Short answers - Merchant Banking Issue Management Introduction

1.        What is issue management?

Public issue management involves marketing of corporate securities by offering the securities to the public, procuring private subscription to the securities and offering securities to existing shareholders of the company.

2.       Define project appraisal.

Project appraisal is a process of investigation, review and evaluation undertaken as the project or alternative concepts of the project are defined. This study is designed to assist the client to reach informed and rational choices concerning the nature and scale of investment in the project and to provide the brief for subsequent implementation.

3.       What is capital structure?

Capital Structure of a company refers to the composition or make -up of its capitalization and it includes all long-term capital resources viz. loans, reserves, shares and bonds.

4.       Define equity shares.

Equity shareholders are the real owners of the company as they have the voting rights and enjoy decision - making authority on important matters, related to the company. The shareholders‟ return is in the form of dividend, which is dependent on the profits of the company and capital gain/loss, at the time of their sale.

5.       What are participating preference shares?

The holders of these shares participate in surplus profits of the company. They are firstly paid a fixed rate of dividend and then a reasonable rate of dividend is paid on equity shares. If some profits remain after paying both these dividends, then preference shareholders participate in the surplus profits.

6.       What is meant by debentures?

It is type of debt instrument that is not secured by physical asset or collateral. Debentures are backed only by the general credit worthiness and reputation of the issuer. Both corporations and governments frequently issue this type of bond in order to secure capital. Like other types of bonds, debentures are documented in an indenture.

7.       Define Red Hiring Prospectus.

It is a prospectus which does not have details of either price or number of shares being offered or the amount of issue. This means that in case price is not disclosed, the number of shares and the upper and lower price bands are disclosed.

8.       Give the meaning of Bought out Deals (BOD).

Bought out Deal (BOD) is a process of investment by a sponsor or a syndicate of investors/sponsors directly in a company. Such direct investment is being made with an understanding between the company and the sponsor to go for public offering in a mutually agreed time.

9.       What is green shoe option?

Green shoe option means an option of allocating shares in excess of the shares included in the public issue and operating a post -listing price stabilizing mechanism for a period not exceeding 30 days in accordance with the provisions of Chapter VIII A of DIP Guidelines, which is granted to a company to be exercised through a Stabilizing Agent.

10. What is Book-Building?

Book building is actually a price discovery method. In this method, the company does not fix up a particular price for the shares, but instead gives a price range, e.g. Rs.80 -100.

1.     Explain capital structure and its instruments. 

There are four basic instruments of capital structure, viz. 

Ø   Equity Shares

Ø   Preference Shares

Ø   Retained Earnings/Ploughing Back of Profits

Ø   Debenture

2.     Describe placement of the issues 

Ø   Initial Public Offer (IPO)

Ø   Follow on Public Offer (FPO)

Ø   Rights Issue

Ø   Offer for Sale

Ø   Green Shoe Option

Ø   E-IPO

Ø   Private Placement/Placement with FIs, MFs, FIIs, etc.

Ø   Bought Out Deal

Ø   Off-Shore Issues

2.     Explain about the post-issue management. 

After closing the public issue the next task of the merchant bankers is post issue management. It includes 

Ø   Collection of Application Forms,

Ø   Screening of Applications,

Ø   Deciding Allotment Procedure,

Ø   Mailing of Allotment Letters and

Ø   Share Certificates and Refund Orders.

3.     Give some details about SEBI Guidelines for Post -Issue Management. 

The Post-issue obligations/requirements of lead managers/merchant bankers to an issue are discussed below. 

o  Post-Issue Monitoring Reports

o  Redressal of Investors‟Grievances

o  Co-ordination with Intermediaries

o  Finalization of Basis of Allotment

o   Dispatch of Share Certificates.

4.     Explain issue marketing and its steps. 

Following are the steps involved in the marketing of the issue of securities to be undertaken by the lead manager: 

Ø   Target Market

Ø   Target Concentration

Ø   Pricing

Ø   Mobilizing Intermediaries

Ø   Information Contents

Ø   Launching Advertisement Campaign

Ø   Brokers and Investors Conferences

Ø   Timing of the Issue