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India Strategist: Merchant Banking

Release On Thursday, July 24, 2008   Download Pdf

Merchant Banking
By Singh & Associates

Merchant banking implies investment management. Companies raise capital by issuing securities in the market. Merchant bankers act as intermediaries between the issuers of capital and the investors who purchase these securities.

Merchant banking is the financial intermediation that matches the entities that need capital and those that have capital for investment.

Services of merchant bankers
The services provided by merchant bankers includes management of mutual funds, public issues, trusts, securities and international funds. It involves dealing with the corporate clients and advising them on various issues like- mergers, acquisitions, public issues, etc.

Functions of merchant bankers include:
i) Management of debt and equity offerings. This forms the main function of the merchant banker. He assists the companies in raising funds from the market. The undergoing tasks include instrument designing, pricing the issue, registration of the offer document, underwriting support, marketing of the issue, allotment and refund and listing on stock exchanges.
ii) Placement and Distribution. The merchant banker helps in distributing various securities like equity shares, debt instruments, mutual funds, insurance products, and commercial paper, to name a few. The distribution network of the merchant banker can be classified as institutional and retail in nature. The institutional network consists of mutual funds, foreign institutional investors, private equity funds pension funds, financial institutions, etc.
iii) Corporate advisory services. Merchant bankers offer customized solutions to their clients’ financial problems. Financial structuring includes determining the right debt-equity ratio and the framing of appropriate capital structure theory.
iv) Project advisory services. Merchant bankers help their clients in various stages of the project undertaken by the clients. They assist them in conceptualizing the project idea in the initial stage. Once the idea is formed, they conduct feasibility studies to examine the viability of the proposed project.
v) Loan Syndication. Merchant bankers arrange to tie up loans for their clients. This takes place in a series of steps. Firstly, they analyze the pattern of the client’s cash flows, based on which the terms of the borrowings can be defined. Then the merchant banker prepares a detailed loan memorandum,...

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