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Merchant Banking - Indian Corporate Market, Clause 49 & Masala Bonds

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A comprehensive presentation on merchant banking. It starts with Indiann corporate bond market and go on to basics of merchant banking and it digs deep into merchant banking activity. It also has few slides on Clause 49 (Corporate governance) and ends with latest topic Masala Bonds

A comprehensive presentation on merchant banking. It starts with Indiann corporate bond market and go on to basics of merchant banking and it digs deep into merchant banking activity. It also has few slides on Clause 49 (Corporate governance) and ends with latest topic Masala Bonds

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Merchant Banking - Indian Corporate Market, Clause 49 & Masala Bonds

  1. 1. Indian Corporate Bond Market; Merchant Banking; IPO; Clause 49 – A Perspective ABHIJEET DESHMUKH
  2. 2. Capital Requirements Government IndividualsCorporates
  3. 3. Corporate Capital Funding Sources Sources External Equity Debt / Corporate Debt Bank Borrowings Project Loans Syndicated Loans Working Capital Trade Finance Bonds Hybrid Internal Accruals Reserves
  4. 4. Corporate Bonds - Basic Features u Corporate Bonds are issued to the Public (similar to equity instruments) u Listed on Stock Exchanges and traded in Secondary Markets u are Transferable u Can be Secured or Non-secured u possess a Broad Base of Issuers (ranging from small companies to conglomerates and multinationals) and investors (including retail participants), and u are under the additional purview of the Regulators of the Securities Market other than the Central Bank or other Banking Supervisor.
  5. 5. Corporate Bond Market Ecosystem - Three Main Pillars The study of Corporate Bond Market is essentially the study of below three pillars, their roles, responsibilities and actions in the corporate bond market. Institutions – Regulations & Governance SEBI RBI Credit Rating Agencies Clearing Houses Stock Exchanges Participants Investor (Demand Side) Issuer (Supply Side) Securities Debentures (Fixed & Floating) Securitized Instruments Commercial Paper Certificate of Deposit
  6. 6. Corporate Bond Market - Importance u Corporate Bond market helps corporates funds at the low cost and take the benefit of their credit rating without diluting equity. u the corporate bond market in a country can substitute part of the bank loan market, and is potentially able to relieve the stressed banking system in a developing country of unbearable burden. u When bank lending and corporate debt is more balanced in an economy, the market gets an opportunity to assert itself, thereby providing a more effective hedge against systemic / Market / un-diversifiable / volatility risk. u Derivatives and Swap markets are critical for the development of corporate bond markets. These tools broaden the investor base and lend the much needed liquidity to the market. These instruments also play a pivotal role in reducing costs, enhancing returns and managing risk; particularly interest rate risk
  7. 7. Corporate Bond – Primary Placement u Bonds can be places as Public or Privately placed. u Market is dominated by the Private Placement u Private Placed Bonds are those where number of investors are not more than 49, Min Investment is 25 lakhs and multiple of 10 lakhs thereafter. u Sample Term Sheet Years Issues Amt (in '000 cr) % of Issue Issues2 Amt (in '000 cr)3 % of Issue2 2010-11 10 9.45 4.1% 1,404 218.79 95.9% 2011-12 20 35.61 12.0% 1,953 261.28 88.0% 2012-13 20 16.98 4.5% 2,489 361.46 95.5% 2013-14 35 42.38 13.3% 1,924 276.05 86.7% 2014-15 25 9.71 2.3% 2,611 404.14 97.7% 2015-(Aug15) 3 0.80 0.4% 1,509 216.11 99.6% Public Issues Private Placements
  8. 8. Corporate Bond – Valuation/MTM u As per RBI Master Circular on Valuations - “All debentures/ bonds should be valued on the YTM basis. Such debentures/ bonds may be of different companies having different ratings. These will be valued with appropriate mark-up over the YTM rates for Central Government Securities as put out by PDAI/ FIMMDA periodically. The mark-up will be graded according to the ratings assigned to the debentures/ bonds by the rating agencies subject to the following: -(a) The rate used for the YTM for rated debentures/ bonds should be at least 50 basis points above the rate applicable to a Government of India loan of equivalent maturity.” u The premium carried by a corporate bond over G-Secs represents the Credit Risk or Credit Premium. If the spread shrinks it denote bearish view on yield / light supply side / higher yield demanded by the investor for bearing the risk. Source:
  9. 9. IRR() for Valuation Stock IDBI 2015 Coupon 9.35 FV 100.00 Price 102.15 Trans. Chgs 0.30 Maturity 31/12/15 9.35% IDBI 2015 -102.15 1-Jan-10 9.35 31-Dec-10 9.35 31-Dec-11 9.35 31-Dec-12 9.35 31-Dec-13 109.35 31-Dec-14 8.80% Last IP 1-Jan-10 Acc int 0.000 Quote 102.15 Stock IDBI 2015 Coupon 9.35 FV 100 Price 102.15 Trans. Chgs 0.3 Maturity 42369 0.0935 IDBI 2015 =-(C20+C19) 40179 9.35 40543 =(C13-C12)/365*$B$10*100 40908 9.35 41274 =(C15-C14)/365*$B$10*100 41639 =(C16- C15)/365*$B$10*100+100 42004 =IRR(B11:B16,0.01) Last IP 40179 Acc int =(C11-C18)/365*B10*100 Quote 102.15
  10. 10. Credit Rating Scales u Debt instruments rated 'BBB-' and above are classified as Investment Grade ratings.
  11. 11. Market Timings & Reporting Platforms u NSE ( ge.htm) u BSE ( u FIMMDA – FTrac Information ( Market Timings & Holidays u Market Hours are 9.30 AM to 17.30 and reporting hours are 10.00 to 17:30. u Trades done till 17:30 but couldn’t be reported are required to be reported by 9:30 to 10 next day along with traded done post 17:30 u Either the buyer or the seller can report the trade, but the reporting party has to enter both sides of the deal. u The party can use an id of your choice while reporting trades preferably NDS or CCIL ID. A confirmation email will be sent to both the email ids entered by the party. (
  12. 12. International Securities Identification Number (ISIN) u International securities identification number (ISIN) is a 12 character long code, first two characters indicates Country Code as per ISO3166 (For India it is IN). u Third letter indicates type of security which can be E, A, F, B or 9 (E – Company, A/0 – Central Government Security, B- State Government Security, F- Mutual Fund Unit and 9 represents Equity shares having different rights than those represented by INE number.) u In the remaining 9 digits last digit is check suffix suing Double Add Double method to check the validity of the International securities identification number (ISIN) u INE002A01018 – ISIN of Reliance Industry IN – India; E- Company Type; 002A-Company Serial No of Reliance; 01-Equity; 01-Issue Number; 8-Check Suffix
  13. 13. Corporate Bonds Market - Limitations (1/2) u Economic structure is a determinant of financial structure. Since India is a predominantly services based economy, the financial structure automatically prefers equity market liberalization over debt market liberalization. u the inconsistent, disorganized and overlapping institutional and regulatory framework has been one of the primary reasons impeding the development of strong corporate debt markets in India. u In India, a high level of public debt (Government Bonds) crowds out corporate borrowing by reducing the appetite of financial institutions. This increases the cost of borrowing for corporates making bond markets an unviable source of funding u absence of an adequately sized corporate debt market leads to an oversized banking system in any economy. It also results in a large portion of the lending market being excessively regulated, &without being subjected to free market forces, this becomes the perfect breeding ground for crony capitalism, sloppy lending by banks and careless investments by corporates. u The average maturity in the US bond market has lengthened in the recent past and has been upwards of 12 years since 2007 whereas average age of the bonds issued by Indian corporations is only 5 to 7 years
  14. 14. Corporate Bonds Market - Limitations (2/2) u RBI observes that listed corporate debt forms only 5.4 per cent of GDP significantly low compared to other emerging economies - Malaysia(43.1), Korea (77.5) & China (13). u the supply side issues hampering the development of corporate debt markets in India and lists the lack of diversity in instruments & issuers. The large issuers in the corporate debt market segment are “quasi-government” i.e. banks, public sector oil companies or government sponsored financial institutions.. u On the equity side, management and controlling shareholders were largely in favour of equity reforms and consequently allowed for more room for negotiation and agreement. On the debt side, changes were necessary to bankruptcy laws, labour laws and judicial enforcement. At the time of liberalization the base of political power in India was support of labour unions and therefore any changes to labour or bankruptcy laws (allowing quick dismissal of labour) was not feasible. u Foreign borrowings have also shown a healthy growth, indicating preference for cheaper foreign funds over costlier Indian debt markets. However, the recent depreciation in rupee exchange rate against major currencies has tremendously increased the foreign obligations of corporate and stressed corporate balance sheets.
  15. 15. Merchant Banking in India Definition “Any person who is engaged in the business of issue management either by making arrangements regarding selling, buying or subscribing to securities as manager consultant, advisor or rendering corporate advisory services in relation to such issue management.”
  16. 16. Introduction u Merchant bank is a financial institution (Large brokers, Mutual Funds, Venture capital companies and Investment Banks offer Merchant Banking services.) that primarily deals with commercial banking needs of international finance, long term loan for companies provides consulting services and underwriting of stock. u It also acts as an intermediary between the issuers and the ultimate purchasers of the securities in the primary market. u Merchant Banker are those financial intermediary involved with the activity of transferring capital funds to those borrowers who are interested in borrowing. u They guarantee the success of issues by underwriting them. Merchant Banks are popularly known as “issuing and accepting houses”. u Their activities are primarily non-fund based (Fee based). u It has been statutory brought with in the framework of the Securities and Exchange Board of India (SEBI)
  17. 17. Services provided by Merchant Bank u The management of the customer’s securities u The management of projects and counseling as well as appraisal u The circumvention of the syndication of loans u Management of the interest and dividend etc u Management of IPO issue u The management of underwriting of shares and debentures Portfolio Management u Advising on mergers and takeovers u Offshore finance
  18. 18. History u Merchant banking started in Italy in late medieval times (from the fifth to the fifteenth century) u Reached in France during the seventeenth century u Italian merchant bankers introduces merchant banking into England in eighteenth century u European bankers developed Merchant banking in USA u In 1972, merchant banking started in South Africa. History in India u Foreign bank National Grindlays Bank started merchant banking in 1967 u Then Citibank in 1970 and State Bank of India in 1972 started Merchant banking u Later ICICI setup its merchant banking division followed by Bank of India, Bank of Baroda etc..
  19. 19. Merchant bankers categories • Issue Management • Advisor • Consultant • Manager • Underwriter • Portfolio manager • Advisor • Consultant • Co manager • Underwriter • Portfolio Manager • Advisor • Consultant • Underwriter • Advisor • Consultant Category - 1 Category - 2 Category - 3 Category - 4
  20. 20. Capital Adequacy Norms A merchant bank will be registered by SEBI in different categories on the basis of capital adequacy norms in terms of its “Net worth”. Category Minimum amount Category 1 5,00,00,000 Category 2 50,00,000 Category 3 20,00,000 Category 4 NIL
  21. 21. Appointment of Lead Merchant Banker Size of Issue No of Merchant Banker Less than INR 50 Cr Two INR 50 Cr to INR 100 Cr Three INR 100 Cr to INR 200 Cr Four INR 200 Cr to INR 400 Cr Five > INR 400 Cr As may be agreed by the Board
  22. 22. Registration with SEBI Application for grant certificate Information furnishing, clarification and personal Application consideration Granting the certificate Payment of Registration fees
  23. 23. Registration Fee u A ‘MB’ has to pay a fee at the time of original registration u Category I Rs. 10 Lakhs u Category II Rs. 5 Lakhs u Category III Rs. 1 Lakh u Category IV Rs. 5,000 u The certificate of registration granted under regulations shall be valid for a period of three years from the date of its issue to the applicant. u The certificate of renewal granted under regulation 9, shall be valid for a period of three years from the date of its issue to the applicant.
  24. 24. Methods of Placements u Underwriting is insurance for the new securities of the public. It is one of the methods of marketing securities. u The other methods are: Prospectus method, where the capital is raised by this method is very prevalent in India. The distribution expenses may be substantially saved. u Offer for sale, where the sales are sold largely to the brokers/issue houses. The issue house/brokers again sell the shares to the public at a fixed price. This method saves the company the cost and the trouble of selling the shares to the public. Here a Third party takes over the responsibility. u Private placement, where the funds are raised in the primary market by selling the security issue to one investor or a small group of investors without resorting to underwriting. The cost of the issue is minimal. It is the most effective way of procuring the long term funds. There is no need to follow the statutory formalities. The offer is made to select a group of known persons.
  25. 25. Underwriting u Underwriting is a guarantee given by the underwriters to take up whole or part of the issue of securities at a given price not subscribed by the public for a commission. u The agreement between the issuing company and the financial intermediary, called the underwriter, where by sale of certain quantum of securities is guaranteed for the issuing company, is known as underwriting agreement. u It facilitates the provision of money during the financial crisis of the company an alternative to Bank Borrowings. u The Underwriter helps the new company in its reorganization / recognition. u To act as an Underwriter, a certificate of Registration must be obtained from SEBI, after payment of prescribed fee to SEBI. u Underwriters are appointed by the issuing companies in consultation with the Lead Manager or Merchant Banker to the issue and many a time both Merchant Banker and Underwriter are the same entity.
  26. 26. Underwriting Agreements u Firm Commitment: Firm commitment is the most commonly used type of underwriting contract. The underwriter agrees to buy securities from the issuing corporation and pay the proceeds to the company. Any losses that occur due to unsold shares are prorated amongst the participating underwriting firms according to their proportional participation. u Best Efforts: Best efforts underwriting allows the firm (or underwriting syndicate) to act as agent for the issuing corporation and limits the responsibility of that firm to the shares it is able to sell. All unsold shares are absorbed by the issuer u All or None: All or none underwriting allows the issuing corporation to contract for the sale of all shares. If any shares remain at the end of the underwriting process, the underwriting is cancelled. Underwriters cannot deceive investors by stating that all of the securities in the underwriting have been sold if it is not true. u Standby: Stand by underwriting allows an underwriting firm (or syndicate) to wait in the wings in an additional offering for any unused pre-emptive rights that are not executed by the company’s current shareholders. The underwriter will purchase the unused rights, exercise them and sell the shares.
  27. 27. Underwriting Commission u Underwriting commission is payable on the basis by the issuer corporation on the basis of commission rates prescribed by SEBI a) Equity shares 2.5% 2.5% b) Preference, Convertible and non convertible debentures Up to Rs 5L 2.5% 1.5% Exceeding Rs 5L 2% 1% On amounts in developing the underwriter On amounts Subscribed by the public
  28. 28. SEBI Guidelines According to the SEBI guidelines the following factors are to be fulfilled: u The minimum requirement of 90% subscription is mandatory for each issue of capital to the public. This clause is applicable for both public and rights issue. u If the company is not able to receive the issued amount from the public subscription and accepted development from the underwriters, then the company refunds the amount. u In order to standardize the legal relationship between the issuing company and the underwriters, the SEBI has formulated the model underwriting agreement. The underwriting agreement should be filed with the stock exchanges. u The registration number of the underwriter is to be quoted in all correspondence with the SEBI, government authorities and clients. u The total underwriting obligations under all the agreements should not exceed twenty times the network of the underwriter
  29. 29. Debt Issue Management - Summary u Corporates approach Merchant Banker with Amount they wish to raise u They discuss Business Plan/Project Feasibility/Collateral offered. u Merchant Bankers appraise Issuer with current market trends / rates / appetite / psychology of investor, market and competition. u Merchant Banker prepares a Action Plan including Financial plan comprising cost of raising and other expenses, Regulator compliance plan, Procedural Appointment of Intermediary/Underwriter/distributor and most important the Price of the Issue. u Prepares the prospectus and submit with SEBI and takes care of all regulatory requirements u Based on type of placements, appoints underwriter u Involved in Security listing, ISIN creation by appoint Registrar and Transfer agent, Depository (NSDL/CDSL) u Provide the Amount to Issuer and get the fees/ Underwriting commission
  30. 30. Equity Issue Management - Summary How does an IPO take place? u When a company wants to go public, the first thing it does is hire a financial advisor or an investment bank to manage the public issue. u The company and the investment bank meet to discuss the amount of money the company would raise, the type of securities to be issued, and all details in the underwriting agreement u The underwriter puts together what is known as the RED HERRING prospectus. For Ex Throcare Draft Red Hearing Prospectus u This is an initial prospectus containing all the information about the company except for the offer price and the effective date not known at that time. u With the red herring in hand, the underwriter and company attempt to find the appetite for shares. They go on a road show to tap institutional investors.
  31. 31. Equity IPO Process & Merchant Banker
  32. 32. IPO (Initial Public Offering) For Funding Needs u Funding Capital Requirements for Organic Growth u Expansion through Projects u Diversification u Funding Global Requirements u Funding Joint Venture and Collaborations needs u Funding Infrastructure Requirements, Marketing Initiatives and Distribution Channels u Financing Working Capital Requirements u Funding General Corporate Purposes u Investing in businesses through other companies u Repaying debt to strengthen the Balance Sheet u Meeting Issue Expenses. For Non-funding Needs u Enhancing Corporate Stature u Retention and incentive for Employees through stock options u Provide liquidity to the shareholders
  33. 33. IPO Issue Types u Fixed Price
In a 'Fixed Price' shares are sold at a single price/fixed price. This price is determined by the company in advance, and you (the buyer) can buy the shares only at that decided price. 

E.g. If XYZ Industries Limited decides to make a public issue of 10,00,000 equity shares at a price of Rs. 65/- you can buy the share at Rs. 65/- and cannot ask for a price of Rs. 60/- u Book Building Issue
'Book Building' is a price discovery mechanism used to determine the price of the security proposed to be issued. 'Book Building Issue' is generally used when the issuer doesn't want to fix a certain price on the security. Here, unlike the 'Fixed Price Issue', you (the bidder) have the facility to bid for the shares within the given range/price band. E.g. If XYZ Industries Limited decides to make a public issue of 10,00,000 equity shares, it will, instead of a fixed price, announce the price band of Rs. 60/- to Rs. 70/-. You (the bidder) can then place your bids for the shares between this price band/range.
  34. 34. Book Building Process: u The Issuer who is planning an offer nominates lead merchant banker(s) as 'book runners'. u The Issuer specifies the number of securities to be issued and the price band for the bids. u The Issuer also appoints syndicate members with whom orders are to be placed by the investors. u The syndicate members input the orders into an 'electronic book'. This process is called 'bidding' and is similar to open auction. u The book normally remains open for a period of 5 days. u Bids have to be entered within the specified price band. u Bids can be revised by the bidders before the book closes. u On the close of the book building period, the book runners evaluate the bids on the basis of the demand at various price levels. u The book runners and the Issuer decide the final price at which the securities shall be issued. u Generally, the number of shares are fixed, the issue size gets frozen based on the final price per share. u Allocation of securities is made to the successful bidders. The rest get refund orders.
  35. 35. IPO Types of Applicants u Retail Individual Investor:- means an investor who applies or bids for securities of value not more than Rs. 2,00,000/- u Non-Qualified Institutional Buyer: means an investor who bids for an amount above Rs. 2,00,000/- and does not fall in the QIB category e.g. HNI investors. u Qualified Institutional Buyer(QIB) means: u Public financial institution as defined in section 4A of the Companies Act, 1956 u Scheduled commercial banks u Mutual funds/venture funds/insurance companies/provident funds u Foreign Institutional Investor registered with SEBI
  36. 36. IPO Ways of Applying for an IPO u You can invest in IPOs only through ASBA. u Using ASBA, you can invest in public issues by authorizing the bank to block an amount equivalent to the application amount in the linked bank account. u The application amount is not debited from the account but remains blocked till the completion of allotment process. u On allotment, amount required will be debited from the bank account whereas in case of partial or no allotment, the amount unutilized due to non-allotment will be released. Note u SEBI ASBA FAQ
  37. 37. Detail IPO Process u The IPO process in India consists of the following steps: - u Appointment of merchant banker and other intermediaries u Registration of offer document u Marketing of the issue u Post- issue activities
  38. 38. Step -1- Appointment of Merchant Banker u Appointment of Merchant Banker and Other Intermediaries u One of the crucial steps for successful implementation of the IPO is the appointment of a merchant banker. A merchant banker should have a valid SEBI registration to be eligible for appointment. u A merchant banker can be any of the following – lead manager, co- manager, underwriter or advisor to the issue. u Certain guidelines are laid down in Section 30 of the SEBI Act, 1992 on the maximum limits of intermediaries associated with the issue: Size of the Issue No. Of lead Managers 50 cr. 2 50 – 100 cr. 3 100 – 200 cr. 4 200 - 400 cr. 5 Above 400 cr. 5 or more as agreed by the board
  39. 39. Step -1- Appointment of Merchant Banker u Certain guidelines are laid down in Section 30 of the SEBI Act, 1992 on the maximum limits of intermediaries associated with the issue: u The number of co- managers should not exceed the number of lead managers. u There can only be one advisor/consultant to the issue. u There is no limit on the number of underwriters. u Other Intermediaries u Registrar to the Issue: Registration with SEBI is mandatory to take on responsibilities as a registrar and share transfer agent. The registrar provides administrative support to the issue process. The registrar of the issue assists in everything from helping the lead manager in the selection of Bankers to the Issue and the Collection Centers to preparing the allotment and application forms, collection of application and allotment money, reconciliation of bank accounts with application money, listing of issues and grievance handling. u
  40. 40. Step -1- Appointment of Other Intermediaries u Bankers to the Issue: Any scheduled bank registered with SEBI can be appointed as the banker to the issue. There are no restrictions on the number of bankers to the issue. The main functions of bankers involve collection of application forms with money, maintaining a daily report , transferring the proceeds to the share application money account maintained by the controlling branch, and forwarding the money collectedwith the application forms to the registrar. u Broker To the Issue: Any member of a recognized stock exchange can become a broker to the issue. A broker offers marketing support, underwriting support, disseminates information to investors about the issue and distributes issue stationery at retail investor level. u Underwriters to the Issue: Underwriting involves a commitment from the underwriter to subscribe to the shares of a particular company to the extent it is under subscribed by the public or existing shareholders of the corporate. u An underwriter should have a minimum net worth of 20 lakhs, and his total obligation at any time should not exceed 20 times the underwriter’s net worth. A commission is paid to the underwriters on the issue price for undertaking the risk of under subscription.
  41. 41. *BRLM – Book Running Lead Manager
  42. 42. *BRLM – Book Running Lead Manager
  43. 43. Step 2 - Registration Of The Offer Document u For registration,10 copies of the draft prospectus should be filed with SEBI. The draft prospectus filed is treated as a public document. u The lead manger also files the document with all listed stock exchanges. Similarly, SEBI uploads the document on its website Any amendments to be made in the prospectus should be done within 21days of filing the offer document. Thereafter the offer document is deemed to have been cleared by SEBI. u Promoters Contribution: In the public issue of an unlisted company, the promoters shall contribute not less than 20% of the post issue capital as given in Chapter- IV of the SEBI Act, 1992.The entire contribution should have been made before the opening of the issue. u Lock-in Requirement: The minimum promoters contribution will be locked in for a period of 3 years. The lock-in period commences from the date of allotment or from the date of commencement of commercial production, whichever is earlier.
  44. 44. Step 3 – Marketing/Timing of the Issue u An appropriate decision regarding the timing of the IPO should be made, keeping in mind the general sentiments prevailing in the investor market. For example, if recession is prevailing in the economy (the investors are pessimistic in their approach), then the firm will not be able to get a good pricing for its IPO, as investors may not be willing to put their money in stocks. u Retail distribution: Retail distribution is the process through which an attempt is made to increase the subscription. Normally, a network of brokers undertakes retail distribution. The issuer company organizes road shows in which conferences are held, which are attended by high net worth investors, brokers and sub-brokers. The company makes presentations and solves queries raised by participants. This is one of the best ways to raise subscription. u Reservation in the Issue: Sometimes reservations are tailored to a specific class of investors. This reduces the amount to be issued to the general public
  45. 45. Step 3 - Marketing of the Issue u The following are the classes of investors for whom reservations are made: u Mutual Funds u Banks and Financial Institutions; Non-resident Indians (NRI) and Overseas Corporate Bodies (OCB) The total reservation for NRI/OCB should not exceed 10% of the post-issue capital, and individually it should not exceed 5% of the post issue capital. u Foreign Institutional Investors (FII): The total reservation for FII cannot exceed 10% of the post-issue capital, and individually it should not exceed 5% of the post issue capital. u Employees: Reservation under this category should not exceed 10% of the post issue capital. u Group Shareholders: Reservation in this category should not exceed 10% of the post issue capital. The net offer made to the public should not be less then the 25% of the total issue at any point of time
  46. 46. Step 4 - Post-Issue Activities u Principles of Allotment: After the closure of the subscription list, the merchant banker should inform, within 3 days of the closure, whether 90% of the amount has been subscribed or not. If it is not subscribed up to 90%, then the underwriters should bring the shortfall amount within 60 days. u In case of over subscription, the shares should be allotted on a pro-rata basis, and the excess amount should be refunded with interest to the shares holders within 30 days from the date of closure. u Formalities Associated With Listing: The SEBI lists certain rules and regulations to be followed by the issuing company. These rules and regulations are laid down to protect the interests of investors. The issuing company should disclose to the public its profit and loss account, balance sheet, information relating to bonus and rights issue and any other relevant
  47. 47. Clause 49 u The term ‘Clause 49’ refers to clause number 49 of the Listing Agreement between a company and the stock exchanges on which it is listed and it comes into effect from 31 December 2005. It has been formulated for the improvement of corporate governance in all listed companies. u Corporate Governance may be defined as “A set of systems, processes and principles which ensure that a company is governed in the best interest of all stakeholders.” u Corporate Governance is about promoting corporate fairness, transparency and accountability. Good Corporate Governance is simply Good Business. u as made major changes in the definition of independent directors, strengthening the responsibilities of audit committees, improving quality of financial disclosures, including those relating to related party transactions and proceeds from public/ rights/ preferential issues, requiring Boards to adopt formal code of conduct, requiring CEO/CFO certification of financial statements and for improving disclosures to shareholders. Certain non-mandatory clauses like whistle blower policy and restriction of the term of independent directors have also been included u
  48. 48. New Product – Masala Bonds Mortgage lender Housing Development Finance Corp (HDFC) has raised Rs 3,000 crore by issuing masala bonds; the first company to do so since the RBI green-flagged it in September last year. u What exactly are masala bonds? These are rupee-denominated borrowings by Indian entities in overseas markets. Usually, while borrowing in overseas markets, the currency is a globally accepted one like dollar, euro or yen. u What is the advantage of borrowing abroad in rupees? Companies issuing masala bonds do not have to worry about rupee depreciation, which is usually a big worry while raising money in overseas markets. u Is that a big enough advantage? Of course. Quite a few Indian companies that had raised money abroad in 2007 by issuing Foreign Currency Convertible Bonds found themselves in a soup when the rupee depreciated sharply following the global financial crisis. u What is in it for the buyer of the bond? The buyer will earn a higher yield (coupon rate) to compensate for the risk of currency depreciation.
  49. 49. New Product: Masala Bonds u What is the tenor and coupon rate on the HDFC Masala bonds? The bond bears a fixed semi-annual coupon of 7.875 percent per annum and has a tenor of 3 years and 1 month. The bonds have been issued at a price of 99.24% of the par value and will be redeemed at par. The all-in annualized yield to the investors is 8.33 percent per annum. u Will the bonds be traded? Yes, but on the London Stock Exchange, not in India. u Will there be more such bond issuances by other companies? According to Utpal Oza, MD and Head of Investment Banking, Nomura India —the banker to the HDFC issue — post Brexit, both Asian and European investors are hunting for yield and masala bonds seem to be offering them an attractive yield pickup. He says many public and private corporates are in the fray to issue masala bonds in the coming months, due to the hitherto untapped, deep alternate investor base that they give access to at marginally higher cost of financing. Source: bondshow-do-indian-cos-benefit_7043101.html?utm_source=ref_article
  50. 50. Thank You