MB Basha

Merchant Banking
Merchant banking primarily involves financial advice and services for large corporations and wealthy individuals. Merchant banks invest their own capital in client companies and provide fee-based advice services for mergers and acquisitions, among other services they provide.
Functions of Merchant Banker

Corporate Counseling Project Counseling Credit Syndication or Loan Syndication Issue Management Underwriting Of Public Issue Portfolio Management Financing Working Capital Negotiate In Merger and Acquisition Venture Financing and Lease Financing Foreign Currency Financing Other Functions
Corporate Counseling
Broadly speaking, corporate counseling covers all the financial activities of a merchant banker. It refers to the activities undertaken to ensure effectiveness and efficiency in a clients performance. A merchant banker offers suggestions and opinions on various aspects like organizational size, locational factors, financial reporting, working capital management obtaining soft loans.
Project counseling
Project counseling is a corporate counseling related to project finance. It includes preparing project reports, decisions related to financial structure of the project appraisal, suggesting on the feasibility and implementation of the projects, arranging foreign collaboration etc. (Merchant helps client in identifying a potential project and getting it approved by Indian government). The projects can be appraised based on its location, technical, commercial ability.
Credit Syndication or Loan Syndication

Credit syndication function covers loan
procurement and project financing through syndicates or consortium. Merchant bankers helps in estimating the total cost of a project by considering the location, sites and promoters interest in the project and advise on the financial institutions to be approached.
Issue Management
Issue management concerns all the activities related to the management of the public issue of the clients corporate securities that is equity shares, preference shares, debentures, bonds etc. It involves pre-issue management and post-issue management.
Underwriting of Public Issue
Merchant bankers also functions as underwriters and aid in raising capital through external resources. Issues underwritten by reputed underwriters are easily subscribed and service high premium. Merchant bankers can underwrite up to 15% of an issue. The lead managers should underwrite a minimum of 5% of a issue or Rs. 2.5 lakhs whichever is less.
Portfolio Management
Portfolio management refers to the management of investment in different kinds of securities of different companies. Merchant bankers function as portfolio managers and advise clients on closing investment mix, based on the clients objectives and tax bracket. They analyze market and economic surveys and plan accordingly for profitable investment strategies.
Financing Working Capital
Merchant bankers also provide working capital finance to their clients. They also accept credit and discount bills for their clients to ensure that funds are not blocked.
Negotiate in Merger and Acquisition
Merchant bankers also perform specialized functions like advising on mergers and acquisitions. They play the role of middlemen and help in negotiations between their clients and other parts of the merger. They conduct auditing and SWOT analysis before advising on the mergers and acquisitions. They explore global companies and examines pros and cons of acquisition proposals.
Venture Financing and Lease Financing
Merchant bankers also offers venture financing and lease financing services to their special clients. They advise on the liability of lease deal and help in preparing lease deed and other documents.
Foreign Currency Financing
Merchant bankers also finance foreign trade transactions. They aid in exportimport trade finance compliance with law obtaining different types of foreign currency loans and managing exchange risk. This functions also includes arranging for the syndication of different forms of guarantees, letters of credit, bridge loans etc.
Other Functions
Merchant bankers also provide various other services acting as mangers, consultants or advisers. They offer investment advisory services to the foreign investors and NRIs, even provides assistance in off-shore financier (joint ventures, foreign collaborations etc.)
Merchant Bank vs. Investment Bank

Merchant Banks Investment Banks
Traditional merchant banks primarily perform international financing activities such as foreign corporate investing, foreign real estate investment, trade finance and international transaction facilitation.
Focus on Small Scale Companies and offer Creative Equity Financing, Bridge & Mezzanine Financing. Some of the activities that a pure merchant bank is involved in may include issuing letters of credit, transferring funds internationally, trade consulting and co-investment in projects involving trade of one form or another.
Pure investment banks raise funds for businesses and some governments by registering and issuing debt or equity and selling it on a market.
Focus on IPOs (Initial Public Offerings), and Large Public and Private Share Offerings.
Investment banks facilitate mergers and acquisitions through share sales and provide research and financial consulting to companies.
Conclusion
The merchant banker plays a vital role in channelizing the financial surplus of the society into productive investment avenues. Hence before selecting a merchant banker, one must decide what the services for which he is being approached. Selecting the right intermediary who has the necessary skills to meet the requirements of the client will ensure success.

MB Basha

Uploaded by

Copyright:

Available Formats

MB Basha

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

MB Basha

Uploaded by

Copyright:

Available Formats

Merchant Banking

Functions of Merchant Banker

Credit Syndication or Loan Syndication

Underwriting of Public Issue

Financing Working Capital

Negotiate in Merger and Acquisition

Venture Financing and Lease Financing

Foreign Currency Financing

Merchant Bank vs. Investment Bank

You might also like