MERCHANT BANKER OR LEAD MANAGERS
Merchant bankers are body corporate who engaged in issue of securities. It acts as manager or advisor or consultant to issuing company. A merchant banker requires compulsory registration under the regulation 3 of SEBI (Merchant Bankers) Regulations, 1992. These activities mainly includes determining the composition of capital structure, compliance with procedural formalities , appointment of registration , listing of securities, arrangement of underwriting , selection of brokers and bankers, publicity and advertisement agent , private placement of securities, advisory services, etc.
The merchant bankers are responsible to make all efforts to protect the interest of investors. The merchant bankers has to exercise due diligence, high standards of integrity, dignity. The merchant bankers are also responsible in providing adequate information without misleading about the applicable regulations and guidelines. It is now mandatory for all public issue s to be managed by merchant bankers functioning as the lead managers.
An underwriter may be an individual, broker, merchant banker, financial institution or banks. The underwriting is an agreement between the issuing company and the assuring party through an agreement to take up shares or debentures or other securities to a specified extent in case public subscription does not amount to the expected level. Thus, in case any short-fall, it has to be made good by underwriting arrangements by the underwriter as per the agreement.
The underwriter shall not derive any benefit from underwriting the issue than commission as specified in the agreement. If an underwriter is being called upon to subscribe the shares of a company has to subscribe such securities within 45 days of receipt of such intimation as per the agreement. The underwriter has to appoint a compliance officer who is responsible for fulfilling the provision Act. The compliance officer is required to report to SEBI and responsible for complying the notification, guidelines, instruction issued by SEBI.
The development of a sophisticated and matured financial system in the country, especially after the early nineties, led to the emergence of a new sector. This new sector is known as financial services sector. Its objective is to intermediate and facilitate financial transactions of individuals and institutional investors. The financial institutions and financial markets help the financial system through financial instruments. The financial services include all activities connected with the transformation of savings into investment. Important financial services include lease financing, hire purchase, instalment payment systems, merchant banking, factoring, forfaiting etc.
Services provided by Merchant Bankers.
Following other services are provided by merchant bankers.
1. Corporate counseling: Corporate counseling covers entire field of merchant banking viz project counseling, capital restructuring, project management, loan syndication, working capital, lease financing, portfolio management, underwriting etc. Such counseling is provided to corporate and client units to solve their problems.
2. Project Counseling: Which includes preparing project reports, finance for cost of project, appraising projects from the angle of technical, commercial and financial viability, Getting approval of project from bank/Govt and other agencies & Planning for public issue.
3. Loan Syndication: Arranging loan for big projects not only from one bank or financial institution but from more than one bank or financial institution as amount of loan is very large.
4. Underwriting of public issue: Underwriting is a guarantee given by the underwriter that in the event of under subscription, the amount would be provided by him to the extent of under subscription. All public issues are to be underwritten fully. Merchant banks provide such service of underwriting pubic issue subject to some limitations.
5. Managers, Consultants or advisors to the issue: Managers to the issue assist in drafting of prospectus, application forms and completion of formalities under companies act, appointment of Registrar for dealing with share applications, transfer and listing of shared with stock exchange.
6. Portfolio Management: It refers to investments in different kinds of securities such as shares, debentures, bonds issued by different companies and securities issued by the Govt. Merchant bankers advise about mix of investments a company should follow to ensure maximum return with minimum risk and for this purpose merchant makers have to make a careful study of Govt. policies, capital market as well as financial position of companies.
7. Corporate restructuring: Merchant bankers are also advising companies ;about corporate restructuring including merger, acquisition, takeovers etc.
8. Off-share financing: Merchant bankers are also arranging foreign currency, foreign loans, foreign collaborations, financing exports imports etc.
9. Technical assistance: Merchant bankers are also providing services on technical aspects such as technological up gradation, modernization of industries etc.
10. Revival package for sick units: Merchant bankers are also liaisoning with Board of Industrial and Financial Reconstruction (BIFR) and industrial Reconstruction Bank of India (IRBI) and such helping their clients in this regard also.