Role and Responsibilities of Merchant Bankers in Public & Rights Issue
Public and rights issues play a significant role in raising capital for companies, enabling them to fund expansion plans, invest in new projects, or meet financial obligations. In these complex processes, merchant bankers assume a crucial role, acting as intermediaries between the issuing company and investors. They bring expertise, regulatory knowledge, and market insights to facilitate the smooth execution of public and rights issues.
From underwriting and due diligence to pricing, documentation, and investor relations, merchant bankers shoulder diverse responsibilities. This article explores the role and responsibilities of merchant bankers in public and rights issues, highlighting their crucial contribution to the capital market ecosystem and the overall success of these fundraising endeavors.
Table of Contents
- 1 Role and Responsibilities of Merchant Bankers in Public and Rights Issues
- 1.1 Underwriting
- 1.2 Due Diligence
- 1.3 Pricing and Valuation
- 1.4 Documentation and Regulatory Compliance
- 1.5 Marketing and Investor Relations
- 1.6 Coordination with Regulatory Authorities
- 1.7 Allocation and Allotment
- 1.8 Post-Issue Activities
- 1.9 Investor Education
- 1.10 Financial Structuring
- 1.11 Underlying Asset Evaluation
- 1.12 Coordination with Intermediaries
- 1.13 Market Analysis and Timing
- 1.14 Regulatory Compliance and Disclosures
- 1.15 Investor Grievance Redressal
- 1.16 Post-Issue Monitoring
- 1.17 Risk Management
- 1.18 Confidentiality and Ethical Conduct
- 1.19 Investor Protection
- 1.20 Continuous Engagement
- 2 Conclusion
Role and Responsibilities of Merchant Bankers in Public and Rights Issues
Merchant bankers may underwrite the issue, which involves guaranteeing the purchase of securities that are not subscribed by investors. This ensures that the issuing company receives the necessary funds even if the issue is undersubscribed.
Merchant bankers conduct thorough due diligence on the issuing company to assess its financial health, business prospects, and regulatory compliance. This includes evaluating the company’s financial statements, business model, management team, and legal and regulatory compliance.
Pricing and Valuation
Merchant bankers assist in determining the issue price of securities. They analyze market conditions, evaluate the company’s financials, and consider demand and supply dynamics to arrive at an appropriate price that balances the interests of the issuing company and investors.
Documentation and Regulatory Compliance
Merchant bankers prepare the necessary offer documents, such as the prospectus or letter of offer, ensuring compliance with applicable regulatory requirements. They assist the issuing company in fulfilling legal and regulatory obligations, including obtaining necessary approvals from regulatory authorities.
Marketing and Investor Relations
Merchant bankers play a key role in marketing the issue to potential investors. They leverage their network, expertise, and research capabilities to generate investor interest and awareness. They also conduct roadshows, investor presentations, and other promotional activities to attract investors and build investor confidence.
Coordination with Regulatory Authorities
Merchant bankers coordinate with regulatory authorities, such as securities exchanges and market regulators, to obtain necessary approvals and comply with listing requirements. They ensure that the issuance process adheres to applicable laws, rules, and regulations.
Allocation and Allotment
Merchant bankers oversee the allocation and allotment process, ensuring fair distribution of securities among investors. They handle the allotment of shares based on the subscription levels, ensuring transparency and compliance with regulatory guidelines.
After the issue is successfully completed, merchant bankers may provide post-issue services. This includes activities such as managing the escrow account, coordinating with stock exchanges for listing, assisting in shareholder communication, and addressing any post-issue queries or concerns from investors.
Merchant bankers have a responsibility to educate investors about the features and risks associated with the public or rights issue. They provide information about the issuing company, the nature of securities being offered, and the potential returns and risks involved. This helps investors make informed investment decisions.
Merchant bankers assist in structuring the financial aspects of the issue, such as determining the optimal size of the issue, identifying the appropriate mix of debt and equity, and recommending the suitable capital structure for the issuing company.
Underlying Asset Evaluation
In case of asset-backed securities or specialized issues, merchant bankers evaluate the underlying assets, such as real estate or infrastructure projects, to assess their value, viability, and potential returns for investors.
Coordination with Intermediaries
Merchant bankers collaborate with various intermediaries involved in the issuance process, such as legal advisors, auditors, rating agencies, and registrars, ensuring smooth coordination and seamless execution of the public or rights issue.
Market Analysis and Timing
Merchant bankers analyze market conditions, investor sentiment, and industry trends to determine the optimal timing for the public or rights issue. They provide insights and recommendations on when to launch the offering to maximize investor interest and achieve favorable pricing.
Regulatory Compliance and Disclosures
Merchant bankers ensure that the issuing company complies with relevant regulatory requirements, including disclosure norms, corporate governance guidelines, and market regulations. They assist in preparing and submitting necessary documents to regulatory authorities within stipulated timelines.
Investor Grievance Redressal
Merchant bankers handle investor grievances and complaints related to the public or rights issue. They provide a channel for investors to raise concerns, address queries, and resolve issues, promoting transparency and investor trust.
After the completion of the public or rights issue, merchant bankers may monitor the performance of the issuing company, provide periodic updates to investors, and offer advisory services for any further capital market transactions or corporate actions.
Merchant bankers assess and manage various risks associated with the public or rights issue. This includes identifying potential risks, developing risk mitigation strategies, and ensuring adequate disclosure of risks to investors in the offer documents.
Confidentiality and Ethical Conduct
Merchant bankers adhere to strict confidentiality norms and ethical standards while handling sensitive information of the issuing company. They maintain the highest level of integrity, professionalism, and confidentiality throughout the issuance process.
Merchant bankers have a responsibility to protect the interests of investors and ensure fair and transparent practices in the public or rights issue. They work towards maintaining market integrity and building investor confidence in the capital markets.
Merchant bankers maintain continuous engagement with the issuing company even after the completion of the public or rights issue. They provide ongoing advice and support, assist in capital market activities, and foster a long-term relationship with the issuing company.
Overall, the role of merchant bankers in public and rights issues is to provide professional expertise, ensure compliance with regulations, and facilitate a smooth and efficient capital raising process for the issuing company while safeguarding the interests of the investors.