Investment Banking

Chapter 1. The Investment Banking

Paradigm
“Division of
banking includes
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dealing with
Definition:
creation of capital
for other companies
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acting as agents
or underwriters for
companies in the
process of issuing
securities
,
What is Investment Banking?
investment banking
Investment
also banks and Commercial banks perform
advise
primarily different functions.companies
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visited a commercial bank.matters
When Nokia needed
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bank. placement of stock”.

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Investment Banking

Investment banking is a field of banking that aids companies in

acquiring funds. In addition to the acquisition of new funds, investment
banking also offers advice for a wide range of transaction a company might
engage it.

Through investment banking, an institution generates funds in

two different ways. They may draw on public funds through the capital
market by selling stock in their company, and they may also seek out
private equity in exchange for a stake in their company.

An investment banking firm also does a large amount of

consulting. Investment bankers give companies advice on mergers and
acquisitions, for example. They also track the market in order to give advice
on when to make public offerings and how best to manage the business'
public assets. Some of the consultative activities investment banking firms
engage in overlap with those of a private brokerage, as they will often give
buy & sell advice to the companies to the represent.

Who needs an Investment Bank?

Any firm think about a significant transaction can benefit from
the advice of an investment banking. Although large corporations often
have sophisticated finance and corporate development departments, an
investment banking provides objectivity, a valuable contact network, allows
for efficient use of client personnel, and is vitally interested in seeing the
transaction close.

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Most small to medium sized companies do not have a

large in-house staff, and in a financial transaction may be at a
disadvantage versus larger competitors. A quality investment banking firm
can provide the services required to initiate and execute a major
transaction, thereby empowering small to medium sized companies with
financial and transaction experience without the addition of permanent
overhead.

What to look for in an Investment Bank?

Investment banking is a service business, and the client should

expect top-notch service from the investment banking firm. Generally only
large client firms will get this type of service from the major Wall Street
investment banking; companies with less than about $100 million in
revenues are better served by smaller investment banking. Some principle
to consider includes:

 Experience:
It extremely important that the, senior members of the
investment banking firm will be active in the project on a day-to-day basis.
Depending on the type of transaction, they should preferable to work. The
investment bank should have a wide network of relevant contacts, such as
potential investors or companies that could be approached for acquisition.

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 Record of Success:
Although no reputable investment bank will
guarantee success, the firm must have a demonstrated record of closing
transactions.

 Ability to Work Quickly:

Often, investment banking projects have very
specific deadlines, for example when bidding on a company that is for sale.
The investment banking must be willing and able to put the right people on
the project and work diligently to meet critical deadlines.

 Fee Structure:
Generally, an investment bank will charge an initial
retainer fee, which may be one-time or monthly, with the majority of the fee
contingent upon successful completion of the transaction.

 Ongoing Support:
Having worked on a transaction with the company,
the investment bank will be intimately familiar with the business. After the
transaction, an investment bank become as a trusted business advisor that
can be called upon informally for advice and support on an ongoing basis.

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1.2 Evolution of American Investment Banking

 Commercial banks in USA were preparing for an economic recovery &

consequently to the significant demand for corporate finance at end of
World War I.

 It was expected that American companies would shift their dependence

from commercial banks to stock & bond market at lower cost & for long
time.

 So presence such market in 1920s commercial banks started to acquire

stock broking business in a bid which boom in capital market.

 The first acquisition happened where the National City Bank of New
York Acquired Halsey Stuart & Company in 1916. In 1920s investment
banking meant underwriting and distribution of securities.

 In 1920s banks do not want to miss boom opportunity of stock & bond
market. But since they could not underwrite & sell securities directly,
they owned security affiliates through holding companies.

 Investment banking affiliates made huge profit as underwriting fees,

special segment called ‘Yankee Bond’ issued by overseas issues in US
market.

 In the stock market the banks mainly conducted broking operation

through their subsidiaries and lent margin money to customer. But with

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the passage of the McFadden act in 1927, banks subsidiaries began

underwriting issues as well.

 The stock market got over heated with investment banks borrowing
money from the parent banks in order to speculated in the bank’s stocks
mostly for short selling.

 Once the general public joined the frenzy the price earnings ratios
reached absurd limits and the bubble eventually burst in October 1929
wiping out millions of dollars of bank depositor’s funds and brining down
with it banks such as the Bank of United States.

Regulation of the Industry

 Banking Act 1933 which was known as Glass-steagall Act passage to

commercial banks that to restricted to engaging in securities
underwriting and taking positions or acting as agent for other securities
transactions.
 On the other hand investment banks were barred from deposit taking &
corporate lending which were considered the business of commercial
Banks.
 Investment Banks becomes one of the most heavily regulated industries
in USA in 1935. The securities Act, 1933 provided for first time
preparation of offer document and registration of new securities with
federal government.

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 The Securities Exchanges Act 1938 led to establishment of the

securities Exchange Commission.
 The Investment Companies Act, 1940 brought mutual fund within the
regulatory ambit & Investment Advisers Act, 1940 regulated the
business of investment advices and wealth manager.

1.3 Global Investment Banks Structure

The Investment Banking industry on a global scale is
oligopolistic in nature ranging from the global leader (known as the
‘Global Bulge Group’) to ‘Pure’ Investment banks. The bulge group
consisting of eight investment banks takes these league tables quite
seriously since they define their position in industry and send a strong
message to their clients about their performance & capabilities.
Through the ranking in the league tables keep changing with time
generally the top firm are more or less the same. The global firm top
ten list gives below:

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Major Global Investment Banks with Illustrative Market

Shares

Investment Banks Name Percent of total

Merrill Lynch 9.0
Goldman Sachs 7.5
Credit Suisse Barney Boston 7.2
J.P. Morgan 5.5
Lehmann Brothers 3.6
Deutsche Bank 3.5
Bank of America 2.4

The banks given in table are ‘Pure Investment

Banks’ i.e. there do not have Commercial banks
connection.

1.4 Evolution of Indian Investment Banking

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Investment Banking

In India through the existence of this branch of financial

service can be traced to over three decades investment banking was
largely confined to merchant banking service. The forerunners of merchant
banking in India were the foreign banks. Grindlays Banka now merged with
Standard Chartered in India began merchant banking operations in 1967
with a license from the RBI followed by the Citibank in 1970. These two
banks were providing service for syndication of loan and raising of equity
apart from other advisory services.
It was in 1972 that the Banking Commission Report
asserted the need for merchant banking service in India by the public
sector banks. Based on the American experience which led to the passage
of the glass-steagall Act, the commission recommended a separated
structure for merchant banks distinct from commercial banks and financial
institution. Merchant banks were meant to manage investments and
provide advisory service.
Following the above recommendation the SEBI set up its
merchant banking division in 1972. Other banks such as the Banks of India,
Central Banks, Bank of Baroda, Syndicated banks etc are suited to set up
their merchant banks outfits. ICICI was first financial institution to setup a
merchant bank in 1973. The later entrants were IFCI & IDBI with the latter
setting up its merchant banking division in 1992. However by the mid
eighties and early nineties most of the merchant banking division of public
sector banks were spun off as separate subsidiaries. SBI set up SBI capital
Market Ltd in 1986. Other such as Canara Bank, BOB, PNB, ICICI and
India Bank created separate merchant banking entities. IDBI created IDBI

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Investment Banking

Capital, market much later since merchant banking was since banking was
initially formed as a division of IDBI in 1992.

Case Study:
Foreign Investment bankers turning
Towards India for growth prospects

Investment banking giants are collapsing around the world and

revenues from such activities are shrinking drastically for Indian broking
houses. But these have not dissuaded two foreign institutions from
announcing plans of starting investment banking operations in the country.

In February 3, 2009 the US-based Jeffries Group told that it has

received licence from SEBI to set up its merchant banking business here.

Analysts said Indian market seems to be attractive to these

organisations despite the slump.

“These sorts of firms seem to be sniffing around and waiting

till the end of the year to see if something good might turn up. At the
moment they seem to be looking at business development rather than

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revenue hunting,” said Mr Saurabh Mukherjea, Head of Indian Equities at

Noble.

Mr Devesh Kumar, Managing Director at Centrum Broking,

said as the Indian economy is growing much faster than most other
countries, cross-border M&A opportunities look good in India.

Case study of Upcoming New Indian

Industry for Investment Banking

Reliance Capital, the financial services arm of ADA Group, is set

to enter the investment banking business soon. The company has already
launched its PE arm and plans to sell part stake in its life insurance
business to unlock shareholder value, group chairman Anil Ambani told
shareholders on February3, 2009. The company also expects to enter
banking as and when regulations permit.

According to Ambani, in the four years that Rel Cap has

functioned after splitting from the undivided Reliance group, revenues have
risen 14 times, net profit has grown 28 times, total assets nine times and
net worth five times. "At Reliance Capital, we continually scan the horizon
for new business avenues. Over the next year , their plan to take their first
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steps in the world of investment banking," Ambani said at the Rel Cap
AGM.
"Given the scale and magnitude of their relationships across
corporate India and the sheer size and reach of their distribution network,
their ideally positioned to create a significant presence in the investment
banking business,” Ambani added.
Ambani said Reliance Life Insurance now ranked among the
top four private life insurers in India and Rel Cap was considering options
to unlock shareholder value by going for a public issue, find a strategic
partner or a combination of both. "A final decision in this matter will be
taken shortly, driven by the sole objective of maximising returns for
Company shareholder,” there added.
Rel Cap also looks to expand its PE arm Reliance Equity
Advisors, whose focus will be on growth capital and buyouts.

1.3 Service Portfolio of Indian Investment banks:

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The core service provided by Indian investment banks are in the

area of equity market, Debt market and advisory. These are profiled below:

Core Service

I. Merchant Banking, Underwriting and Books Running:

When the primary market are buoyant, Issue
management, book -building and syndicated underwriting form a very
dominants segment of activity for most Indian investment banks. A
segment of primary market is also the private placement market,
especially for government securities and commercial paper and bonds
floated by public sector banks and corporation. Investment banks have
been managing the pubic offers and holding them in the private
placements as well. SEBI has gradually been increasing its regulations of
the private placement market as well thereby making merchant bankers
plays a significant role in them.

II. Merger and Acquisitions Advisory:

One of the cream activities of investment banks has
always been M&A advisory. The larger investment banks specialise in
M&A as a core activity. While some of them provide pure Advisory
service in relation to M& A, other holding valid merchant banking
licences from SEBI also manage the open offers arising out of such
corporate events.

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III. Corporate Advisory:

Investment Banks in India also have large practices in
corporate Advisory service relating to project financing, corporate
restructuring, capital restructuring through equity repurchases, raising
private equity, Structuring joint-venture and strategic partnerships and
other value added specialized area.

I.3.2 Allied business

I. Securities Business:
The universal banks such as SBI, ICICI, UTI Bank and
Kotak Mahindra have their broking and distribution firm in both the equity
& debt segment of the secondary market. In addition several other
investment banks such as the IL & FS and pure investment banks such
as DSP Merrill Lynch and JM Morgan Stanley have a strong presence in
this area of activity. After the introduction of the derivatives segment it
had provided an additional area of specialization for investment banks.
Derivatives trading risk management & structured product offering are
the new segment that are fast becoming the area of future potential for
Indian investment banks. The securities business also provided
extensive research based products & guidance to investors.
II. Asset Management Service:
Most of the top financial groups in India which have
investment banking business such as the ICICI, DSP Merrill Lynch & JM
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Morgan Stanley etc also have presence in the asset management business
through separate entities. Mutual fund industry grew significantly in India
from the late nineties and is a force to reckon with in the capital market.
Mutual funds provide the common investor the service of sophisticated fund
management.
Several Indian investment banks have also ventured in to the
business of starting dedicated venture capital & private equity fund. ICICI,
UTI Bank, DSP Merrill Lynch and other have dedicated venture capital and
private equity funds. SEBI is reported in the process of setting up a venture
funds. Besides, several investment banks are tying up with foreign funds to
set up India specific private equity funds.

III. Investment Advisory & Wealth Management :

Many reputed investment banks nurture a
separate service segment to manage the portfolio of high net worth
individuals, households, trusts and other types of non-institutional investor.
This can be structured either as a discretionary or non- discretionary
portfolio management .This is a highly regulated activity since it involves
pubic investible funds. However, in several cases, investment banks do not
offer portfolio management service but offer investment advice wherein
the investor is provided good investment recommendations from time-time.
Business Portfolio of Investment Banks

Core Business Portfolio

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Non fund Based Fund Based

Underwriting
Merchant Banking Service
Market Making
Management of public offer of equity &
Bought out deals
Debt instruments
Proprietary investment & trading in
Rights Issues equities, bonds & derivatives
Open offer under the Takeover code
Buyback offers
De-listing offers Allied Business

Advisory & Transaction Service Assets Management Service

Mutual Funds
Project financing Portfolio management
Venture capital Funds
Syndicates loans
Private Equity funds
Structured finance & Securitisation
Private Equity /Venture capital Secondary Market Service
Preferential Issue Securities business
Qualified Institutional placement Brooking
Sales & Distribution
Business Advisory
Equity research
Financial Restructuring Investment advisory
Asset recovery agency service Derivatives
Government disinvestment & privatization
Acquisitions, Strategic sale, buyouts & takeover Support Service
Registrars & Share transfer agents
Corporate re-organisations such as mergers &
Custodial Service
demergers, hive-offs, assets sales, divestitures Other capital market service

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Chapter 2. Underwriting

2.1 Definition:
Underwriting may connote different service obligation
depending upon the way it has evolved as an area of capital market
service. According to SEBI (underwriters) rules 1993 means “a person who
engages in the business of underwriting of an issue of securities of a body
corporate”
In Investment banking, “underwriting is defined as the
transaction between the issuer of the instruments of debt or equity and the
firm which has agreed to liquidate the instruments immediately upon their
issuance”.Underwriting is one of important core function of investment
banking.

2.1.1 Introduction:
Underwriting is always in connection with a proposed issue of
securities by a body corporate. It is not a general underwriting between a
company and an underwriter. The specific underwriting commitment has to
be documented through an Underwriting agreement.

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Underwriting is an agreement by the underwriter to subscribe

to the securities being issued in case the person to whom they are offered
do not subscribe to them. Therefore , underwriting is a service that consist
of taking a contingent obligation to subscribe to an agreed number of
securities to an agreed number of securities in an issues if such securities
are not subscribe to by the intended by the intended investors.
Underwriting is primarily a fee-based service provided by an
underwriter since there is no fundamental obligation to subscribe to the
underwritten securities. If the issue is fully subscribe to by the investor, the
underwriter has no further obligation to the issues. However if investor do
not subscribe to the issues fully the obligation falls upon the underwriter to
pick up the unsubscribe portion of the issues. In such a situation
underwriting becomes a fund-based service since the underwriter has to
purchase the securities that have remained unsubscribe by investor. It is
due to this reason that underwriting is a risky activity for investment banks
that requires careful assessment of issues before they can be taken up for
underwriting. In addition underwriting requires sufficient resources to be
allocated to such activity.
In investment banking underwriting, the government or
private entity which issues the debt or equity instruments has an immediate
need for cash (specie), and has no interest in waiting to locate buyers for
the instruments at an indeterminate or specified date. The issuer also
usually has no detailed knowledge of the individuals who are capable or
interested in the present or future purchase of the instruments, and (most

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importantly) what the highest and most fair price for the securities may be
so.

2.2 Underwriting Commission

1. The underwriter’s compensation for the service rendered is the fee that is
paid by the issuer company. The fee, which is known as underwriting
commission, is paid as a percentage of the value of underwriting. (The total
number of securities underwritten multiplied by the offer price per security.)
2. Underwriting commission is payable irrespective of whether the underwriter
ultimately has any requirement to purchase the underwritten securities or
not.
3. The payment of underwriting commission is governed by section76 of
companies Act which stipulates a ceiling of 5% with respect to share and
2.5% with respect to debentures.
4. The government of India (Ministry of finance) fixed a capital 2.5% with
respect to equity share. In case of other securities where in the total issues
size is more than Rs5, 00,000 the applicable ceiling is 1% if the issues is
fully subscribed by investor.
5. In case the issue is under-subscribed the underwriter can be paid an
additional 1% on the securities picked up by them. Within the above ceiling

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fixed by the government an issuer company is free to negotiate lower rates

of commission with underwrites.

2.3 Underwriting Regulatory Framework

Underwriting activity in India is regulated under the SEBI
(underwriters) Rules 1993 & SEBI (underwriters) regulations1993. The
regulations Framework for underwriting activity a under above mention:

 Underwriting business can be taken up by financial institution, Commercial

banks, Mutual funds, Merchant banker registered with SEBI, stock broker
and NBFC’s.
 All underwriters shall have necessary infrastructure, past experience,
minimum of two employees and shall comply with the minimum capital
adequacy requirement as stipulated from time-to-time.
 Underwriters have to enter into legally binding agreement with the issuer
companies. The underwriting agreements have to be approved by the stock
exchange wherein the shares are proposed to be listed.
 In case of financial institution, mutual fund & bank, the issuer company has
to apply separately prior to finalisation of the issuer for underwriting
support.
 Underwriting commission cannot exceed the statutory ceiling.

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 All underwriting contract have to be classified as material contract &

disclosed as such in the offer document & filed with the registrar of
companies prior to the issue of the offer document.
 Sub-underwriting is permissible provided there are contract to evidence the
same.

2.4 Underwriting In Fixed Price Offers

Underwriting is optional for a fixed price offer, it is present
regulatory framework. Therefore if a issuer company fells that the issue is
strong enough to sell on its merits, it may decide to take the risk and decide
foe not underwriting it
In such case the company only pays brokerage for marketing
its securities to investor and saves on underwriting commission. The
underwriting decision is normally taken in consultation with the lead
manager who has a good understanding of market.
The regulations further stipulate that if a fixed price offer is
underwriting the lead manager managing the issue shall undertake a
minimum obligation of 5% of the total underwritten amount or Rs 25 lakh
whichever is lower. The regulation suppose that in stipulating a mandatory
participation of lead manager in the underwriting risk of the issue, a sense
of responsibility would be inculcated to bring issues to the market.

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2.5 Book Building

 Project funding process in the European countries through mobilization of
money from institution or public is different from the normally adopted
public issue route in India. In countries like U.S.A the fund is collected
from the underwriter to issues through book building.
 The India corporate have started adopting the same system while
exploring the international money market at the time of issuance of
Global Depository Receipt. The process necessitates the companies to
tie up the issues amount through road show and in course of this
exercise the book runners note the offered amount from various
underwriters/ institutional investor. The issue price is derived and
constituted out of these offers received and recorded and recorded but
the issue mangers.
 Book Building is selling an issues step wise to investors at an acceptable
price with the help of a few intermediaries. The basic philosophy of book
building is based on the fact that the price of any scrip mainly depends
upon the perception of the investors about that corporate. This exercise

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is normally carried out the issuers with the help of a few intermediaries
who are called as the ‘Book-Runners’.
 Book Building is a relatively new optional device to raise ownership
(equity) or borrowed fund (debt) through public issues in the capital
market in India although it has been in vogue in the international financial
market. The system of book-building has been introduced in India as
result of the steps taken by the SEBI to implement the recommendations
of the Malegam Committee, which went into the issue of disclosure
requirement.
 Book-Building is an international practice which refers to collecting orders
from investment bankers and larger investors based on an indicative
price range.

Concept
Book Building is a novel concept to India. Under book
building process the issuer is required to tie up the issue amount by way of
private placement. The issues price is not priced in advance, it determined
by offer of potential investor about price which they may be willing to pay
for the issues. To tie up the issue amount the company organises road
shows and various advertisement campaigns. In course of exercise the
book runner notes the amount offered by various investors such as Mutual
funds, Underwriters etc. the price of instrument is weighted average at
which the majority of investors are willing to buy the instrument.

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In the Book Building process the issuer company ties up with

a selected group of individuals and agencies for private placement. The
entries exercise is done on wholesale basis whereas in the conventional
system, larger number of brokers and underwriters are involved. It is called
“Book Building Process’ because one lead managers builds his order book
by forming a syndicate of eligible potential buyers.

Book Building Process

Issuer Company

Book runner

Syndicate Members

Foreign
Mutual Stock Advisors Institutional
Fund Brokers [25] Institutional
Investors
Investors
 Investment Banking

Clients Clients Clients Clients Clients

Intermediaries:
Book building refers to the collection of Bids from investor which
is based on an indicative price range, the offer price being fixed after the
Bid closing date. The principal parties/ intermediaries involved in a book
building process are:
o The company
o A Book Running Lead Manager who is a category Merchant banker
registered with SEBI. The Book Running Lead manager is also the lead
Merchant Banker.
o Syndicate members who are intermediaries registered with SEBI and
who are permitted to carry activities as underwriters. Syndicate Member
are appointed by the Book Running Lead manager.

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2.5 Brought out Deals

i. BOD refers to the fact that the investment banks buys the entire stock
meant to be issued to the public from the issuer company. Thereafter at
the appropriates time usually within 9-12 months the investment bank
makes an offer for sale to the pubic there by listing the company.
ii. A BOD occurs when an underwriter, such as an investment bank,
purchases securities from an issuer before a preliminary prospectus is
filed. The investment bank (or underwriter) acts as principal rather than
agent and thus actually "goes long" in the security. The bank negotiates
a price with the issuer (usually at a discount to the current market price,
if applicable).

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iii. The risk in BOD is similar but not exactly the same as that in firm
underwriting. In a firm underwriting for an issues the risk is in term of
being saddled with stock that would be listed but not having demand
with investor.
iv. In a BOD the risk is in term of being saddled with unlisted stock in case
the issue cannot be made due to adverse market trends setting in after
the BOD is done.
v. Due to this risk sometime an investment banks may bring in syndicate of
other investment banks or other investor if it has to spread the risk. BOD
is a recognized route for companies to go public on the OTC exchange
of India.
vi. BODs done to take companies public on other stock exchange have to
comply with the other requirement as applicable to normal IPOs.
vii. BODs were in vogue due to several advantages they offered to smaller
companies in terms of saving in time and expenses of making retail
IPOs.
viii. The advantage of the BODs from the issuer's perspective is that they do
not have to worry about financing risk (the risk that the financing can
only be done at a discount too steep to market price.) This is in contrast
to a fully-marketed offering, where the underwriters have to "market" the
offering to prospective buyers, only after which the price is set.
ix. At the same time the company assured of funds from the investors that
are not guaranteed in a public issue unless it is fully underwritten.
x. Usually the BODs is structured keeping in view the ultimate pubic
offering so that investor are assumed of an expected return with an exit

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within a given time frame. BODs done in the past had a normal maturity
profile of around 6-12 months.
xi. Generally BODs occur in present day capital market since issues sizes
have significantly and therefore investment banks cannot take unlimited
risk.
xii. However in the Indian context a BOD is more of a mezzanine round of
investment made by an investment bank with a view to take the
company public in a short time therefore.

Advantages and Disadvantage of the bought out deal from

the underwriter’s perspective include:

1. BODs are usually priced at a larger discount to market than fully

marketed deals, and thus may be easier to sell; and
2. The issuer/client may only be willing to do a deal if it is bought (as it
eliminates execution or market risk.)

3. If it cannot sell the securities, it must hold them. This is usually the result
of the market price falling below the issue price, which means the
underwriter loses money.

4. The underwriter also uses up its capital, which would probably otherwise
be put to better use (given sell-side investment banks are not usually in
the business of buying new issues of securities).

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Chapter 3. Issue Management

III.1 Definition and Overview

The term ‘issue management ‘ has been defined under the
SEBI (Merchant banker) regulations 1992 as an activity ‘which will inter
alia consist of preparation of prospectus and other information relating to
the issue, determining the financial structure, tie up of final allotment and
refund of the subscriptions’. As per the frame envisaged under the SEBI
(Merchant Bankers) rule, 1992 the main activity of a merchant banker is
issue management.
Issue management in India encompasses a wider role for
merchant banker associated with the issue. The merchant banker is also

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thrust with a responsibility for ensuring disclosures from the Issuer

Company and statutory compliance with regard to the offer.
In India, through term ‘Merchant Banker’ is used under the
SEBI law the term is used to denote an issue management is ‘lead
manager’ which has been used in the Regulations. If there is more than
one lead manager associated with an issue, the main issue manager
would be called the ‘lead manager’ and other would be know be as the
‘co-lead manager’.

III.1.1 Types of Issues Requiring Issue Manager

The following types of issues of securities by
companies require the mandatory appointment of an issue
manager:

• All issues of securities made through a prospectus irrespective of

whether they are new issues of securities or offers for sale and whether
they constitutes IPOs. Provided that in larger issues more than one
issue manager can be appointed subject to the following ceiling:
□ If the size of issues is less between than Rs 50 crore, a maximum of two
lead managers.
□ If the size of issues is less between than Rs 50 -100 crore, a maximum
of three lead managers.

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□ If the size of issues is less between than Rs 100 -200 crore, a maximum
of four lead managers.
□ If the size of issues is less between than Rs 200-400 crore, a maximum
of five lead managers.
□ If the size of issues is above Rs 400 crore, five or more as may be
approve by SEBI.

• All rights issues of a size exceeding Rs 50 lakh should have one issue

manager.

• All Qualified Institutional Placement should have lead manager.

III.2 Functions of Merchant Banker in Issues

Management
Management of issues involves marketing of corporate
securities viz., equity share, preference share and debentures or bonds by
offering them to pubic. Merchant banks act as intermediary whose main job
is to transfer capital from those who own it to those who need it.
The issue function may be broadly divided into Pre-
issue management and Post issue management. In both the stages, legal
requirement have to be complied with and several activities connected with
the issue have to be co-ordinated.

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1) Pre-issue Management the various steps involved

as under:

a) Obtaining stock exchange to MOA & AOA.

b) Taking action as per SEBI guideline.
c) Finalising appointment with co-manager, underwriter, Advertisement
agency, Broker, Printers & redistricted to the issue.
d) Advice to a company to appoint Auditors.
e) Drafting the prospector.
f) Obtaining consent from all parties. Obtaining the approval of draft
prospector from company legal advisor.
g) Approval of prospector from SEBI.
h) Making an application stock exchange for listing of shares.
i) Publicity of issue through advertisement.
j) Approval prospector for Board of Director & signing the same for all
directors
k) To open subscription for issue shares.

2) Post issues Management the various steps

include as under:

a) To supervise the allotment procedure as per the stock exchange

guideline

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b) To ensure refund order allotment letter are issued at proper time.

c) To report periodically about progress in the mater relating to allotment &
refund.
d) To ensures listing of the stock exchange.
e) To attend the investor grievances regarding the public issue.
For this merchant banker change 0.5% of the amount of
public issues up to Rs25 crores.
0.2% of the amount exceeding of Rs25 crores.

Chapter 4. Private Equity

4.1 Private equity and Investment Banking

Private equity fund is a pooled investment vehicle used
for making investments in various equity (and to a lesser extent debt)
securities according to one of the investment strategies associated with
private equity. Private equity funds are typically limited partnerships with a
fixed term of 10 years (often with annual extensions). At inception,
institutional investors make an unfunded commitment to the limited
partnership, which is then drawn over the term of the fund.

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A private equity fund is raised and managed by investment

professionals of a specific private equity firm (the general partner and
investment advisor). Typically, a single private equity firm will manage a
series of distinct private equity funds and will attempt to raise a new fund
every 3 to 5 years as the previous fund is fully invested. Private equity has
as a major service area over for investment banks in helping companies to
raise equity capital privately.

It may be noted that companies do issues equity capital

to their promoter groups, working directors, employees and group
companies. Such allotment also amount to private’s placement but they do
not concern investment banks per se. Investment Banking are engaged
when there is a need to execute transaction. In the context of private
equity, it could be bring in external for clients forms a part of transaction
advisory service rendered by investment banking.

The various aspect of raising equity capital through

private placement is in the context of the following types of transactions:

Raising venture capital- This related to raising equity capital from

institutional venture capital investor for startup companies to finance
business plans that are at early stages of implementation.

Raising private equity in unlisted companies – This related to transaction

for raising capital form private equity investors for later stage business
plans that require growth financing.

Raising private equity in listed companies (PIPE)- This is about raising

equity capital for mature listed companies privately.

Qualified Institutional Placement – A separate channel for listed companies

to raise equity capital other than through public offer exclusively from QLBs
under the QIP guidelines.

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Preferential allotment – Allotment made to strategic investor, business

collaborators and joint venture partners wherein the primary motive is not
fund raising for the company but to facilitate the entry of investor of
investors with business objectives.

4.2 Overview of Arranger’s Service for Private Equity

The investment Banker plays a key advisory role in formulating the
transaction for raising equity and intermediates in the whole process till the
transaction is closed successfully. More specifically arrangement can be
broken down into the following components:

• Due Diligence:
It perform comprehensive due diligence services for the
purpose of reviewing and investigating investment opportunities.

• Business Planning:
It works closely with company management to develop
actionable strategic business plans.

• Financial Modeling:
It provide develop full financial projections for emerging
businesses, including income statements, balance sheets, and cash
flow statements.

• Market Research:

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Investment Banking

It performs strategic market research to assess and

validate market opportunities.

• Marketing Services:
It create marketing plans, branding strategies, customer
acquisition strategies, and implement integrated internet marketing
consulting services to accelerate business growth.

• Exit Planning:
It assists portfolio companies with the development of
realistic paths to liquidity events for company management and
investors.

4.3 PIPE (Private Investment in Public Equity)

PIPE or Private Investment in Public Equity is one of most

dynamic area of Investment bank. PIPE is a term used when a private
investment or mutual fund buys common stock for a company at a discount
to the current market value per share.

Other Definitions:

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[PIPE is when] a private investment firm's, mutual fund's or other

qualified investors' purchase of stock in a company at a discount to the
current market value per share for the purpose of raising capital. There are
two main types of PIPEs - traditional and structured. A traditional PIPE is
one in which stock, either common or preferred, is issued at a set price to
raise capital for the issuer. A structured PIPE, on the other hand, issues
convertible debt (common or preferred shares).

Chapter 5. Buybacks
5.1 Introduction to Share Repurchase or Share
Buyback
‘Stock repurchase’ or ‘Share repurchase’, commonly known as
‘Share buyback’ refers to the process of a company buying back its own
share from its shareholder. In this sense it is the reverse of an issue of

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share and is therefore also one of the way in which an ‘exit’ may be
provided to shareholder.

5.2 Equity Repurchase in India

Till 1998, Indian companies were not allowed to buyback
equity share from their shareholder or from the secondary market. So the
only exit option for the common investor was to sell through the secondary
market. With the amendments to the companies Act, companies were
allowed to buy back their share subject to a lot of statutory restrictions. The
basic framework of a share repurchase mechanism in India is to allow it as
a step to be implemented from time to time by companies. Share
repurchase can be used to meet strategic objectives including distribution
of capital to shareholder but not for treasury operations
Buyback are discussed in the context of investment
banking since statutory regulations provide that appointment of a merchant
banker as a manager to the offer is mandatory for listed companies
intending to make a buyback offer to their shareholders. In such offers, the
merchant banker plays a very significant role not only in pricing but in
ensuring compliance with law and in advising the company at every stage.

5.3 General Conditions

The general conditions applicable to all types of companies for
buy –back of securities in term of the provisions of sections 77A and 77B of
the companies Act are listed below:

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o The buy back by the company has to be financed out of free reserves or
securities premium account or from proceeds earlier issue of dissimilar
share or other securities.
o The maximum time allowed for completion of buy back process in 12
months from the date of the relevant resolution.
o Two buy back should be a direct purchase by the company and not an
indirect purchase through its subsidiaries or group investment companies
o Two buyback programme shall be separated by a period of 365 days
even if they are for dissimilar securities.
o No company shall make a public issue of a same kind of securities that
have bought back within a period of six months from the conclusion of
the buyback programme.

5.3 Investment Banking Perspectives in Share

Buyback

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PROCESS OF MAKING A BUY BACK

 Under SEBI buy back regulations, it is mandatory to engage a merchant

banker to prepare a L of O 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.

Chapter 6. Corporate Re-Organisation

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6.1 Overview of Corporate Re-Organisations

Introduction
Corporate Re-organisation is a wide term that encompasses
changes confined to a particular company or to more than one company in
a single transaction. These are done from time to time in response to
business environment and changing business dynamics. As it may be
appreciated, preservation and enhancement of shareholder value is the
primary driver for corporate performance and therefore, companies are
frequently in the process of re-organising their business structure to grow
and enhance value.
Corporate Re-Organisation associated with (a) split-up of an
existing company balance sheet through asset sale sub sidiarisation known
as ‘Corporate Restructuring’.
The other methods of Corporate Re-Organisation are
(b) integration of two or more corporate balance sheet, popularly known as
‘Merger and Amalgamations’ and (c) Change in the shareholding pattern
of the company resulting in a change in control or ownership known as
‘acquisitions or takeovers’.

Types of Corporate Re-Organisations

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Integration of Restructuring of existing

existing companies companies

Through Transfer of Assets Through Transfer of equity

• Merger • Acquisition

• Amalgamation • Takeover

6.2 What is Corporate Restructuring?

Corporate restructuring is necessary when a company needs to
improve its efficiency and profitability and it requires expert corporate

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management. A corporate restructuring strategy involves the dismantling

and rebuilding of areas within an organization that need special attention
from the management.

Most corporate restructuring takes place as a last resort when all

other attempts to manage the business have failed. In short corporate
restructuring can usually be avoided if a company is well managed by a
strategically aware management team. However, there may be exceptions
here where such a company sees opportunities to profitably conduct
merger and acquisition through re-organisation of other
businesses.Corporate Restructuring two types

1. Internal. or

2. External.

Internal to a company is without a change in its legal entity.

External process is well with the creation of one or more new entities
or by a process known as a ‘split-up’ of an existing balance sheet.
There are shows in a table as:

Types of Corporate restructuring

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Internal Restructuring External restructuring (split

ups) [Change in corporate
(No change in corporate structure/
structure / control]
control)

• Financial restructuring –
i. Debt (Debt swap, bail-out, etc) or

ii. Equity (capital reduction and

other method)
Through transfer of
• Operational restructuring ,BPR
Assets
• Divisionalisation or setting up of
SBUs • Management buyout
• De-merger
• Sell off

6.2.1 Internal Restructuring

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Internal restructuring consists of Financial

restructuring, Operational restructuring and Divisionalisation.

i. Financial restructuring:
Financial restructuring entails a change in the capital
structure of a company. The might be required from time to time to increase
the efficiency of the capital base to reduce leverage and financial cost to
rationalize equity base and deal with over or under-capitalization. Financial
restructuring divide in to two part (a) Debt (b) Equity. Equity restructuring
Can again the looked at as involving capital reduction and not capital
reduction. Those that involve capital reduction need to go through an
elaborate process prescribed under law since they affect the interest of
shareholders in particular.

ii. Operational restructuring:

Operational restructuring is either a technical exercise such as
a business process re – engineering or a managerial initiative such as a
change in the organizational structure. Therefore the Operational
restructuring change in the organization and process.

iii. Divisionalisation:

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Divisionalisations refer to setting up separate division within

the same company for better operational control and accountability.

6.2.2 External restructuring

External restructuring entails a change in the asset and
liability structure of the company or sometime only in the asset portfolio.
This is achieved through split-ups of the balance sheet of the company
using several methods. This choice of a particular method would depend
upon the fact of a given case, statutory provision, tax considerations and
strategic objective underlying the split-up.

i. Management Buyout:
In a management buyout the managers or
directors purchase all or part of the business from its owners. The
management team will take substantial controlling interest from the existing
owners who are having control over the affairs of the company. The
management team may consist of one or more directors one or more
employees with a external associates. It is a method of setting up a
business by the management team itself.

ii. Sell-off:

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In a strategic planning process a company can take decision

to concentrate on core business activities by selling off the non core
business division. A sell –off is a sale of part of the organisation to a third
party in the following circumstances:

− To concentrated on core business activities.

− To improve the profitability of the firm by selling off loss making division.
− To reduce the business risk by selling off the high risk activities.
− To increase the efficiency of men, machines and money.

iii.Demerger:
For strategic reason a business firm is spitted into two or
more independent separate bodies and asset are transferred to such
bodies. A demerger is the opposite of a merger. By spin- off a corporate
body splits in to two or more corporate bodies with separation of
management to make accountability. The main reason may be for making
each division as a profit centered organisaton to make head of the division
to account for profitability.

6.2.3 Investment Banking Role in Corporate

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Investment Banking

Restructuring

 Investment Banking provides strategic corporate restructuring for

underperforming businesses.
 The impact of corporate restructuring is generally widely felt, touching
shareholders, creditors, investors, employees, suppliers, customers and
the community.

 Investment Bank eases this impact by providing strategy consulting and

a comprehensive restructuring plan. Investment bank also place top
level professionals in management positions to turnaround the
company’s financial performance.

 Investment Banks customized, strategic approach to restructuring limits

financial losses and simultaneously reduces tensions between creditors
and shareholders. By doing so, Banks improve situation and the
company’s competitive position.

 Investment Banks Restructuring process includes the following

components:

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• Discovery:
o Conduct interviews with management, investors, and creditors
o Perform extensive due diligence to ensure company liquidity
during implementation of the restructuring.

• Strategy
o Identify areas for potential cost reduction as well as revenue
growth
o Develop a strategic and up-to-date business plan, including
accurate five year working capital financial models

• Implementation
o Implement the strategic restructuring plan
o Recruit experienced senior executives for management
positions
o Achieve total mediation with creditors and investors
o Secure additional debt and/or equity financing

6.3 Merger & Acquisition

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6.3.1 Merger and Amalgamation

Definitions:

The dictionary of banking and finance define a merger as “the

joining together of two or more companies”. However in the Indian context
it appears that the world merger is used in common parlance for one
company blending with or getting “absorbed” by another while an
amalgamation is used in the context of more than two companies
combining together.

Concepts:

A "merger" or “amalgamation” is often financed by an all stock

deal (a stock swap). An all stock deal occurs when all of the owners of the
outstanding stock of either company get the same amount (in value) of
stock in the new combined company. According to section 2(1b),
amalgamation in relation to companies means the “merger” of one or more
company with another company or the merger of two or more companies to
form one company so that:

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• All the property of the amalgamation company or companies

immediately before the amalgamation becomes the property of the
amalgamation company by virtue of the amalgamation.
• All the liabilities of the amalgamation company or companies
immediately before the amalgamation become the liabilities of the
amalgamation company by virtue of the amalgamation.

• Shareholder holding not less than three- fourths value of the share in
the amalgamation company or companies or company become
shareholder if the amalgamation company by virtue of the
amalgamation & not otherwise.

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6.3.2 Acquisition and Takeover:

Acquisition and Takeover are two mechanisms by which

companies change hands and through transfer of ownership of share or
transfer of control. Which both these word are used almost interchangeably
there is a subtle distinction between the two. Acquisition means the
purchase of or getting access to significant stake in a company, often
making such acquirer a major shareholder in the company. The world
Acquisition has not been defined under any Act. By reading of its description
from various non-statutory sources it may be concluded that “Acquisition is
the act of Acquisition ownership or property”. Therefore an Acquisition of
share in a company only means that a person becomes the owner in such
share.

However the world ‘takeover’ has of a negative connotation that

convey the intent to displace the existing management and seek control of
affairs through Acquisition of shareholding or by other means .The dictionary
of Banking & Finance define it as ‘an act of buying a controlling interest in a
business by buying more than 50% of its share’ It has to be appreciated that
a takeover does not always entail the necessity to acquire more than 50%
shareholding.

An acquisition (of un-equals, one large buying one small) can

involve a cash and debt combination, or just cash, or a combination of cash
and stock of the purchasing entity, or just stock. In addition, the acquisition

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can take the form of a purchase of the stock or other equity interests of the
target entity, or the acquisition of all or substantially of its assets.

6.3.2.1 Regulation of Substantial Acquisition and

Takeover

In India, Regulation of Substantial Acquisition and Takeover is

a codified law under the SEBI Act, 1992 in the form of the SEBI (Substantial
Acquisition of Share and Takeover) Regulation were overhauled in 1997 and
again in 1999. It provides a Regulation procedure for substantial acquisitions
and takeover with respect to listed companies. However the takeover code
does not apply to unlisted companies that continue to be Regulation by the
provision of the companies Act. Therefore the Indian law on this subject
regulated acquisitions & takeover based on the criterion of listing status and
not on basic of economic power. Unlisted companies have to look for
protection under the companies Act with regard to takeovers.

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6.3.3 SEBI Code on Mergers & Acquisitions

1. Any acquirer who acquires share or voting right in a company which when
aggregated with these existing stock of such holding of the acquirer in the
company exceed 5%, 10%,and 14% of the total, shall disclose at every
stage the aggregated of the holding to the company and to the concerned
stock exchange. The stock exchange shall put such information under
public display immediately. The company also has a responsibility to
report such information to the stock exchange.

2. No acquirer shall acquire holding which when aggregated with the

existing of such holding of the acquirer in the company equal or exceed
15% of the total unless such acquirer maker a public announcement to
acquire share through a public open offer to the extent of minimum of
20% of the voting capital of the company.

3. No acquire together with person acting in concert can acquire any more
holding in the target company without complying with the open
requirement, if the existing holding have already reached 75%.

4. No acquirer shall gain control of a target without making a public offer

unless such control has been vested through a special resolution passed
by the members voting through a postal ballot.

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6.3.4 Types of Mergers and Acquisitions:

(A) Vertical Merger:

A vertical Takeover & Merger is one in which the company
expand backward by takeover of or merger with a company supplying raw
material or expands forward in the direction of the ultimate consumer. Thus
in a vertical merger there is a merging of companies engaged at a different
stages of the production cycle within the same industry. For example the
merger of Reliance Petrochemicals with Reliance Industries Limited is an
example of vertical merger with backward linkage as far as Reliance
Industries Limited is concerned. Similarly, if a cement manufacturing
company acquires a company engaged in civil construction it will be a case
of vertical takeover with forward linkage.

(B) Horizontal Merger:

A Horizontal Takeover & Merger happens between
companies engaged in the same business activity and comporting with
each other. For example merger of Tata Oil Mills Company Ltd with
Hindustan Lever Ltd is a horizontal merger. Both the companies have
similar products. A TV manufacturing company taking over a company
manufacturing washing machines will also be horizontal takeover because
both the companies are in the market for consumer durables.

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(D) Conglomerate Merger:

Pure Conglomerate Takeover & Merger are between
companies that are in diversified industries with no visible synergy. These
are done basically with the intention of diversifying and de-risking the
expansion and growth of a corporate empire. However, Conglomerate
merger are also seen in companies with related product line or in different
geographical market (Daimler Benz-Chrysler).

6.3.5 Investment Banking Service in Merger &

Acquisition

Investment Banks have been closely associated with merger

and acquisition activity since a merger or acquisition is a sales opportunity
for the Investment Bank. If the company wants to merge with another, it
must attain a fair market value for its shares to be swapped which would
involve an investment bank. If it wants to buy the other company with
borrowed money, it would most likely borrow directly from investors in the
form of bonds through a private placement, engineered by the investment
bank. Thus, Investment Banks position themselves to act as advisors on
mergers and acquisitions and usually charge large fees for doing so.

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Chapter 7. Allied Business

Investment Banking provides a host of services

provide a host of service and are also present in a range of
business that are allied to core investment banking. Allied
business are classify into two broad services.
1. Asset Management.
2.Securities Business.

1. Asset Management –
Investment bank share synergies with institutional investing
by Mutual Funds, Portfolio management, Private Equity funds and Venture
capital Funds

2. Securities Business -
Stock broking, trading and secondary market
operations, marketing and distribution of securities, research activity and
investment advisory service in equities, Derivatives are included in
Securities business.

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7.1 Asset Management

7.1.1 Mutual Fund

A mutual fund is a company that pools money from many
investors and invests the money in stocks, bonds, short-term money-
market instruments, other securities or assets, or some combination of
these investments. The combined holdings the mutual fund owns are
known as its portfolio. Each share represents an investor's proportionate
ownership of the fund's holdings and the income those holdings generate.
As it represent below the diagram.

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One can define a mutual fund as a trust that pools in the saving
and funds for a large number of investors who have a common financial
goal. Mutual funds issues units to investors, which represent equitable
rights in the assets of the mutual fund.

Mutual fund by its nature is diversified i.e. its assets are invested in
many different securities. Investments in the mutual fund may be in the
form of stocks, bonds or money market securities or combination of these.

Hence, a mutual fund is nothing but a form of collective investment.

In India, a mutual fund is constituted as Trust and the investor subscribes
to the units issued by the fund. A mutual fund shareholder or unit holder is
a part owner of the fund’s assets.

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Classification of Mutual Fund

Structure Investor Object Non Financial

Asset Scheme

Gold Exchange Real

Open – Close-
Trade Funds Estate
ended fund Ended fund
Scheme

Growth Income Balanced

Fund Fund Fund

1. Index 1.Gilt edge Fund 1.FOF

2. Sector 2. MMF 2.MIP
3. Opportunity 3. Liquid Fund

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Organization of Mutual Fund

SPONSOR:

o Person acting alone or in combination with another body corporate

establishes a mutual fund.
o He gets the fund registered with SEBI so sponsor of a fund is similar
to the promoter of the fund.
o He forms the trust.
o He appoints the Board of Trustee and the AMC also.
o He appoints the custodian through the trustees.
o HE must contribute at least 40% of the net worth of the AMC.

TRUSTEES COMPANY:

o Mutual fund is a public trust under Indian Trust Act 1882.

o Sponsor is the settler, contributing the initial capital.
o Unit holders are the beneficiaries of the trust.
o Trustees hold the unit holder money in fiduciary capacity
i.e. they invest on behalf of the unit holders.

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TRUSTEES:

o They appoint AMC to manage the portfolio of securities.

o Trust deed is executed by the sponsor in favor of trustees.
o Trust Deed stamped and registered with SEBI.
o Two third of the trustees shall be independent and not associated
With the sponsors.

ASSET MANAGEMENT COMPANY:

o AMC may be appointed by sponsor or may be appointed by trustees

if trust deed of Mutual fund authorizes.
o To be approved and registered with SEBI.
o AMC needs to have minimum net worth of 10 crores at all times
o AMC cannot act as trustee of any other fund.
o 75% of the unit holder jointly can terminate the AMC appointment.

CUSTODIAN:
o They are called as Safe keeps of securities.
o Participants in clearing system on behalf of the fund.
o Registered with SEBI.

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Investment Banking

BANKER:

o AMC appoints banker.

o Bankers are the distribution channel.

REGISTRERD & TRANSFER AGENTS:

o Issue and redeem units.

o Update investor’s records.
o Prepares transfer document.

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7.1.2 Portfolio Management

Portfolio refer to investment in different kind of securities

such as share, debenture or bonds is issued by different companies and
securities issued by the government. portfolio management refers to
maintaining proper combination of securities in a manner that they give
maximum return with minimum risk.
Investment bank provided portfolio management service to their
clients. Today the investor is very prudent. Every investor is interested in
safety, liquidity and profitability of his investment. But investor cannot study
and choose the appropriate securities. They need expert guidance.
Investment bankers have role to play in this regard. They have to conduct
regular market and economic surveys to know:
 Monetary and fiscal policies of the government.
 Financial statements of various corporate sector in which the investment
have to made by the investors.
 Secondary market of position, i.e. how the share market is moving.
 Changing pattern of the industry.
The investment bankers have to analyses the surveys and help
the prospective investor in choosing the shares. The portfolio managers
generally will have to classify the investors based on capacity and risk they

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can take and arrange appropriate investment. Thus portfolio management

plans successful investment strategies for investors.

7.2 Securities Business

7.2.1 Investment Advisory Services

Investment bank provides the following

customized advisory services.

o Business Valuation:
Investment bank value added advisory and consulting
services to maximize the profit from the sale of a business. Bank
business valuation services include: discounted cash flow analysis,
net present value (NPV), internal rate of return (IRR) analysis, and
synergy valuation.

o Fairness Opinions:
Investment bank offers professional evaluations of a
company to determine whether a merger, acquisition, buyback, spin-
off, or buyout is a fair and viable option for that company. These
services include valuation analysis of a target company, evaluation of

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business rationale of a transaction, and opinion as to the legal

fairness of the proposed transaction.

o Private Equity and Venture Capital Consulting:

Bank provides consulting services to private equity and
venture capital firms who are planning investments or are seeking to
improve the performance of portfolio companies. Our consulting
services include business plan development, strategic planning,
marketing planning, strategic market research, financial modeling,
marketing services, and exit planning.

7.2.3 Equities Research

 Investment Bank research has consistently been recognized as a top
research source for its breadth of coverage, industry knowledge and
quality of work in generating profitable and timely investment ideas.
Bank analytical teams remain committed to identifying trends early and
developing exploitable investment opportunities across the market
capitalization spectrum.
 With the continued growth in quantitative and computerized investing
strategies, banks have also developed leading edge quantitative and
technical research products to partner with bank fundamental approach.
Client service is our driving force and bank constantly advance in
offering greater product customization options.

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Chapter 7. Future of Investment Banking

1. Claw-back Provisions:

In order to make the volatile market of

investment banking more secured from crashes caused by imprudent
individual traders or groups, banks may tighten up the claw-back
provisions. This provision requires those whose trades cause subsequent
losses, to pay back all or part of their bonuses. However, this might result
in the transition of traders from big names to less well-known boutiques, in
order to avoid scrutiny.

2. Emphasis on Equity Derivatives and Currency trading:

An equity derivative is an instrument
used by investors to hedge the risks associated with taking a position in
stocks. It consists of underlying assets based on equity securities and limits
the losses incurred by either a short or long position in a company's shares.
In order to derive more benefits, investment banks will be emphasizing
more on currency trading, interest-rate products, equity derivatives and
corporate restructuring.

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3. Fewer big banks and more small boutiques:

As the giant investment banks faced
heavy losses, which in turn affected the government and investors, in future
there will be fewer big banks and more boutiques. This will force the big
shot investment banks to be careful about their position, as they will face
stiff competition from small firms. In any case, the charm of investment
banks is something which will not decrease in near future.

4. Lesser Dependence on Short-Term Funding:

Considering the negative impact of the
aggressive strategies of investment banks, in future, there might be lesser
dependence on short-term funding and high leverage. As the investment
banks are largely financed with short-term funding, a massive asset/liability
mismatch is created which is difficult to manage. It is also probable that
more investment banks will be pushed into the arms of banking acquirers
with large and stable deposit bases. This will provide solution to the
investment banks which are generally financed for the good times, not the
bad ones.

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Chapter 8 Conclusion

An Investment banks operated in a very different

technological, legal, and political environment, the mechanisms just
described are very close to those that underpin modern security offerings.
In this cases, investment banks lever off their relationships to provide
incentives for information production and dissemination, and they are
trusted because they risk their reputational capital every time they
underwrite a fresh deal.

As Investment bank are different for commercial bank and

play a very crucial role in market transactions on behalf investors,
government and corporations and for growing economy in India needs a
helping hand. A helping hand can only be provided by the financial or the
banking industries.

We can say that Investment banks exist because they

maintain an information marketplace that facilitates information-sensitive
security transactions.

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A recent development in Business sector such as

 Development of Debt Market.
 Entry of foreign Investor.
 Growth of New Issues Market.
 Innovation in Financial Instrument. etc
by the investment Banking it have change the lifecycle of business.

Thus bank develop an adequate infrastructure

including expertise in order to provide full range of service to corporate
sector. So, it has great scope and as it related to service sector it is
very useful for fast growing economy.

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Chapter 10 Abbreviations

USA : United States of America.

ICICI : Industrial Credit & Investment Corporation of India.
IDBI : Industrial Development Bank of India.
SEBI : Securities and Exchange Board of India.
IFCI : Industrial Finance Corporation of India.
IL & FS : Infrastructure Leasing & Finance Company Ltd.
SBI : State Bank of India.
BOB : Bank of Baroda.
PNB : Punjab National Bank.
M&A : Merger & Acquisitions
PE : Private Equity.
AGM : Annual Ger Meeting.
NBFC : Non Banking Financial Company.
BOD : Bought out Deal.

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OTC : Over the Counter.

IPO : Initial Public Offer.

MOA : Memorandum of Association.
AOA : Articles of Association.
PIPE : Private Investment in Pubic Equity.
QIB : Qualified Institutional Buyer.
QIP : Qualified Institutional Placement.
L of O : Letter of Offer.
HDFC : Housing Development Finance Company.
MMF : Money Market Fund.
ELSS : Equity Linked Saving Scheme.
T-bill : Treasury bill.
I.T : Information Technology.

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Chapter 11 Bibliography

 Books Referred

 Investment Banking

o By Pratap G Subramanyam

 Management Accounting & Financial Analysis

o BY Ravi M. Kishore.

 Business of Investment Banking

o By Professor K. Thomas Liaw.

 Financial Markets & Services

o By E.Gordon and Dr. Natrajan.

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 Website:

□ www.timeof india.com

□ www.investment bank.com

 Search Engines

• Google.

• Yahoo.

• Wikipedia.

• Investopedia.

• AltaVista.

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