24*[Appointment of compliance officer
28A. (1) Every merchant banker shall appoint a compliance officer who shall be responsible for monitoring the compliance of the Act, rules and regulations, notifications, guidelines, instructions etc., issued by the Board or the Central Government and for redressal of investors? grievances.

(2) The compliance officer shall immediately and independently report to the Board any non-compliance observed by him and ensure that the observations made or deficiencies pointed out by the Board on \ in the draft prospectus or the Letter of offer as the case may be, do not recur.]

--------------------------------------------------------------------------------

Foot notes
19. Regulation 13A was inserted by SEBI (Merchant Bankers) (Amendment) Regulations, 1996 published in the Official Gazette of India dated 06.06.1996.
20. Substituted for the words "Financial Institution" by SEBI (Merchant Bankers) (Amendment) Regulations, 1996 published in the Official Gazette of India dated 06.06.1996.

21. "after June 30th, 1998" inserted by SEBI (Merchant Bankers) (Amendment) Regulations, 1996 published in the Official Gazette of India dated 06.06.1996.

22. Proviso to regulation 13A was inserted by SEBI (Merchant Bankers) (Amendment) Regulations, 1996 published in the Official Gazette of India dated 17.11.1999.

23. Regulation 24A inserted by SEBI (Merchant Bankers) (Amendment) Regulations, 1996 published in the Official Gazette of India dated 06.06.1996.

24. Regulation 28A was inserted by SEBI (Investment advice by intermediaries) (Amendment) Regulations, 2001 published in the Official Gazette of India dated 29.05.2001.

CHAPTER IV
PROCEDURE FOR INSPECTION

Board's right to inspect

29. (1) The Board may appoint one or more persons as inspecting authority to undertake inspection of the books of accounts, records and documents of the merchant banker for any of the purposes specified in sub-regulation (2).
(2) The purposes referred to in sub-regulation (1) may be as follows namely: -

(a) to ensure that the books of account are being maintained in the manner required;
(b) that the provisions of the Act, rules, regulations are being complied with;

(c) to investigate into the complaints received from investors, other merchant bankers or any other person on any matter having a bearing on the activities of the merchant banker; and

(d) to investigate suo-moto in the interest of securities business or investors interest into the affairs of the merchant banker.

Notice before inspection

30. (1) Before undertaking an inspection under regulation 29 the Board shall give a reasonable notice to the merchant banker for that purpose.
(2) Notwithstanding anything contained in sub-regulation (1), where the Board is satisfied that in the interest of the investors no such notice should be given, it may by an order in writing direct that the inspection of the affairs of the merchant banker be taken up without such notice.

(3) During the course of inspection, the merchant banker against whom an inspection is being carried out shall be bound to discharge his obligations as provided under regulation 31.

Obligations of merchant banker on inspection by the Board
31. (1) It shall be the duty of every director, proprietor, partner, officer and employee of the merchant banker, who is being inspected, to produce to the inspecting authority such books, accounts and other documents in his custody or control and furnish him with the statements and information relating to his activities as a merchant banker within such time as the inspecting authority may require.
(2) The merchant banker shall allow the inspecting authority to have reasonable access to the premises occupied by such merchant banker or by any other person on his behalf and also extend reasonable facility for examining any books, records, documents and computer data in the possession of the merchant banker or any such other person and also provide copies of documents or other materials which, in the opinion of the inspecting authority are relevant for the purposes of the inspection.

(3) The inspecting authority, in the course of inspection, shall be entitled to examine or record statements of any principal officer, director, partner, proprietor and employee of the merchant banker.

(4) It shall be the duty of every director, proprietor, partner, officer or employee of the merchant banker to give to the inspecting authority all assistance in connection with the inspection which the merchant banker may reasonably be expected to give.

Submission of Report to the Board
32. The inspecting authority shall, as soon as may be possible submit, an inspection report to the Board.
25*[Action on inspection or investigation report
33. The Board or the Chairman shall after consideration of inspection or investigation report take such action as the Board or Chairman may deem fit and appropriate including action under the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002."
Appointment of Auditor
34. The Board may appoint a qualified auditor to investigate into the books of account or the affairs of the merchant banker:
Provided that the auditor so appointed shall have the same powers of the inspecting authority as are mentioned in regulation 29 and the obligations of the merchant banker in regulation 31 shall be applicable to the investigation under this regulation.

Explanation: For the purposes of this regulation the expression "qualified auditor" shall have the same meaning as given in Section 226 of the Companies Act, 1956 (1 of 1956).

Foot notes
25. Following regulation 33 was substituted by the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 published in the official Gazette of India dated 27.09.2002
Communication of findings etc. to the merchant banker

33. (1) The Board shall after consideration of the inspection report communicate the findings to the merchant banker to give him an opportunity of being heard before any action is taken by the Board on the findings of the inspecting authority.
(2) On receipt of the explanation if any, from the merchant banker, the Board may call upon the merchant banker to take such measures as the Board may deem fit in the interest of the securities market and for due compliance with the provisions of the Act, rules and regulations.

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CHAPTER V
PROCEDURE FOR ACTION IN CASE OF DEFAULT

26*[Liability for action in case of default

35. A merchant banker who ?

(a) fails to comply with any conditions subject to which certificate has been granted;
(b) contravenes any of the provisions of the Act, rules or regulations, shall be dealt with in the manner provided under the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002."

27*[******]

Foot notes
26. Following regulation 35 was substituted by the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 published in the official Gazette of India dated 27.09.2002

Liability for action in case of default
35. (1) A merchant banker who ?

(a) fails to comply with any conditions subject to which certificate has been granted;
(b) contravenes any of the provisions of the Act, rules or regulations;

shall be liable to any of the penalties specified in sub-regulation (2).

(2) The penalties referred to in sub-regulation (1) may be either:-
(a) suspension of registration; or
(b) cancellation of registration.

27. Following regulations 36 to 43 were omitted by the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 published in the official Gazette of India dated 27.09.2002
Suspension of registration

36. (1) A penalty of suspension of registration of a merchant banker may be imposed where ?
(i) the merchant banker violates the provisions of the Act, rules or regulations;
(ii) the merchant banker ?

(a) fails to furnish any information relating to his activity as merchant banker as required by the Board;
(b) furnishes wrong or false information;

(c) does not submit periodical returns as required by the Board;

(d) does not co-operate in any enquiry conducted by the Board;

(iii) the merchant banker fails to resolve the complaints of the investors or fails to give a satisfactory reply to the Board in this behalf;
(iv) the merchant banker indulges in manipulating or price rigging or cornering activities;

(v) the merchant banker is guilty of misconduct or improper or unbusinesslike or unprofessional conduct which is not in accordance with the Code of Conduct specified in Schedule III;

(vi) the merchant banker fails to maintain the capital adequacy requirement in accordance with the provisions of regulation 7;

(vii) the merchant banker fails to pay the fees;

(viii) the merchant banker violates the conditions of registration;

(ix) the merchant banker does not carry out his obligations as specified in the regulation.

Cancellation of registration
37. A penalty of cancellation of registration of a merchant banker may be imposed where
(i) the merchant banker indulges in deliberate manipulation or price rigging or cornering activities affecting the securities market and the investors interest;
(ii) the financial position of the merchant banker deteriorates to such an extent that the Board is of the opinion that his continuance as merchant banker is not in the interest of investors;

(iii) the merchant banker is guilty of fraud, or is convicted of a criminal offence;

(iv) in case of repeated defaults of the nature mentioned in regulation 36 provided that the Board furnishes reasons for cancellation in writing.

Manner of making order of suspension an cancellation

38. No order of penalty of suspension or cancellation as the case may be, shall be imposed except after holding an enquiry in accordance with the procedure specified in regulation
39.
Manner of holding enquiry before suspension or cancellation
39. (1) For the purpose of holding an enquiry under regulation 38, the Board may appoint an enquiry officer.
(2) The enquiry officer shall issue to the merchant banker a notice the registered office or the principal place of business of the merchant banker.

(3) The merchant banker may, within thirty days from the date of receipt of such notice, furnish to the enquiry officer a reply together with copies of documentary or other evidence relied on by him or sought by the Board from the merchant banker.

(4) The enquiry officer shall, give a reasonable opportunity of hearing to the merchant banker to enable him to make submissions in support of his reply made under sub-regulation (3).

(5) Before the enquiry officer, the merchant banker may either appear in person or through any person duly authorised by the merchant banker:

Provided that no lawyer or advocate shall be permitted to represent the merchant banker at the enquiry:

Provided further that where a lawyer or an advocate has been appointed by the Board as a presenting officer under sub- regulation (6), it shall be lawful for the merchant banker to present its case through a lawyer or advocate.

(6) If it is considered necessary, the enquiry officer may ask the Board to appoint a presenting officer to present its case.

(7) The enquiry officer shall, after taking into account all relevant facts and submissions made by the merchant banker, submit a report to the Board and recommend the penalty to be imposed as also the grounds on the basis of which the proposed penalty is justified.

Show-cause notice and order
40. (1) On receipt of the report from the enquiry officer, the Board shall consider the same and issue a show-cause notice as to why the penalty as proposed by the enquiry officer should not be imposed.
(2) The merchant banker shall within twenty-one days of the date of the receipt of the show- cause send a reply to the Board.

(3) The Board after considering the reply to the show-cause notice, if received, shall as soon as possible but not later than thirty days from the receipt of the reply, if any, pass such order as it deems fit.

(4) Every order passed under sub- regulation (3) shall be self- contained and give reasons for the conclusions stated therein including justification of the penalty imposed by that order.

(5) The Board shall send a copy of the order under sub- regulation (3) to the merchant banker.

Effect of suspension and cancellation of registration of merchant banker
41. (1) On and from the date of the suspension of the merchant banker he shall cease to carry on any activity as a merchant banker during the period of suspension.
(2) On and from the date of cancellation the merchant banker shall with immediate effect cease to carry on any activity as a merchant banker.

Publication of order of suspension
42. The order of suspension or cancellation of certificate passed under sub-regulation (3) of regulation 40 shall be published in at least two daily newspapers by the Board.
a*[Appeal to the Securities Appellate Tribunal
43. Any person aggrieved by an order of the Board made, on and after the commencement of the Securities Laws (Second amendment) Act, 1999, (i.e., after 16th December 1999), under these regulations may prefer an appeal to a Securities Appellate Tribunal having jurisdiction in the matter]
a. Substituted for the following provision by SEBI (Appeal to the Securities Appellate Tribunal) (Amendment) Regulations, 2000 published in the official Gazette of India dated 28.03.2000

"Any person aggrieved by an order of the Board may prefer an appeal to the Central Government"

Investment Banking Regulations - India - Part 4

2007-12-23T17:05:00.000-08:00

Merchant Banking Regulations in India

SCHEDULE I - FORMS
FORM A
SECURITIES AND EXCHANGE BOARD OF INDIA
(MERCHANT BANKERS) REGULATIONS, 1992
(REGULATION 3)

APPLICATION FOR GRANT OF CERTIFICATE /
RENEWAL OF CERTIFICATE

ADDITIONAL INFORMATION FOR FRESH REGISTRATION

NAME OF APPLICANT

CATEGORY:

CONTACT NAME ______________________

TELEPHONE NO: _____________________

INSTRUCTIONS FOR FILLING UP FORM

1. It is important that this application form should be filled in accordance with the regulations.

2. Applicants must submit a completed application form together with appropriate supporting documents to the Board.

3. Application for registration will be considered provided it is complete in all respects.

4. Answers must be typed.

5.All signatures must be original.

6.Information which needs to be supplied in more details may be given on separate sheets which should be attached to the application form.

1. PARTICULARS OF THE APPLICANT

1.1 Name of the Applicant:

1.2 (A) Address - Principal Place of business / Registered Office of the Company.

Pin code: ______________________ Telephone No:________________

Telex No:______________________Fax No:______________________

(B) Address for Correspondence:

Pin code:______________________Telephone No:________________

Telex No:______________________Fax No:______________________

(C) Address of Branch Offices:

2. ORGANISATION STRUCTURE

(Organisation Chart separately showing functional responsibilities of Merchant Banking activities to be enclosed).

2.1 Objectives:-

(To be given in brief along with copy of Memorandum and Articles of Association).

2.2 Date and Place of Incorporation:

Day Month Year Place

2.3 Status of the Applicant:

(e.g. limited company - Private/Public, unlimited company, partnership, proprietary, others. If listed, names of Stock Exchanges and latest share price to be given).

2.4 Particulars of all Directors/Partners/Proprietors:-

Name

Qualification

Experience in Merchant Banking &
Financial Services related areas

Share in applicants firm company

Directorship in other companies

2.5 Particulars of Key Management Personnel: (Particulars of merchant banking division)

Name

Qualification

Experience with particular

reference to merchant banking

Date of appointment

Functional areas

2.6 Name and activities of associate companies/concerns

Name of Company

Address/firm

Type of activity handled

Nature of Interest of Promoter/Director

Nature and interest of applicant company

3. BUSINESS INFORMATION

3.1 History, major events and present activities:

3.2 Details of Experience in Merchant Banking activities.

3.3 Experience in other financial services rendered:-

3.4 Business handled during the last three years:

a) Issue Management

Name of client

Type of Issue

Size of Issue

Year of Issue

Times subscribed

Name of lead merchant banker

Functional responsibilities

b) Investment Adviser: -

Name of Client Year for which services are rendered

Nature of services rendered

c) Underwriting

Name of client Type and size

Amount underwritten of Issue

% age of issue under Year of Issue

Whether there was any devolvement written

d) Portfolio Management

Name of Scheme

Features of the Scheme

Number of Clients

Total Volume of Funds managed

Average Returns

e) Consultants/Advisors to the Issue

Name of the Client

Year of Issue

Type and Size of Issue

Nature of services rendered

Name of Lead Merchant Banker(s)

4. CLIENT INFORMATION

4.1 List of major clients with address

Name

Services Rendered

4.2 If the applicant is proposing to engage in Merchant Banking activities for the first time, the experience of key management personnel to be indicated.

Name of Key management personnel

Qualification

Previous positions held

Experience particularly in respect of merchant banking activities

4.2 (a) If the applicant is proposing to engage in Merchant Banking activities for the first time, business plan of the company with projected volume of activities and income for which registration is sought to be specifically given.

4.3 Details of infrastructure including computing facilities, equity research and database available with the applicant.

4.4 Any other information considered relevant to the nature of services rendered by the applicant.

5. FINANCIAL INFORMATION

5.1 Capital Structure (Rs. in lakhs)

Year prior to the preceding year of current year Preceding year Current year
a) Paid-up capital
b) Free reserves
(excluding re- valuation reserves)
c) Total (a) + (b)

Note: - 1. In case of partnership or proprietary concerns, please indicate capital minus drawings.

2. In case of partnership or proprietary concerns, please indicate the financial position, means and networth of the partners.

5.2 Deployment of Resources (Rs. in lakhs)

Year prior to the preceding year of current year Preceding year Current year
(a) Fixed Assets
(b) Plant & Machinery and
Office Equipment
(c) Quoted Investments
(d) Unquoted Investments
(e) Details of Liquid Assets
(f) Others

(Details of Investments, Loans & Advances made to Associate Companies/ firms where Promoters/ Directors have an interest be separately given).

5.3 Major Sources of Income: (Rs. in lakhs)

Year prior to the preceding year of current year Preceding year Current year *Fees charged as % of issue
(a) Issue Management
(b) Underwriting
(c) Portfolio Management
(d) Consultant/ Advisor to Issue
(e) Investment Adviser
(f) Others

*As fees charged by the merchant banker may vary from issue to issue, please indicate range within which fees have been charged.

5.4 Net Profit

Year prior to the preceding year of current year Preceding year Current year

5. 5 Dividend

Year prior to the preceding year of current year Preceding year Current year

Amount

Percentage

Note: Please enclose three years of audited annual accounts. Where unaudited reports are submitted, give reasons. If minimum networth requirement has been met after last audited annual accounts, audited statement of accounts of a later date also be submitted.

5.6 List of major shareholders (holding 5% and above of applicant directly or along with associates - applicable only to limited companies)

Shareholding as on: ______________________________

Name of shareholder

No. of Shares held

% age of total paid up capital of the company

5.7 Name and Address of the Principal bankers of the applicant.

5.8 Name and address of the Auditors.

6. OTHER INFORMATION

6.1 Details of all settled and pending disputes:

Nature of dispute Name of the party Pending/settled.

6.2 Indictment of involvement in any economic offences by the applicant or any of the Directors, or key managerial Personnel in the last three years.

DECLARATION
THIS DECLARATION MUST BE SIGNED BY TWO DIRECTORS, TWO PARTNERS OR THE SOLE PROPRIETOR AS THE CASE MAY BE

I/We hereby apply for registration. I/We warrant that I/We have truthfully and fully answered the questions above and provided all the information which might reasonably be considered relevant for the purposes of my registration. I/We declare that the information supplied in the application form is complete and correct.

For and on behalf of ------------------------------------------ (Name of Applicant)

Director/Partner or Sole Proprietor Director/Partner ___________________

(Name in Block Letters) (Name in Block Letters) _______________________

Date

FORM B
SECURITIES AND EXCHANGE BOARD OF INDIA
(MERCHANT BANKERS) REGULATIONS, 1992

(REGULATION 8

CERTIFICATE OF REGISTRATION

In exercise of the powers conferred by sub-section (1) of section 12 of the Securities and Exchange Board of India Act, 1992, read with the rules and regulations made thereunder the Board hereby grants a certificate of registration to ______________________________ as a merchant banker in Category I 28*[***] subject to the conditions in the rules and in accordance with the regulations to carry out the following activities: -

1. Management of any issue, including preparation of prospectus, gathering information relating to the Issue, determining financing structure, tie up of financiers, final allotment and refund of excess application money.

2. Investment Advisor.

29*[******]

[******]

5. Managers, Consultant or Adviser to any issue including corporate advisory services.

6. Consultant or Advisor.

(*Delete whichever are not applicable)

II. Registration Code for the merchant banker is MB / / /

III. This certificate shall be valid from _____________ to _________ and may be renewed as specified in regulation 9 of Securities and Exchange Board of India (Merchant Bankers) Regulations, 1992.

Place
Date

By Order
Sd/-
For and on behalf of Securities and Exchange Board of India

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FORM C
SECURITIES AND EXCHANGE BOARD OF INDIA
(MERCHANT BANKERS) REGULATIONS, 1992

(REGULATION 23)
DUE DILIGENCE CERTIFICATE

To,
SECURITIES AND EXCHANGE BOARD OF INDIA

Dear Sirs,

SUB: ISSUE OF ____________________ BY _______________________ LTD.

We, the undernoted Lead Manager(s) to the above mentioned forthcoming issue state as follows:

1. We have while finalising the draft prospectus/letter of offer pertaining to the said issue have examined various documents and other material as for adequate disclosures to the investor;

2. On the basis of such examination and the discussions with the company, its directors and other officers, other agencies, independent verification of the statements concerning objects of the issue the contents of the documents and other material furnished by the company, WE CONFIRM that:

(a) the draft prospectus/letter of offer forwarded to SEBI is in conformity with the documents, materials and papers relevant to the issue;

(b) all the legal requirements connected with the said issue have been duly complied with; and

(c) the disclosures made in the draft prospectus/letter of offer are true, fair and adequate to enable the investors to make a well informed decision as to the investment in the proposed issue.

PLACE:
DATE:

LEAD MANAGER (S) TO THE ISSUE

N. B. A list of documents and materials examined may be forwarded along with this certificate.

Foot notes

28. The figures "II/III/IV" after the word "Category I" and before the words "subject to the conditions" in paragraph 1 in Form A of Schedule I were deleted by SEBI (Merchant Bankers) (Amendment) Regulations, 1996 published in the Official Gazette of India dated 06.06.1996.

29. The words "3. Underwriting of Issue" and "4. Portfolio Manager Service" after the words "1. Investment Adviser" in paragraph 1 in Form B of Schedule I were deleted by the SEBI (Merchant Bankers) (Amendment) Regulations, 1996 published in the Official Gazette of India dated 06.06.1996.

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SCHEDULE II
SECURITIES AND EXCHANGE BOARD OF INDIA
(MERCHANT BANKERS) REGULATIONS, 1992

(REGULATION 12)

FEES

30*1. Every merchant banker shall pay a sum of Rupees five lacs as registration fees at the time of the grant of certificate by the Board.

2. A merchant banker to keep registration in force shall pay renewal fee of Rs 2. 5 lacs every three years from the fourth year from the date of initial registration.

3. (a) The fee referred to in PARAGRAPH 1 shall be paid by the merchant banker within fifteen days from the date of receipt of the intimation from the Board under sub-regulation (1) of regulation 8

(b) The fee referred to in paragraph 2 shall be paid by the merchant banker within fifteen days from the date of receipt of intimation from the Board under sub-regulation (3) of regulation 9.

4. The fees specified in paragraphs1 and 2 shall be payable by merchant banker by a demand draft in favour of ?Securities and Exchange Board of India? payable at Mumbai or at the respective regional office."]

Foot notes

30. Following paragraphs 1, 2, 3 and 4 were substituted by SEBI (Merchant Bankers) (Amendment) Regulations, 1996 published in the Official Gazette of India dated 30.09.1999.

"1. Every Merchant bankers shall subject to paragraphs 3 and 4 of this Schedule pay registration fees as set out below:

(a) Category I merchant banker.

A sum of Rs 2.5 lakhs to be paid annually for the first two years commencing from the date of initial registration and thereafter for the third year a sum of Rs 1 lakh to keep his registration in force;

(b) Category II Merchant banker

A sum of Rs 1.5 lakhs to be paid annually for the first two years commencing from the date of initial registration and thereafter for the third year a sum of Rs 50,000 to keep his registration in force;

(c) Category III Merchant bankers

A sum of Rs 1 lakh to be paid annually for the first two years commencing from the date of initial registration and thereafter for the third year a sum of Rs 25,000 to keep his registration in force;

(d) Category IV Merchant bankers

A sum of Rs 5,000/- to be paid annually for the first two years commencing from the date of initial registration and thereafter for the third year a sum of Rs 1000/- to keep his registration in force.

(2) Renewal fees to be paid by the Merchant banker.

(a) Category I merchant bankers

A sum of Rs 1 lakh to be paid annually for the first two years commencing from the date of each renewal and thereafter for the third year a sum of Rs 20,000 to keep his registration in force;

(b) Category II Merchant bankers

A sum of Rs 75,000/- to be paid annually for the first two years commencing from the date of each renewal and thereafter for the third year a sum of Rs 10,000 to keep his registration in force;

(c) Category III Merchant bankers

A sum of Rs 50,000/- to be paid annually for the first two years commencing from the date of each renewal and thereafter for the third year a sum of Rs 5,000 to keep his registration in force;

(d) Category IV Merchant bankers

A sum of Rs 5,000/- to be paid annually for the first two years commencing from the date of each renewal and thereafter for the third year a sum of Rs 2, 500 to keep his registration in force;

a*(3) The fees specified in paragraphs 1 and 2 above shall be paid in the following manner namely: -

(a) First installment is to be paid within 15 days from the date of intimation from the Board under regulation 8.

(b) Subsequent installments including the renewal fee to be paid on or before expiry of 12 months of each year of registration beginning from date of grant of such registration.

a. Following para 3 was substituted

The Fees specified in paragraphs 1 and 2 above, shall be payable by draft in favour of "Securities and Exchange Board of India " at Bombay or at the respective regional office.

The above para 3 originally read as follows which was substituted by SEBI (Payment of Fees) Amendment Regulations, 1995 by notification no S.O. 939 (E) dated 28.11.95.

The Fees specified in paragraphs 1 and 2 above, shall be payable by a cheque or draft in favour of "Securities and Exchange Board of India " at Bombay or at the respective regional office.

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31*[Schedule III

Securities and Exchange Board of India

(Merchant Bankers) Regulations, 1992

[Regulation 13]

CODE OF CONDUCT FOR MERCHANT BANKERS

A Merchant Banker shall make all efforts to protect the interests of investors.
A Merchant Banker shall maintain high standards of integrity, dignity and fairness in the conduct of its business.
A Merchant Banker shall fulfill its obligations in a prompt, ethical, and professional manner.
A Merchant Banker shall at all times exercise due diligence, ensure proper care and exercise independent professional judgment.
A Merchant Banker shall endeavor to ensure that-
inquiries from investors are adequately dealt with;
grievances of investors are redressed in a timely and appropriate manner;
where a complaint is not remedied promptly, the investor is advised of any further steps which may be available to the investor under the regulatory system.
A Merchant Banker shall ensure that adequate disclosures are made to the investors in a timely manner in accordance with the applicable regulations and guidelines so as to enable them to make a balanced and informed decision.
A Merchant Banker shall endeavor to ensure that the investors are provided with true and adequate information without making any misleading or exaggerated claims or any misrepresentation and are made aware of the attendant risks before taking any investment decision.
A Merchant Banker shall endeavor to ensure that copies of the prospectus, offer document, letter of offer or any other related literature is made available to the investors at the time of issue or the offer.
A Merchant Banker shall not discriminate amongst its clients, save and except on ethical and commercial considerations.
A Merchant Banker shall not make any statement, either oral or written, which would misrepresent the services that the Merchant Banker is capable of performing for any client or has rendered to any client.
A Merchant Banker shall avoid conflict of interest and make adequate disclosure of its interest.
A Merchant Banker shall put in place a mechanism to resolve any conflict of interest situation that may arise in the conduct of its business or where any conflict of interest arises, shall take reasonable steps to resolve the same in an equitable manner.
A Merchant Banker shall make appropriate disclosure to the client of its possible source or potential areas of conflict of duties and interest while acting as Merchant Banker which would impair its ability to render fair, objective and unbiased services.
A Merchant Banker shall always endeavor to render the best possible advice to the clients having regard to their needs.
A Merchant Banker shall not divulge to anybody either orally or in writing, directly or indirectly, any confidential information about its clients which has come to its knowledge, without taking prior permission of its clients, except where such disclosures are required to be made in compliance with any law for the time being in force.
A Merchant Banker shall ensure that any change in registration status / any penal action taken by the Board or any material change in the Merchant Banker?s financial status, which may adversely affect the interests of clients / investors is promptly informed to the clients and any business remaining outstanding is transferred to another registered intermediary in accordance with any instructions of the affected clients.
A Merchant Banker shall not indulge in any unfair competition, such as weaning away the clients on assurance of higher premium or advantageous offer price or which is likely to harm the interests of other Merchant Bankers or investors or is likely to place such other Merchant Bankers in a disadvantageous position while competing for or executing any assignment.
A Merchant Banker shall maintain arms length relationship between its merchant banking activity and any other activity.
A Merchant Banker shall have internal control procedures and financial and operational capabilities which can be reasonably expected to protect its operations, its clients, investors and other registered entities from financial loss arising from theft, fraud, and other dishonest acts, professional misconduct or omissions.
A Merchant Banker shall not make untrue statement or suppress any material fact in any documents, reports or information furnished to the Board.
A Merchant Banker shall maintain an appropriate level of knowledge and competence and abide by the provisions of the Act, regulations made thereunder, circulars and guidelines, which may be applicable and relevant to the activities carried on by it. The merchant banker shall also comply with the award of the Ombudsman passed under Securities and Exchange Board of India (Ombudsman) Regulations, 2003.

A Merchant Banker shall ensure that the Board is promptly informed about any action, legal proceedings etc., initiated against it in respect of material breach or non compliance by it, of any law, rules, regulations, directions of the Board or of any other regulatory body.
(a) A Merchant Banker or any of its employees shall not render, directly or indirectly, any investment advice about any security in any publicly accessible media, whether real-time or non real-time, unless a disclosure of his interest including a long or short position, in the said security has been made, while rendering such advice.
(b) In the event of an employee of the Merchant Banker rendering such advice, the merchant banker shall ensure that such employee shall also disclose the interests, if any, of himself, his dependent family members and the employer merchant banker, including their long or short position in the said security, while rendering such advice.
A Merchant Banker shall demarcate the responsibilities of the various intermediaries appointed by it clearly so as to avoid any conflict or confusion in their job description.
A Merchant Banker shall provide adequate freedom and powers to its compliance officer for the effective discharge of the compliance officer?s duties.
A Merchant Banker shall develop its own internal code of conduct for governing its internal operations and laying down its standards of appropriate conduct for its employees and officers in carrying out their duties. Such a code may extend to the maintenance of professional excellence and standards, integrity, confidentiality, objectivity, avoidance or resolution of conflict of interests, disclosure of shareholdings and interests etc.
A Merchant Banker shall ensure that good corporate policies and corporate governance are in place.
A Merchant Banker shall ensure that any person it employs or appoints to conduct business is fit and proper and otherwise qualified to act in the capacity so employed or appointed (including having relevant professional training or experience)
A Merchant Banker shall ensure that it has adequate resources to supervise diligently and does supervise diligently persons employed or appointed by it in the conduct of its business, in respect of dealings in securities market.
A Merchant Banker shall be responsible for the acts or omissions of its employees and agents in respect of the conduct of its business.
A Merchant Banker shall ensure that the senior management, particularly decision makers have access to all relevant information about the business on a timely basis.
A Merchant Banker shall not be a party to or instrumental for -
creation of false market;
price rigging or manipulation or;
passing of unpublished price sensitive information in respect of securities which are listed and proposed to be listed in any stock exchange to any person or intermediary in the securities market.
Foot notes
31. Following Schedule III was substituted by SEBI (Merchant Banker) (Amendment) Regulations, 2003 published in the Official Gazette of India dated 01.10.2003.

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SCHEDULE III
SECURITIES AND EXCHANGE BOARD OF INDIA
(MERCHANT BANKERS) REGULATIONS, 1992
CODE OF CONDUCT FOR MERCHANT BANKERS
(REGULATION 13)
1. A merchant banker in the conduct of his business shall observe high standards of integrity and fairness in all his dealings with his clients and other merchant bankers.

2. A merchant banker shall render at all times high standards of service, exercise due diligence, ensure proper care and exercise independent professional judgement.

He shall wherever necessary, disclose to the clients, possible sources of conflict of duties and interests, while providing unbiased services.

3. A merchant banker shall not make any statement or become privy to any act, practice or unfair competition, which is likely to be harmful to the interests of other merchant bankers or is likely to place such other merchant bankers in a disadvantageous position in relation to the merchant banker, while competing for or executing any assignment.

4. A merchant banker shall not make any exaggerated statement, whether oral or written, to the client either about the qualification or the capability to render certain services or his achievements in regard to services rendered to other clients.

5. A merchant banker shall always endeavour to -

a. render the best possible advice to the clients having regard to the clients' needs and the environments and his own professional skill; and

b. ensure that all professional dealings are effected in a prompt, efficient and cost effective manner.

6.A merchant banker shall not -

a. divulge to other clients, press or any other party any confidential information about his client, which has come to his knowledge; and

b. deal in securities of any client company without making disclosure to the Board as required under the regulations and also to the Board of Directors of the client company.

7.A merchant banker shall endeavour to ensure that -

a. the investors are provided with true and adequate information without making any misguiding or exaggerated claims and are made aware of attendant risks before any investment decision is taken by them;

b. copies of prospectus, memorandum and related literature are made to the investors;

c. adequate steps are taken for fair allotment of securities and refund of application money without delay; and

d. complaints from investors are adequately dealt with.

8.The merchant bankers shall not generally and particularly in respect of issue of any securities be party to -

a. creation of false market;

b. price rigging or manipulation;

c. passing of price sensitive information to brokers, members of the stock exchanges and other players in the capital market or take any other action which is unethical or unfair to the investors.

a*[8A (a) A merchant banker or any of his employees shall not render, directly or indirectly, any investment advice about any security in the publicly accessible media, whether real-time or non-real-time, unless a disclosure of his interest including long or short position in the said security has been made, while rendering such advice.

(b) In case, an employee of the merchant banker is rendering such advice, he shall also disclose the interest of his dependent family members and the employer including their long or short position in the said security, while rendering such advice.]

9. A merchant banker shall abide by the provisions of the Act, rules and regulations and which may be applicable and relevant to the activities carried on by the merchant banker.

a. Paragraph 8A in Schedule III was inserted by SEBI (Investment advice by Intermediaries) (Amendment) Regulations, 2001 published in the Official Gazette of India dated 29.05.2001.

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32*[SCHEDULE IV
SECURITIES AND EXCHANGE BOARD OF INDIA
(MERCHANT BANKERS) (AMENDMENT) REGULATIONS, 1996

(SEE REGULAITON 24A)

1. Every merchant banker shall pay fees as set out below:

Size of the issue including premium and intended retention of over subscription

(Rs.) Proposed Fee per document (Rs.)

Upto 5 crores 10, 000

More than 5 crores and upto 10 crores 15, 000

More than 10 crores and upto 50 crores 25, 000

More than 50 crores and upto 100 crores 50, 000

More than 100 crores and upto 500 crores 2, 50, 000

More than 500 crores 5, 00, 000

2. Fees referred to in clause (1) above, shall be paid in the following manner:

a. The fees shall be paid along with the draft of the offer document submitted to the Board under regulation 24

b. The fees shall be payable by a draft in favour of `Securities and Exchange Board of India' at Mumbai or at the respective regional offices where the draft offer document under regulation 24 is submitted.

Foot notes

32. Schedule IV was inserted by SEBI (Merchant Bankers) (Amendment) Regulations, 1996 published in the Official Gazette of India dated 06.06.1996.

For any clarification and latest updated versions visit http://www.sebi.gov.in/Index.jsp?contentDisp=SubSection&sec_id=5&sub_sec_id=5

IB-PS Introduction

2007-12-17T00:36:00.001-08:00

I use the text book by Pratap Subrahmaniam for the course on Investment Banking. This online basic support material for students and aspiring professionals is structured on the basis of chapter scheme of this book. Basic steps and rules are provided in various chapters. For details, the text book and the relevant regulations issued by SEBI are to be studied.

Ib-Ps Ch. 5 IPOs

2007-12-17T00:33:00.001-08:00

Important Regulatory Provisions for an IPO

The minimum post nominal value of equity capital of the company shall be Rs. 10 crore.
OR
Compulsory market making for at least 2 years from date of listing of of share subject to following condition
Market Makers should offer to buy or sell quotes for a minimum of 300 shares.
Market maker to ensure bid-ask spread for their quotes shall not exceed 10% any time.
Inventory of market makers on each of stock exchange as on the date of allotment of securities, shall be atleast 5% of the proposed issue of the company.

Additional Conditions

IPOs shall not be deemed successful and company shall not make allotment pursuant to IPO unless prospective allottees under the IPO are not less than 1000 in number.
No unlisted company shall make a public issue or equity shares or convertibles if there are any outstanding financial instruments or rights that would entitle existing shareholders to additional equity shares after IPO. Similarly no partly paid shares shall be subsisting as on the date of IPO.

IPOs shall not be deemed successful and company shall not make allotment pursuant to IPO unless prospective allottees under the IPO are not less than 1000 in number.
No unlisted company shall make a public issue or equity shares or convertibles if there are any outstanding financial instruments or rights that would entitle existing shareholders to additional equity shares after IPO. Similarly no partly paid shares shall be subsisting as on the date of IPO.
An infrastructure company may go public even if it does not satisfy the above criteria if it has been appraised and / or funded by one or more of a public financial institution or IDFC or IL&FS or a bank which was formerly a public financial institution to the extent of at least 5% of the project cost either as a loan or equity or both.
NO company shall make an IPO unless firm arrangements of finance through verifiable means towards 75% of stated means of finance excluding the amount to be raised through proposed issue, have been made.

There is a cap on companies making retail issue with high premia. Under free pricing regime, there is a tendency on the part of the issuers to make high priced issue. If such issue are allowed to go through 100% retail route, there wouldn’t be any price validation. Share price of such issue will come down after listing due to lack of buyer support.

Additional Conditions for Issue of Convertibles

An unlisted company may make an IPO through a convertible instrument even without having to make a pure equity offer and getting shares listed initially. Other than satisfying above criteria, it has to comply with additional conditions.

Promoters Contribution

SEBI has also introduced the concept of minimum promoters’ contribution to be present in the companies going public so that they become interested parties in preserving the interest of the shareholders. In terms of DIP Guidelines, the following are the main provisions that apply to promoters’ contribution in case of IPOs.

Firm Allotments and Reservations

Allotment and Reservation are tools for pre-marketing a sizable part of issue thereby bringing down the risk of the issue.
Allotment – Investor or category of investor are approached by lead manager or the issuer company to subscribe the issue on a firm basis. ‘FIRM’ - ability to get same quantity as subscribed for in full. Investors have to make commitment to bring in their firm subscription even before issue is floated. This indicates the offer document showing certain amount of share being set aside for such investors, balance available for public subscription.
Reservation - It’s a modification of allotment, where allotment is done on competitive basis among certain category of investors. Reservation is without any prior commitments. If there is an over-subscription, then allotment happens on pro-rata basis.

Permanent Employees (not exceeding 10% of issue size), shareholders of group companies (not exceeding 10%, no firm allotments), mutual funds, Foreign Institutional Investors, Banks and Financial Institution and Multilateral Institution are category of person which are eligible for allotment or reservation.
Provisions of allotment and reservation for public issue Refer Page 233

Lock-in of Shares

Concept of Lock-in of promoters’ share and other share capital is for purpose of preventing such shareholders in making an unfair gains or exits from company and also for providing stabilization period for company’s post-script issue.
Provisions of lock-in of promoters’ share and other share capital are provided in

Differential Pricing and Price Band

Any unlisted company making an IPO of equity shares or convertibles may issue such securities to applicants in the firm allotment category at a price different from price at which net offer to the public is made provided that the price at which the security is being offered to the applicants in firm allotment category is higher than the price at which net offer is being made to Indian Public.
A justification has to be furnished in offer document on the price differential for the firm allotment category
The issuer company can mention a price band of 20% (the cap should not be more than the floor by 20%) in the offer documents filed by SEBI and the actual price can be determined at a later date before filing of offer document with ROC (Registrar of Companies)

Other Important Issue Requirements

All new issues shall be in dematerialized form and can also be made through online interface following the necessary guidelines.
The minimum application size shall be worth Rs. 2000 and maximum can be equal to the net public offer. Minimum tradable lot of shares priced up to Rs. 100 for Rs. 100 shares and minimum application money shall be 2.5% of the total amount.
In offer for sale, entire subscription amount shall be bought in at the time of application.
If there are calls on shares , they should be complicated within 12 months of the issue.
Over-subscription of a max number of 10% of the net offer to the public can be retained
Underwriting is optional. Lead Manager makes of 5% or Rs. 25 lakhs, whichever less. Underwriting commission and brokerage on shares should not be exceeded 2.5% and 1.5% respectively as per the guidelines issued by Ministry of Finance.
Safety Net or buy back arrangements can be made with a minimum period of 6 months and for maximum of 1000 shares per allottee.
Issue should be opened within 365 days from the date of SEBI approval or after 21 days of filing with SEBI if no observations are made

Additional Requirements under the Companies Act

Under the provision of Companies Act, no public issue shall be made without the issue of a prospectus or offer document. Section 56 specifies the prospectus contain matter specified in Parts I and II of Schedule II of the Act.
Other section which are applicable are Section 60, 73, 69, 72 to name a few. Every application form inviting subscription from prospective investors shall be accompanied by a Memorandum in Form 2A of the Companies (Central Government’s) General Rules and Forms, 1956. This has been discussed in detail in Page 235, 236
5.5.8 Statutory Requirements under Other Laws
Besides DIP guidelines and Companies Act 1956, the other important statutes that govern public issues are:
SCRA (Securities Contract and Regulation Act)
FEMA (Foreign Exchange Management Act)
Stock Exchange Listing Agreement (BSE, NSE and other Regional Stock Exchanges)

Role of Merchant Banker in issue management

Accepting appointment, MoU and Inter- se allocation of Responsibilities
Issue structuring and pricing
Due Diligence
Preparation of Offer Document
Pre-Issue Compliance
Liaison with SEBI and Stock Exchange
Co-ordination with other functionaries
Issue Marketing
Functions during the Issue
Post Issue Compliance

Ib-Ps Ch. 6 Rights Issues and Secondary Public Offers - PTR

2007-12-17T00:32:00.000-08:00

Made to existing share holders only.
Entitlement to apply for and receive additional shares.
It’s a RIGHT, not an OBLIGATION.
For ascertaining the right, record date is fixed.
Entitlement ratio is fixed e.g. 1:2
- Thus if a shareholder has 200 shares he is entitled for 100 shares.

Shareholder can exercise or renounce his right to a third party.
Renouncee is entitled to subscribe & receive rights shares.
If the right is neither exercised nor renounced, it lapses and the issue is undersubscribed to that extent.
Promoters can seek to apply for those shares. The impact is change in shareholding pattern.
Oversubscription can occur if shareholders apply for additional shares. The letter of offer should specify the right to apply for more shares.

Considerations for Issuer

Objective of the Issue: Fund raising, consolidation or shareholder reward.
Is this an adequate source of financing?
If seeking shareholder loyalty, compare vis-à-vis bonus issue & higher dividend payout.
Overall condition of the primary markets.
Likelihood of poor response and its effect on market price of share.
Analysis of alternate sources of funding such as private placement.

Regulatory provisions

Companies Act.

Shares will be offered in proportion to their existing holding.
Minimum notice of 15 days.
If offer not exercised within time frame, it shall be presumed to be declined.
Right of renunciation given unless the articles of company provides otherwise.
If shareholder declines to accept offer, it can be disposed off by the board of directors.
The shareholder may be allowed to exercise the power of renunciation only once and not again under the pretext that the first renouncee has declined to accept the offer.

SEBI Guidelines

If aggregate value of issue is greater than Rs 50 Lakh, a letter of offer has to be filed with SEBI through an eligible merchant banker at least 21 days before filing the letter with the stock exchange.
If aggregate value of issue is less than Rs 50 Lakh, company prepares and files the letter of offer with SEBI. The issue shall be open within a year from the 22nd day of filing the letter provided no observations are made by SEBI.
All rights issues shall be made by offering the shares in dematerialized form.

Any listed company may freely price further offerings through a rights issue or any security convertible into equity.
The letter of offer to SEBI may have a price band of 20% and the actual price can be determined at a later date. The final letter of offer sent to shareholders shall contain a single fixed price.
The minimum contribution provision of promoters is not applicable to rights issues so long as they disclose their shareholding and extent of participation in the offer letter.
No company shall make a rights issue unless firm verifiable arrangements towards 75% of the stated means of finance, excluding the amount raised by rights issue is made.
No company shall make a further issue of capital by any means from the time the letter of offer is submitted to SEBI until either the money is refunded or the securities are listed.
A company cannot withdraw the rights issue after announcing the record date.
In exceptional circumstances if it needs to be done, then the company cannot make any listing application to any stock exchange for a period of 12 months from the announced record date.
A rights issue is kept open for a minimum period of 30 days and a maximum period of 60 days.
The quantum of issue cannot exceed the amount specified in the letter of offer.
Rights issue need not be underwritten. However if they are, underwriting requirements are the same as for a public issue.
No firm allotments and reservations can be made in a rights issue.
Minimum subscription of 90% is required for the company to be permitted to utilize the funds.

IB - PS Ch. 7 Public Offer - Debt Securities - PTR

2007-12-16T23:10:00.000-08:00

Pre-requisites for Issue of Debt Instruments

Creation of Debenture Trust

Under section 117B of the Companies Act, any company whether listed or unlisted cannot make an issue of debenture to the public without constituting a trustee mechanism. The Debenture trustee is constituted by the registration of a private trust under the Indian Trusts act 1881 and a trust deed is prepared. The trust deed points out the following:
Time limit for creation of security for issue of debentures.
Any change in the trust property would require approval of the trustee.
Rights of the debenture holders in the event of default by the issuer company.
Terms of redemption of the securities.
Debt-Equity ratios and Debt service coverage ratio.
Obligation to inform the company about the change in the nature and conduct of the business of the company.
Quarterly updates to the trustee about the servicing of the debenture holders and asset-liability profile of the company.

Functions of the Debenture Trustee

To ensure that the assets of the company and each of the guarantors are sufficient to discharge the principal amount of the debentures at all times.
To verify that the prospectus or the offer letter is consistent with the terms of the debentures or the trust deed.
To ensure that the company does not commit any breach of the terms of the issue of debentures and take remedy steps in case of any breach.
To take all steps to call for a meeting of debenture holder as and when required.
To petition the NCLT at any time when the trustee concludes that the assets of the company are insufficient to discharge the principal amount of the debentures as and when it falls due.

Credit Rating

Under DIP guidelines, no public or rights issue of debt instruments, including convertibles irrespective of their maturity or conversion period shall be made unless credit rating from a credit rating agency ha already been obtained and disclosed in the offer document.
If the issue size exceeds Rs 100 Cr two credit ratings need to be obtained.
Where there are multiple ratings all the ratings need to be disclosed.
All the ratings obtained for public or rights issues of debt instruments and convertibles during the three years preceding the current issue should also be disclosed.
It would enhance the investor confidence
It would help in fine pricing as well.

Creation of Debenture Redemption Reserve (DRR)

Under section 117c of the Companies Act, every company that issues debentures has to create a DRR to which adequate amounts will be credited out of the company’s profits every year until such debentures are redeemed and it cannot be used for any other purpose.
This reserve shall form a part of the general reserve and it enables a company to conserve that much of cash resources after distribution of dividends.
The amount of reserve is normally the face value of the debentures to be redeemed which is built progressively y-0-y.
DRR requirement does not apply to infrastructure companies.
The trustee shall supervise the implementations of conditions regarding creation of DRR.

Creation of Security

Debentures to be issued by companies have to be secured against the assets of the company.
Hence according to DIP guidelines security shall be created within six months of the close of issue of debentures. However if the company does not create any security within 12 months it will have to pay a penalty of 2% interest on the debentures.
If the security is not created within 18 months then a meeting for within 21 days to explain the reasons regarding the non creation of the security and the completion date for the same.
The debenture trustee shall supervise the implementation of the conditions regarding the creation of the security for the debenture holders.
It is necessary for the company to secure the debt securities by way of mortgage of fixed assets or by any other means which needs the approval of the shareholders.

Disclosures in the offer Document

Apart from the normal disclosures to be made in the offer document which has been discussed in the previous lectures additional requirements have to be met with:
The terms of conversion of a convertible into an equity such as the conversion price and time of conversion shall be disclosed.
In case of non-convertible debt the redemption amount, period of maturity and yield to maturity shall be disclosed.
The existing and future equity and long term debt ratio.
The offer document should specifically state the assets on which security shall be created and the security cover to be maintained.

Additional Statutory requirement for Debt Offers

Requirements under the Companies Act
The power to issue debentures can be exercised only at a board meeting.
Issue of debt instruments by a company adds to the borrowings of the company, hence these must be made within the limits approved by the company shareholders. Requirements under the DIP Guidelines
Debenture issues by companies belonging to the same group shall not be permitted if the proceeds thereof are used for replenishment of funds (i.e. to provide loans) or for acquiring shareholding of other companies belonging to same group.
No debt instrument including convertibles can be issued either through public or rights issue unless it is rated by a rating agency.

No convertibles with a conversion period of more than 36 months can be issued unless the conversion is made optional with “put” and “call” options
Conversion price and period of conversion shall be determined at the time of issue and shall be disclosed in the offer document.
The interest rate for the debt instruments can be freely determined by the issuer company.

IB - Ps Ch.9 Exit Offers

2007-12-16T22:59:00.000-08:00

Reulatory Requirements for delisting

Has to be listed for 3 years
Approval from shareholders
Merchant banker
Public announcement – floor price, trading centers, trading members, time table of bidding process, Stock exchanges, material facts etc.
Floor price – average of 26 weeks traded price
No maximum price for the offer
Infrequently traded shares – As per Takeover Code
Escrow account - deposit 100% of amount required (at the floor price)
Bidding atleast 3 days
Option to revise bids before bidding closes
Final price – Reverse book building – price at which maximum shares have been offered for sale
Option to accept or reject
Second public announcement to me made within two days
De-listing application and seek approval from stock exchange(s)
If quantity of outstanding shares after the buy back does not fall below minimum requirements, then company remains listed
The promoter shall not acquire any shares and the offer should be cancelled
The public shareholding has to be brought up to required minimum within 6 months
Offer for sale
New issue
Sale in the secondary market
Outstanding convertibles – conversion process has to be completed or exercise period of conversion option should have lapsed
De-listing offer need not be given in cases where securities continue to be traded in stock exchange having nationwide trading terminals

Buyback Rules in India

This was not permitted under Indian law until 1999
In October 1998, the law was amended that introduced 4 types of buy backs
We discuss in brief the below methods:
Buy back by unlisted public and private companies
Buy back by listed companies
Open market purchase through stock exchange mechanism

Provisions shall apply to all types including ESOP shares and other securities as may be specified from time to time
Buy back may be approved by a special regulation in a general meeting
Buy back has to be financed out of free reserves or securities account or form proceeds of earlier issue of dissimilar share

Under SEBI buy back regulations, it is mandatory to engage a merchant banker to prepare a L of O (Letter of Offer) and manage buy back offer
Pricing mechanism fixed by the board of companies
Requirement of an escrow account to be opened under the Tender Offer and the book building methods to the extent specified under regulations
The offer shall not open before 7 days and not after 30 days from the specified date and shall be kept open for a minimum of 15 days and a maximum of 30 days

IB-Ps Ch. 10 Private Placement of Equity - PTR

2007-12-16T22:35:00.000-08:00

The SEBI Regulations, 1996 stipulate that venture investments shall be only in unlisted companies either privately or through the prospectus when they go for IPO.

Venture capital is meant for young companies that evolve from a start-up stage. The term start-up typically refers to the early stage in the life cycle of a company that has been formed to set up a technology backed business venture with an intent to commercialize the same.

Conceptualizing the business idea.
Validation of business idea.
Forming the core team.
Appointment of outside agencies.
Floating the business entity.
Formulation of the business plan.
Seed Financing/Angel Round Financing
Proof of concept/Product Validation
Making key statutory filings.
Early stage/First round Financing.
Commercial launch and market validation.

First equity fund raised through Institutional investors (VCs) who generally accept high risk

Attributes that a VC look forward before investing:

An Industry that is currently a sunrise sector
An exciting concept that has the potential for uninhibited growth
An idea with significant possibilities in future
A business that could become an attractive proposition for strategic acquisition by a market leader
A business with cutting edge technology
A business with first mover advantage
A business with significant entry & easy exit options

Key Elements in Business structuring of a start-up

Formulation of a business strategy & corporate structure
Key commercial contracts
Composition of board
Management structure
Key employment contracts
IPR protection & Management
Corporate governance

Composition of board

Customary for a start up to have a non executive external chairman such as industry/corporate personality.
Political personalities should not be appointed
Chairman should be a person of good business acumen & sound character
Other members may be drawn from promoters, nominees of VCs or lenders
A board with 6 members is ideal for an start up- 2 promoter Directors, 1 non executive chairman & 3 professional independent Directors

Management structure

Can be either pyramidical or flat
Should be chosen on the basis of the type of prevalent industry work culture & business dynamics
Key executive positions should be identified– CEO, COO, CFO etc

Key employment contracts

Defines the commitment of the core team members
These contracts should take care of employees as well
Contracts should cement a long lasting relationship between the company & the core team
Can be done in 2 ways, issuing either:
Sweat Equity
ESOPs

IPR protection & Management

IPRs – Technological, process know hows, copyrights, licences, brand names, trade marks etc
A start up needs to legally safegaurd these rights through appropriate registrations under the relevant IPR laws
These IPRs should not get diluted in key commercial contracts that the company may enter
IP management should be done for the most knowledge intensive businesses
IPs should remain with the company if it seeks to create value in the long run

Key Elements in the Financial structuring of Start ups

Estimation of fund requirements

First & foremost exercise is the Forecast of the financial requirements, in terms of:
Capital Cost of fixed assets & intangible assets
Deferred revenue expenses to be incurred upfront such as product development costs etc
Pre operative expenses to meet the cash burn till the project starts generating revenues
Working capital requirements etc

Capital structuring for equity financing

For capital intensive companies, equity financing is a must
Such start ups are funded through equity & convertibles or hybrids raised through private resources
Once the company is financed through the equity route later on debt can be taken
Promoters subscribe to the equity at par, while VCs at a premium

Knowledge intensive companies (Like IT, media) are not capital intensive, so they may be financed by debt also at inception

Capital structuring for debt financing

In case of manufacturing companies, About half the total project cost & margin money for working capital is taken through Debt component
The balance project cost is contributed through equity
Companies are also required to raise financing for meeting Working Capital requirements.
Banks usually finance these.

IB-PS Ch. 11 Private Placement - Debt Securities - PTR

2007-12-16T22:13:00.000-08:00

Deal Process and Role of Investment Banker

The Process start with typically with issuer rolling out a plan to raise funds through private placement route.

Issuer appoints investment banker (with a universal banking background or pure IBs with strong institutional broking background) as an arranger to whole placement.

Investment Bankers are short-listed and finalized through talks and invitation of quotes.

The Investment Bankers ascertain that the company has taken the necessary approval from it board, shareholders and existing lender for the proposed debt and has the necessary power under it memorandum and the article of association, Section 293(1)(a) and 293(1)(d) of the Companies Act.

Investment Banker then become familiar with company’ business, industry pace and financial, the information is put together in form of a private placement memorandum.

Next the Investment Bankers arrive at the instrument in offer and the deal structure, uses his conventional wisdom, ingenuity and market intelligence to arrive at the coupon rate and suitable enhancement, if any.
As soon as the structure has evolved, the rating process starts.
Rating is important because it enhance the possibility of closing the deal early.

A listing application is made to be filed as soon as the issue is placed and allotment gets completed. If the issue does not satisfy the requirement of Rule 19(2)(b) of the SCR Rule, suitable exemption needs to be obtained for listing the privately placed debt.

In the placement part of the deal, the private placement memorandum is circulated among the closed set of appropriate potential investors.

The institutional investors process the proposal internally and take approval from their credit rating or investment committee or their BoDs, before issuing the commitment letters.

After receiving the commitment letters from all investors, the issue is treated a closed and issuer puts up the letter of intent for consideration by its BoD.

These letter stipulate the general terms and conditions applicable to the particular sanction.

After the board of the company accepts the letter of intent, the company proceeds with the documentation.

The documentation consists of entering into a subscription agreement, which would be common if there is more than one lender. This is because, the security ha to be created in common and therefore, a common subscription agreement is created with all the lenders and all the issuer.

Next is to make allotments and receive the funds from the investors by complying with the procedure prescribed under the Companies Act.

The listing application if required, is also simultaneously filed with the stock exchanges.

The role of investment banker usually ends with the receipt of commitment letters from the investors and the acceptance thereof by the issuer.

The post-sanction formalities are normally handled by the in-house professionals of the company, their auditor or it practicing company secretaries.

IB-PS Ch.12 Business Advisory Services - PTR

2007-12-16T21:52:00.000-08:00

The term 'Corporate advisory services' is an umbrella term taht includes specialised advice rendered to corporations by advisers such as investment banks, chartered and cost accountants, lawyers and other such service provider.

Within corporate advisory services, business advisory services (that are connected to investment banking) relate to advising a company on its present and future businesses from a strategic perspective for survival an growth and on orgaisations structures for implementing strategies.

Business Advisory services

Entry strategy plans
Project feasibility studies
Corporate plan preparation
Merger strategy formulation
Foreign collaborations - Finding and evaluating collaborators and finalising agreements
Business alliance opportunities - search and evaluation
Cross border investment opportunities
Corporate structuring and restructuring

IB-PS Ch.13 Project Advisory Services - PTR

2007-12-16T21:28:00.000-08:00

Full recourse and limited recourse project financing structures

Full recourse

The existing assets as well as assets to be created in future are providedd as a security for the lenders. In addition personal guarantees by the promoters and/or other corporate concerns is also obtained by the lenders.

Limited recourse

In limited recourse, the project is implemented as an SPV and a recourse to promoter is insisted for the proper completion of the project and some additional guarantees may be given by some other parties to the project. For example, Government may guarantee minimum revenues for a fixed number of years

Project Financing Process

Project Conceptualization

Sound Concept backed by business opportunity and revenue model
Project should be bankable
Not necessary to be backed by empirical experience
Should satisfy policy requirements of the government and lending institutions
Should not be under negative list of industries

Project Structuring

Concerns regarding location, procurement, production, technology, marketing and promoter usefulness are considered
Mitigation of risk is key responsibility and Important
Normally awarded to consortia
Normally implemented under and SPV to avoid bankruptcy
RBI Guidelines:
Sponsor commits to provide support for cost overruns
SPV has security structure more stringent than normal projects
Cash flow of the SPV are captured by way of TRA arrangement

Types of project Financing

Project Financing through Equity

Project Financing through long term debt
Domestic Rupee Term Loans
ECB
Automatic Route
Approval Route
Debentures
Other Debt Securities

Project Advisory and Related Transaction Services provided by Investment Banks

Bid Advisory Services (in case of projects that require bids - development of oil fields etc.)

Preparation of “Expression of Interest”
Preparation of a detailed “Information memorandum”
Bid Document
Draft License Agreement
The making ready the “Data Room” – Contains all material information for inspection by eligible bidders

Project Advisory Services

Putting the Project Consortium in place
Completion of documentation for some key project contracts
Listing out of all key statutory clearances required for project to proceed
Preparation of financing plan
Should be in line with institutional norms
Permissible debt-equity ratio
Provisions regarding various sources of finance considered
Various debt and equity instruments considered

Financial Advisory and Transaction Services

Financial closure it the term used to denote completion of tying of the funds required for the project.

Issues need to get sorted at policy level to complete financial closure
Final aspects of contractual agreements between various parties need to be sorted out
Financing mix should be a trade-off between optimization of cost of funds and cost of closure
Feasibility of financing mix needs to be considered
Credit enhancements that would de-risk the financing institution and increases bankability helps the financial closure

IB-PS-Ch.14. Financial Restructuring Advisory - PTR

2007-12-16T20:44:00.000-08:00

Debt Restructuring is part of the restructuring of a balance sheet as it is related to the borrowing obligation of a company

Debt Restructuring is a much more routine process (than Equity restructuring) and can be Triggered off even as a financial management tools to increase the efficiency of borrowing and reduction of financing costs.

Need:

A healthy company wants to restructure its debt portfolio by substituting existing high cost debt with fresh low cost borrowing

A Company without servicing capacity and liquidity problem would want to restructure its debt portfolio to reduce the cost of borrowing and improve working capital position

A company that is insolvent would need a wholesale restructuring of its debt portfolio to Rehabilitate it and make it solvent.

Isssues in Restructuring Various Types of Debt

Broad categories of debt

Secured long term borrowings

Unsecured long term borrowings

Secured working capital borrowings

Other short term borrowings

Restructuring of Secured long term borrowings

Long term secured borrowing can be either in the form of mortgage backed loans provided by commercial bank and financial bank.
Long term borrowing can be both rupee denominated or In foreign currency from Indian lending agencies.
The need for restructuring long term secured borrowing
To Reduce the cost of capital.
TO improve Liquidity and cash flow for a potentially sick company
To Enable rehabilitation of a sick.
Reducing cost of Capital for healthy companies
Restructuring Debt obligations for companies facing bankruptcy or for potential sick units
Recovery laws and restructuring of secured long term borrowings

Restructuring of Unsecured long term borrowings

It can be in the nature of public deposits, private Unsecured loans and privately placed, unsecured debenture bonds or debenture.

For unlisted non-financial companies, the appropriate is the Department of company Affair set up under the ministry of Finance

For listed companies, non-financial companies, the appropriate is the SEBI.

Restructuring of Secured working capital borrowings

Working capital borrowing encompasses credit Limits from Commercial banks in the nature of credit, demand loan, bill discounting, overdraft facilities and commercial paper

These are first charge on inventory and book debts and second charge on other assets.

For other short term borrowing which include inter corporate deposits, clean bills, other acceptance and clean overdraft are generally not restructured. It is rolled over with fresh terms.

Restructuring of other short term borrowings

IB Role

The first step would be to formulate a viability plan for the company

The next step would be to float the “Debt restructuring scheme”.

The next step is to present the DBS to lenders and represent the client in discussion and negotiations with the consortium of lenders..

After the proposal DRS is approved in principle, it is to be ratified by the approving authorities in each lender’s organization.

Debt restructuring services involves a lot of compliance and legal work.

IB-PS-Comments

2007-12-16T20:39:00.000-08:00

IPO Manual for Venture backed firms

2007-12-09T21:04:00.000-08:00

http://www.blueprintconsulting.fr/docs/IPO_Manual_2006.pdf

European Private Equity and Venture Capital Association paper - October 2006

IPO Process - Articles

2007-11-19T19:37:00.001-08:00

IPO Process article

http://forum.johnson.cornell.edu/faculty/michaely/Guide.pdf

Article on investor marketing - during IPO as well as afterwards

http://www.hicbusiness.org/biz2003proceedings/Markus%20B.%20Hofer.pdf

Article on Roadshow the process

http://srz.com/files/im-spring-00-schulte.pdf

Insights from IPO Transformation CEO Retreat - E&Y
https://forms.ey.com/Global/download.nsf/Canada/Insights_2006/$file/Insights2006IPOTransformationCEORetreat.pdf

IPO Controversies - Issues

2007-11-19T19:34:00.000-08:00

Bill’s Point of View

Comments on the FINRA/NYSE IPO Advisory Committee Report

Bill Hambrecht
CEO, WR Hambrecht + Co

May 29, 2003 [ Archive ]

I was pleased to have the opportunity to serve on the recent FINRA/NYSE IPO Advisory Committee, which had been formed at the request of then SEC Chairman Harvey Pitt. The Committee made significant progress in assessing and documenting the material damage caused by underwriters using the traditional IPO process and suggested a number of incremental reforms that should have a positive impact. However, the majority of members on the Committee were unable or unwilling to push for more significant reforms that would fundamentally eliminate the incentive for corruption that continues to exist in the traditional process. There are three particular areas in which I feel the Committee fell short:

1. While the Committee attempts to address the issue of arbitrary pricing and the report recognizes a fiduciary duty for issuing companies to go to the “best market,” it fails to hold underwriters to the same standard.

While the report suggests some important steps to increase transparency between the underwriter and the issuer, the Committee fails to recommend an explicit fiduciary duty that would make underwriters accountable for their IPO pricing decisions. The SROs have been quite successful at promoting better broker dealer pricing in the equity secondary market. For secondary market trades, broker dealers are required at all times to seek the “best market” – regardless of their individual economic interests. The use of new technologies has made it easier to access these alternatives, with significantly increased liquidity and substantial reductions in transaction costs.

In contrast, the traditional IPO book-building process remains closed and non-transparent. The IPO market pricing mechanism currently resides outside of the framework of rules and regulations that govern conduct to insure best execution to both buyer and seller. The notion that an underwriter is a principal given the “bought deal” nature of the underwriting transaction is not compelling, since the vast majority of deals are fully sold immediately to new buyers. We should do everything we can to bring this market under similar rules so that the underwriter has a fiduciary duty to find the best execution for an IPO.

2. The Committee further fails to address the systemic problem that creates an incentive for underwriters to underprice, namely preferential allocation.

The report details a wide range of abuses by underwriters and acknowledges a general trend of underwriters delivering guaranteed profits to preferred clients – yet its recommendations only cover the end results of these abuses. The Committee refuses to target the fundamental cause of the abuses: the unchecked ability of underwriters to allocate shares to their best clients.

If an underwriter is permitted to limit the recorded demand for an offering to select clients and to allocate shares at its whim, it will inevitably be tempted to underprice. This underpricing creates a guaranteed profit, which ensures that potential investors will emerge to bid on the value created. Even if, as expected, the SROs limit excessive underwriter compensation in the form of inflated commissions, potential investors or other related parties will find other ways to compensate an underwriter for that value.

The Committee, in fact, chose to emphasize that the report “in no way is intended to restrict the underwriter’s lawful exercise of its allocation discretion.” That is a mistake in our view. The only way to fundamentally address the abuses in the system is to utilize every available distribution channel to gather demand from all suitable investors and to allocate based on the issuer’s best interests.

3. The Committee’s recommendations do not sufficiently level the playing field on information related to an IPO.

The general regulatory trend has been to eliminate the selective disclosure of information to various investor classes. Regulation FD has been successful in putting individual investors on the same level as institutions in terms of access to information on public companies. The legacy IPO process is conspicuously exempted from that requirement. The Committee discussed, but failed to endorse, an innovative way to improve the situation: the inclusion of forward projections in the prospectus. Currently, estimates are generally available to only the institutional market and solely through the book-running underwriter research analyst, creating a de facto information monopoly for that firm.

The current Global Settlement that generally separates research analysts from the distribution process, will exacerbate this selective disclosure, as only those investors that have direct access to the book-running analyst will get this information. The intention of the regulators to exclude the book-running analyst from the public IPO marketing process was reinforced by the recent response to Bear Stearn’s use of an analyst in a road show for a recent IPO. Given that the market will continue to demand forward estimates, the requirement that they be included in the prospectus is the best alternative to the current reality of selective and non-accountable disclosure.

Conclusion
Most of the leading underwriters are now parts of large, integrated financial organizations. This has led to the integration of distribution channels that create inter-relationships with other parts of their own businesses, and has dramatically changed relationships with outside distribution channels, buyers, issuers and regulators. Historically, underwriting, distribution, research and lending were provided by separate firms, helping to create systemic checks and balances. This is no longer the case. While equity research and investment banking conflicts have received the most attention, conflicts also exist among other investment banking areas, in institutional trading, hedge fund prime account business, commercial lending and merger and acquisitions activities.

As firms have grown in market power, and as new technology has allowed almost instant real time communication, the SROs have developed sound rules of practice that have allowed tremendous growth in liquidity, dramatic reductions in transaction cost, and a re-affirmation that a fiduciary has a duty to deal in the most appropriate and effective market to gain the best price for his customer, irrespective of his own self-interest. The IPO segment of our capital markets is too important to be left out of the regulatory and ethical framework that governs our secondary market. Given the Committee’s final report, it is my hope that the market will ultimately reject arbitrary pricing, preferential allocation and uneven information disclosure in favor of an open, transparent and fair solution.

http://www.wrhambrecht.com/ind/strategy/bill_pov/200305/index.html
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Investment Banking Explation

2007-11-19T00:51:00.000-08:00

The Investment Banking Process in Mergers and Acquisitions
Each step of a business sale or restructure demands a highly specialized effort — supported by equally specialized resources. Our dedicated resources, combined with our experience and commitment to serving the needs of the private business owner, provide us with a significant competitive advantage.

Business Valuation
Whether or not you ultimately choose to sell your business, knowing the value of your business is an essential element to making appropriate decisions and implementing strategies to maximize liquidity. Our valuation process will not only help you uncover the value of your business, but also reveal options to help you achieve your personal, business and financial goals.

Research and Analysis
Using state-of-the-art resources, our research professionals will examine growth factors, industry trends, competitors, market niches and geographic influences to evaluate the position of your business and its potential in the current marketplace.

Buyer Intelligence
Finding and selecting an appropriate buyer is another crucial element to a successful transaction. As part of this process, we prepare documentation to raise the visibility of your business and to capture the attention of targeted prospective buyers.

Controlling The Process
Citi Capital Strategies professionals remain actively involved throughout the negotiation, due diligence, financing and legal processes to ensure to the greatest extent possible that momentum is maintained and that the transaction remains intact.

Proven Results
We are a leader in assisting private business owners seeking to achieve and maximize liquidity, as evidenced by our impressive track record, professionalism, integrity and commitment to quality.

http://www.smithbarney.com/products_services/private_business_services/geneva/ma_process.html?22b
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Book Runners for all International Bonds Rankings - 2006

2007-11-18T22:19:00.001-08:00

Euroweek 2006

1. Barclays Capital----- 8.72% market share
2. Deutsche bank ----7.92%
3. Citigroup ---7.47%
4. Merrill Lynch ----5.77
5. JP Morgan------5.68%
6. HSBC----------5.42%
7. Morgan Stanley--5.06%
8. Royal Bank of Scotland--4.83%
9. UBS------------4.50%
10. ABN Amro----4.17%

source advt in Economic Times dated 20-3-2007 Page 19 by Barlcays Capital

About The Blog

2007-11-18T22:19:00.000-08:00

The blog will have material related to investment banking processes and managing those processes