Investment Banking: Concepts, Analyses and Cases
4th Edition
9354600883
·
9789354600883
© 2021 | Published: October 6, 2021
OverviewInvestment Banking – Concepts, Analyses and Cases is a long-standing work in the subject and is positioned as a complete textbook for postgraduate level of study in Investment Banking. It covers exhaustively the history, market, business, i…
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Section – 1
Capital Markets and Investment Banking
Chapter 1 Overview of Domestic Capital Markets 1.3–1.62
1.1 Introduction to Financial Markets 1.4
1.2 Securities Markets 1.5
1.3 Money Market 1.6
1.4 Derivatives Market 1.6
1.5 Foreign Exchange Market 1.7
1.6 Capital Market 1.8
1.6.1 Evolution of Indian Capital Market 1.8
1.6.2 Transformation of Indian Capital Market 1.9
1.7 Evolution and Growth of Indian Stock Exchanges 1.9
1.7.1 The Consolidation Phase 1.10
1.7.2 The National Stock Exchange (NSE) 1.11
1.7.3 The Bombay Stock Exchange, Mumbai (BSE) 1.12
1.7.4 The SME Exchange 1.13
1.7.5 The Metropolitan Stock Exchange 1.14
1.7.6 The ISE 1.15
1.8 Capital Market Constituents 1.15
1.9 Capital Market Segments 1.17
1.9.1 Primary and Secondary Markets 1.17
1.9.2 Equity, Debt and Derivative Markets 1.18
1.10 Developments in Primary and Secondary Markets 1.19
1.10.1 Reforms in Securities Issuances 1.19
1.10.2 Dematerialisation of Securities 1.20
1.10.3 Reforms in Stock Exchanges 1.20
1.10.4 Foreign Investment 1.21
1.10.5 Trading Systems 1.21
1.10.6 Settlement Systems 1.22
1.10.7 Risk Management and Surveillance Systems 1.22
Case of National Spot Exchange Ltd. 1.23
1.10.8 Regulation of Intermediaries and Service Providers 1.24
1.10.9 Investor Education and Capital Market Training 1.24
1.11 The Equity Market 1.24
1.11.1 Primary Segment 1.24
1.11.2 Secondary Segment 1.25
Case of Ranbaxy Ltd. 1.27
Case of Hero-Honda 1.27
1.12 The Debt Market 1.28
1.12.1 G-sec Market 1.28
1.12.2 Corporate Bond Market 1.30
1.13 Derivative Markets 1.34
1.13.1 Capital Market Derivative Segment 1.34
1.13.2 Offshore Derivative Market 1.36
1.14 Capital Market Intermediaries and Service Providers 1.37
1.14.1 Issue Managers, Underwriters and Brokers 1.37
1.14.2 Depositories and Participants 1.38
1.14.3 Custodial Services 1.39
1.14.4 Registrars to Issues and Share Transfer Agents 1.40
1.14.5 Debenture Trustees 1.41
1.14.6 Credit Rating Agencies 1.41
1.14.7 Portfolio Managers 1.42
1.14.8 Bankers to Issues 1.43
1.14.9 Support Service Providers 1.44
1.15 Regulatory Framework for Securities Market 1.44
1.15.1 Overview of Securities Laws 1.44
1.15.2 Overview of Regulatory Authorities 1.47
1.16 Regulatory Framework for Capital Market 1.51
1.16.1 Insider Trading Regulations 1.52
Case of Hindustan Lever 1.54
Case of Tata Finance/Dilip Pendse and Others 1.54
Landmark Case of Satyam 1.55
Other Interesting Cases on Insider Trading 1.56
Insider Trading Case in Social Media Era 1.57
1.16.2 Insider Trading Laws and Cases in Other Markets 1.58
Cases of Michael Milken, Ivan Boesky, Dennis Levine and Martin Siegel 1.58
Cases of Raj Rajaratnam and Rajat Gupta 1.59
1.16.3 Fraudulent and Unfair Trade Practices Regulations 1.59
Case of Atlanta Ltd. 2006–07 1.60
Case of Pyramid Saimira Theatre Ltd. 2009 1.60
Chapter 2 Introduction to International Capital Markets 2.1–2.28
2.1 Introduction to International Capital Markets 2.2
2.2 Evolution and Growth of International Capital Markets 2.3
2.2.1 Pre-industrial Era 2.3
2.2.2 Post-industrial Era 2.4
2.2.3 Role and Importance of International Capital Markets 2.5
2.3 The Bond Markets 2.6
2.3.1 Global Scenario 2.6
2.3.2 The International Bond Market 2.7
2.3.3 Domestic Bonds 2.7
2.3.4 Foreign Bonds 2.7
2.3.5 Euro Bonds 2.8
2.3.6 Convertible Bonds 2.10
Recent Cases in International Exchangeable Bonds 2.11
2.3.7 Masala Bonds 2.12
2.3.8 Bond Structures 2.13
2.3.9 Medium Term Notes 2.14
2.3.10 Global Securitised Debt Instruments Market 2.14
2.4 International Equity Markets 2.16
2.4.1 Global Registered Shares 2.16
Cases in GRS 2.17
2.4.2 International Depository Receipts 2.18
2.5 International Derivative Markets 2.21
2.6 Premier Global Stock Exchanges and Markets 2.22
2.6.1 The New York Stock Exchange 2.22
2.6.2 The NASDAQ Exchange 2.23
2.6.3 Other American Exchanges 2.24
2.6.4 European Stock Exchanges 2.25
2.6.5 Other Major Global Stock Exchanges 2.25
2.7 India’s Offshore Financial Centres 2.26
2.7.1 Gujarat International Financial Tec-city (GIFT) 2.27
2.7.2 India International Exchange 2.27
2.7.3 NSE IFSC Limited 2.28
Chapter 3 Capital Market Financing and Securities 3.1–3.58
3.1 Introduction to Capital Market Financing 3.2
3.2 Issuers of Securities 3.2
3.3 Financing Transactions in Primary Market 3.4
3.3.1 Types of Securities Issuances 3.4
3.4 Primary Market Investors 3.5
3.4.1 Institutional Investors 3.5
3.4.2 Qualified Institutional Buyers 3.6
3.4.3 Domestic Retail Investors 3.10
3.5 Introduction to Primary Market Securities 3.11
3.6. Fundamental Concepts on Equity 3.11
3.6.1 Types of shares 3.12
3.6.2 Par, Premium and Discount 3.13
3.6.3 Issue of Securities at Premium 3.14
3.6.4 Issue of Shares at Discount 3.15
3.6.5 Listed and Unlisted Securities 3.15
3.6.6 Properties of Preference Shares 3.15
3.6.7 Convertible Instruments 3.16
Cases on Issue of Equity Warrants 3.19
Case of HDFC Warrant Issue 3.19
3.7 Fundamental Concepts of Fixed Income Securities 3.20
3.7.1 Nature of Debt Securities 3.20
3.7.2 Transferability 3.21
3.7.3 Secured and Unsecured Debentures 3.21
3.7.4 Features of Debt Securities 3.22
Case of Infiniti Retail 3.28
3.8 Types of Debt Instruments 3.28
3.8.1 Non-convertible Debentures 3.29
Cases of Edelweiss Finance and Investments Ltd. (EFIL) and Tata Steel 3.30
3.8.2 Partly Convertible Debentures 3.31
3.8.3 Fully Convertible Debentures 3.32
3.8.4 Zero Coupon Bonds/Debentures 3.32
Case of Mahindra and Mahindra ZCD Issue in 1990 3.33
3.8.5 Deep Discount Bonds and other Institutional Bonds 3.34
Case of TISCO SPN Issue in 1992 3.34
Case of IIBI DDB Issue 3.35
Other Cases 3.35
3.8.6 Floating Rate Bonds 3.35
3.8.7 Perpetual Bonds 3.35
Case of Tata Steel Perpetual Bonds 3.36
3.8.8 Debt Convertibles, Sweeteners and Options 3.36
3.9 Introduction to Securitisation and Securitised Debt Instruments 3.37
3.9.1 Securitisation as a Capital Market Refinancing Tool 3.37
3.9.2 Evolution and Market 3.39
3.9.3 Forms of Securitisation 3.39
3.9.4 Anatomy of Securitisation Structure 3.40
3.9.5 Stakeholders in a Securitisation Structure 3.41
3.9.6 Pass Through Structure 3.42
3.9.7 Securitised Debt Instruments – MBS and ABS 3.43
3.9.8 Risk Profiling and Credit Enhancements 3.44
3.9.9 Credit Default Swaps 3.45
3.10 Structured Debt Products 3.45
3.10.1 Introduction to Pay Through Structure 3.45
3.10.2 Pay through Securitisation - CDOs 3.46
3.10.3 Indian Scenario in Securitised Debt Instruments and Structured Debt Products 3.49
Case of ICICI Bank 3.49
Case of Two-Tier Securitisation 2010 3.50
3.10.4 Structured Securitised Debt Products–Real Estate and Infrastructure Trusts 3.51
Case of IRB INVIT Offer 3.53
Case of Embassy REIT Offer 3.54
3.10.5 Future Prospects for Securitised Structured Debt Products in India 3.54
3.10.6 Non-securitised Structured Debt Products 3.55
Case of Reliance Petroleum TOCD Issue in 1993 3.55
Case of Essar Oil OFCD Issue in 1995 3.56
Case of Noida Toll Bridge Company DDB Issue in 1999 3.57
Chapter 4 Introduction to Investment Banking 4.1–4.38
4.1 Concept and Definitions 4.2
4.1.1 Merchant Banking 4.3
4.2 Evolution of American Investment Banks 4.4
4.2.1 Regulation of Industry Post 1929 4.5
4.3 Birth of American Universal Banks 4.7
4.3.1 Historical Reasons 4.7
4.3.2 Consolidation Era 4.7
4.3.3 Emergence of Quantitative Finance 4.8
4.3.4 Deregulation of Financial Sector 4.8
4.3.5 Expansion of I-Banking Business 4.9
4.3.6 Liberalisation and Globalisation 4.9
4.3.7 Formation of Financial Conglomerates and TBTF Institutions 4.10
4.3.8 Conglomerisation of US Investment Banks 4.12
4.4 European Investment Banks 4.13
4.4.1 Investment Banking in UK 4.13
4.4.2 Spread of US Banks to Europe 4.14
4.4.3 Cross-continental Integration and European Conglomerisation 4.14
Case of Barings Bank Collapse 4.16
4.5 Contemporary Global Industry Structure 4.17
4.5.1 Pure Investment Banks 4.18
4.6 US Investment Bank Crisis in 2008 4.19
4.6.1 Backdrop 4.19
4.6.2 Genesis 4.20
4.6.3 Sub-prime Lending 4.20
4.6.4 The Contagion Risk 4.22
4.6.5 Sub-prime Default Crisis 4.23
Case of Bear Sterns 4.24
Case of Lehman Brothers 4.25
4.6.6 US Regulatory Response to the Crisis 4.28
4.6.7 Dodd-frank Wall Street Reform and Consumer Protection Act, 2010 4.30
4.7 Evolution of Indian Investment Banking 4.32
4.7.1 Origin 4.32
4.7.2 Growth, Diversification and Consolidation Phase 4.33
4.7.3 Conglomerisation of Indian Universal Banks and Pure Investment Banks 4.34
Case of Axis Bank’s Acquisition of Enam Financial Consultants 4.35
4.7.4 Heterogeneous Industry Structure 4.36
Chapter 5 The Business of Investment Banking 5.1–5.58
5.1 Nature of Contemporary Investment Banking 5.2
5.2 Full Service Investment Banking 5.3
5.2.1 Business Portfolio 5.3
5.2.2 Industry Hierarchy 5.4
5.3 Core Investment Banking 5.5
5.3.1 Business Portfolio of Leading Investment Banks 5.5
5.4 Service Portfolio of Indian Investment Banks 5.7
5.4.1 Core Investment Banking 5.8
5.4.2 Allied Businesses 5.9
5.5 Regulatory Framework for Investment Banking Business in India 5.11
5.6 Introduction to Allied Businesses 5.12
5.7 Asset Management 5.13
5.7.1 Synergies between Institutional Investing and Investment Banking 5.13
5.7.2 Types of Asset Management 5.14
5.8 Mutual Funds 5.15
5.8.1 Evolution and Mutual Fund Environment in USA 5.15
5.8.2 Structure of a Mutual Fund in India 5.16
5.8.3 Regulation of Mutual Funds 5.17
5.8.4 Investment Pattern 5.18
5.9 Hedge Funds 5.19
Case of Long Term Capital Management 5.20
5.9.1 Business Structure 5.21
5.9.2 Regulation of Hedge Funds 5.22
5.10 Private Equity Funds 5.24
5.10.1 Definitions 5.24
5.10.2 PIPE, Buyout and Distressed Assets Funds 5.25
5.10.3 Evolution of Global Private Equity 5.26
5.10.4 Evolution of Indian Private Equity Industry 5.26
5.10.5 Business Structure and Constitution 5.28
5.10.6 Industry Structure 5.29
5.10.7 Regulation of Private Equity in India 5.30
5.11 Securities Business 5.33
Case of MF Global 5.33
5.11.1 Broking and Dealing 5.34
5.11.2 Trading 5.35
5.11.3 Institutional Sales 5.36
5.11.4 Equity, Fixed Income and Quantitative Research 5.36
5.11.5 Investment Advisory and Wealth Management Services 5.37
5.12 Inter-dependence of Business Verticals 5.37
5.12.1 Core Investment Banking Verticals 5.38
5.12.2 Allied Business Verticals 5.38
5.13 Careers and Skill-sets in Investment Banking 5.39
5.14 Conflict of Interest in Investment Banking 5.40
5.14.1 Nature of Conflicts of Interest 5.40
5.14.2 Historical Developments 5.40
5.14.3 Developments after Financial Crisis of 2008 5.42
5.14.4 Indian Scenario 5.43
5.15 Dark Side of Investment Banking 5.44
Case of J.P. Morgan 5.45
5.15.1 Will the Mistakes Be Repeated? 5.46
5.16 The Future of Full Service Investments Banks 5.47
5.16.1 Regulatory Challenges for US Investment Banks 5.47
5.16.2 Business Challenges for Investment Banking 5.48
Annexure - Brief Business Profile of largest American Universal Banks 5.50
J.P. Morgan 5.50
Goldman Sachs 5.51
Morgan Stanley 5.53
Bank of America 5.55
Citigroup 5.57
Chapter 6 Investment Analysis and Valuation 6.1–6.60
6.1 Overview of Investment Analysis 6.2
6.1.1 Investment Analysis in Core Investment Banking 6.2
6.2 Equity Performance Metrics 6.3
6.3 Capital Structure and Leverage 6.6
6.3.1 Measures of Leverage 6.7
6.3.2 Capital Structure Analysis from an Issuer’s Perspective 6.8
6.4 Security Valuation – Bonds and Equities 6.9
6.4.1 Basic Bond Valuation Model 6.9
6.4.2 Bond Valuation with Semi-annual Interest 6.10
6.4.3 Equity Valuation using Dividend Models 6.10
6.4.4 Equity Valuation using Market Multiples 6.11
6.5 Introduction to Corporate Valuation 6.12
6.6 Value and Valuation 6.13
6.7 Corporate Value versus Investment Value 6.13
6.8 Business Valuation 6.14
6.9 Drivers for Value Creation 6.14
6.10 Corporate Valuation using Business Valuation Models 6.15
6.10.1 Overview 6.15
6.10.2 Approaches to Corporate Valuation 6.16
6.10.3 Assessment of Alternative Approaches to Value Measurement 6.16
6.11 Asset Based Valuation Models 6.17
6.11.1 Net Asset Value and Break-up Value 6.18
6.11.2 Principles to Arrive at Realisable Value of Assets 6.20
6.11.3 Valuation of Goodwill 6.21
6.11.4 Arriving at Asset Based Valuation 6.22
6.12 Financial Forecasting 6.23
6.12.1 Introduction 6.23
6.12.2 Determinants for Financial Forecasting 6.23
6.12.3 Revenue Estimates 6.25
6.12.4 Cost Estimates 6.25
6.12.5 Estimation of Capital Requirements and Financing Mix 6.26
6.12.6 Further Guidelines for Financial Forecasting 6.27
6.12.7 Drawing up Statements of Financial Forecast 6.27
6.13 Free Cash Flow 6.29
6.13.1 OCF versus Free Cash Flow to Firm 6.31
6.13.2 Earnings versus Cash Flow 6.31
6.13.3 Other Factors for Estimation of Free Cash Flow 6.33
6.14 Measuring Terminal Value of Free Cash Flow 6.33
6.14.1 Appropriate Tax Rate 6.34
6.15 Measuring Cost of Equity 6.35
6.15.1 The CAPM 6.35
6.15.2 Arbitrage Pricing Model 6.37
6.16 The WACC 6.37
6.17 Cash Flow Based Valuation Models 6.38
6.17.1 Enterprise Cash Flow Model (FCFF) 6.39
6.17.2 Equity Cash Flow Model 6.40
6.18 Economic Profit Model 6.42
6.19 Relative Valuation Models 6.43
6.19.1 EBITDA Multiple 6.44
6.19.2 Price to Book Value Multiple 6.45
6.19.3 Earnings Multiple 6.45
6.20 Contingent Claim Valuation 6.45
6.21 Applicability of Enterprise Valuation Approaches 6.46
6.22 Adjustments and Additional Dimensions in Valuation 6.47
6.22.1 Common Adjustments to Enterprise Valuation 6.47
6.22.2 Arriving at Equity Value and Value Per Share 6.49
6.23 Special Cases in Valuation 6.51
6.23.1 Banks and Financial Companies 6.51
6.23.2 Limited Life SPVs 6.51
6.23.3 Insurance Companies 6.51
6.23.4 Valuation of Holding Companies 6.52
6.23.5 SOTP Valuation 6.53
6.23.6 Intangible Valuation 6.54
6.23.7 Technology Start-ups, Services and Knowledge Driven Companies 6.55
6.24 Arriving at Fair Value 6.56
6.25 Valuation in Investment Banking 6.57
6.25.1 ‘Value’ and ‘Price’ Distinguished 6.57
6.25.2 Application of Valuation in Investment Transactions 6.58
6.26 Judicial Review and Regulatory Oversight on Valuation 6.59
Section – 2
Core Investment Banking
Chapter 7 Domestic Issue Management 7.3–7.66
7.1 Introduction to Issue Management 7.4
7.1.1 Eligibility for Issue Management 7.4
7.1.2 Types of Offers requiring Issue Manager 7.5
7.2 Going Public – Conceptual Framework 7.5
7.3 The Listing Decision – Considerations for an IPO 7.7
7.3.1 The Strategic Dimension 7.8
7.3.2 The Financial Dimension 7.9
7.3.3 The Investment Banking Dimension 7.11
7.3.4 Listing Decision – The Final Take 7.12
7.4 Strategic Considerations for a FPO 7.13
7.5 Strategic Considerations for a Rights Issue 7.14
7.6 Regulatory Framework for Public Offers 7.15
7.7 Issue Manager and the Public Offer Process 7.16
7.8 Issue Plan, Initial Approvals and Appointments 7.17
7.8.1 Issue Planning and Approvals 7.17
7.8.2 Constituting the Issue Management Team 7.18
7.8.3 Inter-se Allocation 7.18
7.9 Creating the Issue Blueprint 7.18
7.9.1 Ascertaining Issuer’s Eligibility Category 7.18
7.9.2 Deciding on the Type of Security 7.20
Case of Tata Steel Issue 7.23
Case of Indian Hotels Issue 7.23
Case of Network 18 Media and Investments Issue 7.24
7.9.3 Choosing the Type of Issue and Method of Delivery 7.24
7.9.4 Capital Structuring 7.27
Case of Biocon Ltd. – Capital Structure. 7.28
7.9.5 Issue Structuring and Minimum Public Shareholding 7.28
Case of TCS IPO 7.31
Case of MCX IPO 7.32
7.9.6 Green Shoe Option 7.33
Case of Tata Consultancy Services 7.34
7.10 Pricing of IPOs 7.35
7.10.1 Pricing versus Valuation 7.35
7.10.2 Illustrative Methodology in IPO Pricing 7.36
Case Analysis - Sampling Analysis of IPO Pricing in Indian Primary Market 7.38
Case of MCX IPO 7.41
7.10.3 IPO Pricing Discussion Summary 7.44
7.10.4 IPO Pricing in a Book-built Offer 7.45
7.10.5 Pricing of FPO 7.45
Case of Tata Steel FPO 7.46
Case of Power Finance Corporation FPO 7.46
Case of Power Grid Corporation FPO 7.47
Case of NMDC Ltd. FPO 7.47
Case of Yes Bank FPO 7.47
7.10.6 Pricing of Rights Offer 7.48
7.10.7 Concluding Observations on FPO and Rights Pricing 7.51
Case of Reliance Industries Right Offer 7.52
7.11 Pre-issue Process (IPO) 7.52
7.11.1 Issue Budget 7.52
7.11.2 Due Diligence Review 7.53
7.11.3 Preparation of Offer Document 7.53
7.11.4 Filing of Offer Document 7.55
7.11.5 Quiet Period 7.56
7.11.6 Tying up Underwriting 7.56
7.11.7 Issue Marketing 7.57
7.11.8 Co-ordination and Compliance 7.58
7.12 Opening of the Issue 7.59
7.12.1 During the Issue Process 7.59
7.13 Post-issue Process 7.60
7.13.1 Determination of Cut-off Price 7.60
Case of I-flex Solutions Ltd. (Presently Oracle Financial Services Software Ltd.) 7.61
7.13.2 Alternative Determination of Price 7.62
7.14 Basis of Allotment 7.63
7.15 Summary of the Issue Process 7.63
7.16 IPO Listing Day Volatility Regulation 7.65
Chapter 8 Underwriting 8.1–8.22
8.1 Concept and Definition 8.2
8.1.1 Definition 8.2
8.1.2 Sub-underwriting 8.3
8.1.3 Underwriting Commission 8.3
8.1.4 Underwriting Agreement 8.4
8.2 Regulatory Framework 8.4
8.3 Devolvement 8.5
8.3.1 Devolvement Notice 8.8
8.4 Business Model 8.9
8.5 Underwriting in Fixed Price Offers 8.11
8.6 Underwriting in Book-built Offers 8.11
8.7 Assessment of an Issue for Underwriting 8.12
8.8 Underwriting – US Model 8.13
8.8.1 Definition 8.13
8.8.2 Types of Underwriting 8.14
8.8.3 Underwriting Documentation 8.14
8.8.4 Underwriting Compensation 8.15
Case of MakeMyTrip Ltd.’s Offer on NASDAQ 8.17
8.8.5 Underwriter’s Risks in Firm Underwriting 8.17
8.8.6 Greenshoe Option 8.18
Case of MakeMyTrip Ltd.’s Offer on NASDAQ 8.19
8.9 Comparative Table of Hard and Soft Underwriting Models 8.19
8.10 Bought Out Deals 8.21
Chapter 9 Cross-border Issuances 9.1–9.52
9.1 Strategic Benefits of International Listing 9.2
Case Study of Saudi Arabian Oil Company Aramco’s Biggest Ever IPO 9.2
Case Study of Alphabet’s Record Bond Issue 9.3
9.2 Cross Listing 9.3
9.3 International Listing Centres 9.4
9.4 Equity Issues through Depository Receipts 9.5
9.4.1 Types of Depository Receipts 9.5
9.4.2 Operational Aspects for Issue of Depository Receipts 9.7
9.4.3 Depository Receipts vis-à-vis Direct Investment 9.8
9.4.4 Status of Depository Receipts in India 9.9
9.4.5 Fungibility of Depository Receipts 9.10
9.4.6 Limited Two-way Fungibility of Depository Receipts 9.12
9.4.7 Re-issue of ADR/GDRs 9.12
9.4.8 Sponsored ADR/GDR Issues 9.12
9.5 Convertible Bonds 9.13
9.5.1 Issue of FCCBs 9.13
9.6 Indian Scenario in GDRs/ADRs/Convertible Bonds 9.14
9.7 Corporate Inversions 9.18
Case of Essar Group 9.19
Cases of Cognizant and iGate 9.19
Case of WNS (Holdings) 9.19
9.8 The FCCB Crisis for Indian Companies (2009–2012) 9.20
Case Study of Suzlon Energy FCCB Crisis 9.21
Case Study of Wockhardt’s Winding Up Petition 9.23
9.9 Domestic Regulatory Framework for Depository Issues 9.24
9.9.1 Salient Features of the Depository Receipts Scheme 2014 9.26
9.10 Issue of IDRs in India 9.27
Case of Standard Chartered Bank IDR Issue 9.28
9.11 Listing Options for Indian Companies 9.28
Case of MakeMyTrip Ltd. IPO on NASDAQ 9.29
Case of Yatra Online Reverse Listing on NASDAQ 9.30
9.12 Public Offers in the USA 9.30
Case of Alibaba Group Holdings IPO 9.30
Case Study of Xiaomi’s Disappointing IPO in Hong Kong 9.32
9.13 US Regulatory Overview and Types of Offers 9.32
9.13.1 Regulatory Framework 9.32
9.13.2 Listing Standards 9.33
9.13.3 Small Company Offers 9.33
9.13.4 Financial Sponsors and SPAC Offers 9.34
9.13.5 Direct Listings 9.34
Case Study of Spotify IPO 2018 9.35
9.14 Important Aspects of the Offer 9.36
9.14.1 Role of Lead Underwriters 9.36
9.14.2 Other Professionals 9.37
9.14.3 The Registration Statement 9.37
9.14.4 Review by the SEC 9.38
9.14.5 Pricing, Underwriting Contract and Lock-ups 9.39
9.15 Steps in the Offer Process in the USA 9.39
Case of Google Inc. 9.41
9.15.1 Issue Close 9.42
9.15.2 Aftermarket and Stabilisation Bids 9.42
Case of Facebook IPO Aftermarket 9.43
9.16 Public Offers in the UK 9.43
9.17 Comparative Schemes of IPO Process 9.45
9.18 Role of Investment Bankers in Cross Border Issues 9.46
Annexure - General Templates in Overseas Capital Market Offers 9.47
Offer Structure of Videsh Sanchar Nigam Ltd. – Offering of GDRs Representing Equity shares (US$ 527 million GDR Issue) 1997. 9.47
Offer Structure of Sterlite Industries (India) Ltd. – Offering of 3.5% Convertible Bonds due 1999 Convertible into GDRs (US$ 100 million FCCB Issue) 1993. 9.50
Offer Structure of Offer Document of Dr. Reddy’s Laboratories Ltd. – Offering of American Depository Shares representing Equity Shares (US$ 115.46 million ADS Issue) 2001. 9.52
Chapter 10 Private Placements 10.1–10.24
10.1 Concept and Background 10.2
10.2 Definitions and Legal Connotations 10.2
10.3 Categories of Private Placement 10.3
10.4 Private Placements within the Purview of Investment Banking 10.4
10.5 Assessment of Private Placement 10.4
10.6 Market Segments for Privately Placed Debt 10.5
10.6.1 PSU Bonds 10.6
10.6.2 Municipal Bonds 10.6
10.6.3 Institutional Bonds 10.7
10.6.4 Corporate Bonds 10.7
Case of Reliance Industries Ltd. and Other Bond Placements 10.7
10.6.5 Securitised Debt Instruments 10.8
10.7 Illustrative Case Study–Private Placement Template for Debt Securities 10.9
10.7.1 Structuring Aspects 10.11
10.8 Market Segments for Privately Placement of Equity 10.12
10.8.1 Structuring Options 10.12
10.9 Private Investment in Public Equity (PIPE) 10.12
10.9.1 Rationale for PIPEs 10.13
10.10 Qualified Institutional Placements (QIPs) 10.14
10.10.1 Rationale for a QIP 10.14
Case of Bharti Airtel’s QIP 10.14
Case of QIP Issues by Leading Banks 10.15
Case of ONGC IPP 10.15
10.11 Regulatory Overview of Private Placements by Listed Companies 10.16
10.12 Regulatory Pricing for PIPEs 10.17
10.13 Regulatory Framework for QIPs 10.18
10.13.1 Regulatory Pricing for QIPs 10.18
10.14 Comparative Analysis of PIPE and QIP 10.20
10.15 International Private Placements 10.21
10.16 Private Placements and Role of Investment Banks 10.23
Chapter 11 Private Equity Advisory 11.1–11.32
11.1 Introduction 11.2
11.2 Role of Investment Banks in Private Equity Advisory 11.2
11.3 Role of VC/PE as Contributors to Growth Capital 11.3
11.3.1 VC Attributes 11.5
11.4 Valuation in Venture Capital Transactions 11.6
11.4.1 Valuation versus Pricing 11.12
11.5 Valuation in Private Equity Transactions 11.13
11.5.1 Valuation Considerations 11.13
11.5.2 Valuation Approaches 11.14
11.6 Process Flow in VC/PE Transactions 11.19
11.7 Transaction Perspectives in Private Equity 11.19
11.7.1 Offer Literature and Financial Model 11.19
11.7.2 Transaction Structuring 11.20
11.7.3 Valuation and Deal Structuring 11.21
11.7.4 Term Sheet 11.22
11.8 Regulatory Requirements in Private Equity Investments 11.25
11.9 Exit Mechanisms for PE Investors 11.26
11.10 Successful Private Equity Transactions 11.28
Case of Warburg Pincus 11.28
Case of Lodha Developers(now known as Macrotech Developers) 11.29
Case of Matrix Laboratories 11.29
Case of Advent-care Hospitals 11.30
Case of Flipkart 11.30
Chapter 12 Buybacks and De-listing 12.1–12.42
12.1 Introduction to Share Repurchase or Share Buyback 12.2
12.2 Conceptual Justification for Share Repurchase 12.2
12.3 Free Cash Flow Conundrum and Share Buyback 12.3
12.4 Implications of Share Repurchase 12.4
12.5 Buybacks in the US Context 12.6
Case of Apple Inc. 12.6
12.6 Equity Repurchases in India 12.7
12.7 Regulatory Framework for Equity Re-purchase 12.8
12.7.1 General Conditions 12.8
12.7.2 Buyback by Listed Companies 12.9
Cases Under the OMR Method 12.10
12.8 Investment Banking Perspectives and Role in Share Buybacks 12.11
12.8.1 Pricing a Buyback Offer 12.11
12.8.2 Fixing the Quantum of Buyback 12.17
12.8.3 Offer Strategy 12.20
12.9 Additional Case Discussions on Share Buyback 12.21
Case of Controversial Buyback by Sterlite Industries (now part of Vedanta) 12.21
Case of Indian Rayon (now part of Grasim) 12.23
Case of Bajaj Auto 12.23
Case of Reliance Industries 12.24
Case of ONGC 12.25
Case of Multi-National Companies 12.26
The Curious Case of Wipro 12.26
Case of TCS Buyback 12.27
12.10 De-listing of a Listed Company 12.28
12.10.1 Introduction to De-listing 12.28
12.10.2 Evolution of De-listing in India 12.28
12.11 De-listings in India 12.29
Case of a MNC Subsidiary De-listing 12.29
12.12 Case for Voluntary De-listing 12.30
Case of Dell MBO 12.31
12.13 Regulatory Requirements for Voluntary De-listing 12.31
12.13.1 Main Provisions 12.32
12.14 Process, Pricing and Role of Investment Banker in Voluntary De-listing 12.32
12.14.1 Pricing a Voluntary De-listing 12.34
12.15 Minority Squeeze Out 12.35
Case of Cadbury India 12.36
12.16 Unique Cases on Voluntary De-listing 12.37
Case of Digital GlobalSoft 12.37
Case of Patni Computer Systems 12.37
Case of Essar Oil 12.37
Case of Astra Zeneca 12.38
Select Cases of Failed De-listing Offers 12.39
Case of Vedanta Ltd. 12.40
12.17 Comparative Scheme of Buyback and De-listing as Exit Offers 12.41
12.18 Compulsory De-listing 12.42
12.19 Re-listing 12.42
Chapter 13 Corporate Restructuring 13.1–13.72
13.1 Overview of Corporate Reorganisations 13.2
13.1.1 Introduction 13.2
13.1.2 Rationale for Corporate Reorganisations 13.2
Case of Aditya Birla Group 13.3
Case of Wipro Restructuring 13.3
Case of Three-way Split of DowDuPont 13.4
Case of Max India Ltd. 13.4
Case of Bajaj Auto Ltd. 13.5
Other Cases of Strategic Corporate Restructuring 13.5
Views of Investment Bankers on Strategic Restructuring 13.6
Case of Mahindra & Mahindra Ltd. 13.6
Case of Refinitiv 13.8
Case of UB Group 13.8
Case of RPG Group 13.9
13.2 Overview and Scope of Corporate Restructuring 13.10
Case of Godrej & Boyce 13.10
13.3 Split-up through Transfer of Assets 13.13
13.4 Demerger of a Company 13.14
13.4.1 Definition of Demerger 13.15
13.4.2 Working of a Demerger 13.16
13.4.3 Further Conceptual Aspects of Demergers 13.18
Case of Demerger
Capital Markets and Investment Banking
Chapter 1 Overview of Domestic Capital Markets 1.3–1.62
1.1 Introduction to Financial Markets 1.4
1.2 Securities Markets 1.5
1.3 Money Market 1.6
1.4 Derivatives Market 1.6
1.5 Foreign Exchange Market 1.7
1.6 Capital Market 1.8
1.6.1 Evolution of Indian Capital Market 1.8
1.6.2 Transformation of Indian Capital Market 1.9
1.7 Evolution and Growth of Indian Stock Exchanges 1.9
1.7.1 The Consolidation Phase 1.10
1.7.2 The National Stock Exchange (NSE) 1.11
1.7.3 The Bombay Stock Exchange, Mumbai (BSE) 1.12
1.7.4 The SME Exchange 1.13
1.7.5 The Metropolitan Stock Exchange 1.14
1.7.6 The ISE 1.15
1.8 Capital Market Constituents 1.15
1.9 Capital Market Segments 1.17
1.9.1 Primary and Secondary Markets 1.17
1.9.2 Equity, Debt and Derivative Markets 1.18
1.10 Developments in Primary and Secondary Markets 1.19
1.10.1 Reforms in Securities Issuances 1.19
1.10.2 Dematerialisation of Securities 1.20
1.10.3 Reforms in Stock Exchanges 1.20
1.10.4 Foreign Investment 1.21
1.10.5 Trading Systems 1.21
1.10.6 Settlement Systems 1.22
1.10.7 Risk Management and Surveillance Systems 1.22
Case of National Spot Exchange Ltd. 1.23
1.10.8 Regulation of Intermediaries and Service Providers 1.24
1.10.9 Investor Education and Capital Market Training 1.24
1.11 The Equity Market 1.24
1.11.1 Primary Segment 1.24
1.11.2 Secondary Segment 1.25
Case of Ranbaxy Ltd. 1.27
Case of Hero-Honda 1.27
1.12 The Debt Market 1.28
1.12.1 G-sec Market 1.28
1.12.2 Corporate Bond Market 1.30
1.13 Derivative Markets 1.34
1.13.1 Capital Market Derivative Segment 1.34
1.13.2 Offshore Derivative Market 1.36
1.14 Capital Market Intermediaries and Service Providers 1.37
1.14.1 Issue Managers, Underwriters and Brokers 1.37
1.14.2 Depositories and Participants 1.38
1.14.3 Custodial Services 1.39
1.14.4 Registrars to Issues and Share Transfer Agents 1.40
1.14.5 Debenture Trustees 1.41
1.14.6 Credit Rating Agencies 1.41
1.14.7 Portfolio Managers 1.42
1.14.8 Bankers to Issues 1.43
1.14.9 Support Service Providers 1.44
1.15 Regulatory Framework for Securities Market 1.44
1.15.1 Overview of Securities Laws 1.44
1.15.2 Overview of Regulatory Authorities 1.47
1.16 Regulatory Framework for Capital Market 1.51
1.16.1 Insider Trading Regulations 1.52
Case of Hindustan Lever 1.54
Case of Tata Finance/Dilip Pendse and Others 1.54
Landmark Case of Satyam 1.55
Other Interesting Cases on Insider Trading 1.56
Insider Trading Case in Social Media Era 1.57
1.16.2 Insider Trading Laws and Cases in Other Markets 1.58
Cases of Michael Milken, Ivan Boesky, Dennis Levine and Martin Siegel 1.58
Cases of Raj Rajaratnam and Rajat Gupta 1.59
1.16.3 Fraudulent and Unfair Trade Practices Regulations 1.59
Case of Atlanta Ltd. 2006–07 1.60
Case of Pyramid Saimira Theatre Ltd. 2009 1.60
Chapter 2 Introduction to International Capital Markets 2.1–2.28
2.1 Introduction to International Capital Markets 2.2
2.2 Evolution and Growth of International Capital Markets 2.3
2.2.1 Pre-industrial Era 2.3
2.2.2 Post-industrial Era 2.4
2.2.3 Role and Importance of International Capital Markets 2.5
2.3 The Bond Markets 2.6
2.3.1 Global Scenario 2.6
2.3.2 The International Bond Market 2.7
2.3.3 Domestic Bonds 2.7
2.3.4 Foreign Bonds 2.7
2.3.5 Euro Bonds 2.8
2.3.6 Convertible Bonds 2.10
Recent Cases in International Exchangeable Bonds 2.11
2.3.7 Masala Bonds 2.12
2.3.8 Bond Structures 2.13
2.3.9 Medium Term Notes 2.14
2.3.10 Global Securitised Debt Instruments Market 2.14
2.4 International Equity Markets 2.16
2.4.1 Global Registered Shares 2.16
Cases in GRS 2.17
2.4.2 International Depository Receipts 2.18
2.5 International Derivative Markets 2.21
2.6 Premier Global Stock Exchanges and Markets 2.22
2.6.1 The New York Stock Exchange 2.22
2.6.2 The NASDAQ Exchange 2.23
2.6.3 Other American Exchanges 2.24
2.6.4 European Stock Exchanges 2.25
2.6.5 Other Major Global Stock Exchanges 2.25
2.7 India’s Offshore Financial Centres 2.26
2.7.1 Gujarat International Financial Tec-city (GIFT) 2.27
2.7.2 India International Exchange 2.27
2.7.3 NSE IFSC Limited 2.28
Chapter 3 Capital Market Financing and Securities 3.1–3.58
3.1 Introduction to Capital Market Financing 3.2
3.2 Issuers of Securities 3.2
3.3 Financing Transactions in Primary Market 3.4
3.3.1 Types of Securities Issuances 3.4
3.4 Primary Market Investors 3.5
3.4.1 Institutional Investors 3.5
3.4.2 Qualified Institutional Buyers 3.6
3.4.3 Domestic Retail Investors 3.10
3.5 Introduction to Primary Market Securities 3.11
3.6. Fundamental Concepts on Equity 3.11
3.6.1 Types of shares 3.12
3.6.2 Par, Premium and Discount 3.13
3.6.3 Issue of Securities at Premium 3.14
3.6.4 Issue of Shares at Discount 3.15
3.6.5 Listed and Unlisted Securities 3.15
3.6.6 Properties of Preference Shares 3.15
3.6.7 Convertible Instruments 3.16
Cases on Issue of Equity Warrants 3.19
Case of HDFC Warrant Issue 3.19
3.7 Fundamental Concepts of Fixed Income Securities 3.20
3.7.1 Nature of Debt Securities 3.20
3.7.2 Transferability 3.21
3.7.3 Secured and Unsecured Debentures 3.21
3.7.4 Features of Debt Securities 3.22
Case of Infiniti Retail 3.28
3.8 Types of Debt Instruments 3.28
3.8.1 Non-convertible Debentures 3.29
Cases of Edelweiss Finance and Investments Ltd. (EFIL) and Tata Steel 3.30
3.8.2 Partly Convertible Debentures 3.31
3.8.3 Fully Convertible Debentures 3.32
3.8.4 Zero Coupon Bonds/Debentures 3.32
Case of Mahindra and Mahindra ZCD Issue in 1990 3.33
3.8.5 Deep Discount Bonds and other Institutional Bonds 3.34
Case of TISCO SPN Issue in 1992 3.34
Case of IIBI DDB Issue 3.35
Other Cases 3.35
3.8.6 Floating Rate Bonds 3.35
3.8.7 Perpetual Bonds 3.35
Case of Tata Steel Perpetual Bonds 3.36
3.8.8 Debt Convertibles, Sweeteners and Options 3.36
3.9 Introduction to Securitisation and Securitised Debt Instruments 3.37
3.9.1 Securitisation as a Capital Market Refinancing Tool 3.37
3.9.2 Evolution and Market 3.39
3.9.3 Forms of Securitisation 3.39
3.9.4 Anatomy of Securitisation Structure 3.40
3.9.5 Stakeholders in a Securitisation Structure 3.41
3.9.6 Pass Through Structure 3.42
3.9.7 Securitised Debt Instruments – MBS and ABS 3.43
3.9.8 Risk Profiling and Credit Enhancements 3.44
3.9.9 Credit Default Swaps 3.45
3.10 Structured Debt Products 3.45
3.10.1 Introduction to Pay Through Structure 3.45
3.10.2 Pay through Securitisation - CDOs 3.46
3.10.3 Indian Scenario in Securitised Debt Instruments and Structured Debt Products 3.49
Case of ICICI Bank 3.49
Case of Two-Tier Securitisation 2010 3.50
3.10.4 Structured Securitised Debt Products–Real Estate and Infrastructure Trusts 3.51
Case of IRB INVIT Offer 3.53
Case of Embassy REIT Offer 3.54
3.10.5 Future Prospects for Securitised Structured Debt Products in India 3.54
3.10.6 Non-securitised Structured Debt Products 3.55
Case of Reliance Petroleum TOCD Issue in 1993 3.55
Case of Essar Oil OFCD Issue in 1995 3.56
Case of Noida Toll Bridge Company DDB Issue in 1999 3.57
Chapter 4 Introduction to Investment Banking 4.1–4.38
4.1 Concept and Definitions 4.2
4.1.1 Merchant Banking 4.3
4.2 Evolution of American Investment Banks 4.4
4.2.1 Regulation of Industry Post 1929 4.5
4.3 Birth of American Universal Banks 4.7
4.3.1 Historical Reasons 4.7
4.3.2 Consolidation Era 4.7
4.3.3 Emergence of Quantitative Finance 4.8
4.3.4 Deregulation of Financial Sector 4.8
4.3.5 Expansion of I-Banking Business 4.9
4.3.6 Liberalisation and Globalisation 4.9
4.3.7 Formation of Financial Conglomerates and TBTF Institutions 4.10
4.3.8 Conglomerisation of US Investment Banks 4.12
4.4 European Investment Banks 4.13
4.4.1 Investment Banking in UK 4.13
4.4.2 Spread of US Banks to Europe 4.14
4.4.3 Cross-continental Integration and European Conglomerisation 4.14
Case of Barings Bank Collapse 4.16
4.5 Contemporary Global Industry Structure 4.17
4.5.1 Pure Investment Banks 4.18
4.6 US Investment Bank Crisis in 2008 4.19
4.6.1 Backdrop 4.19
4.6.2 Genesis 4.20
4.6.3 Sub-prime Lending 4.20
4.6.4 The Contagion Risk 4.22
4.6.5 Sub-prime Default Crisis 4.23
Case of Bear Sterns 4.24
Case of Lehman Brothers 4.25
4.6.6 US Regulatory Response to the Crisis 4.28
4.6.7 Dodd-frank Wall Street Reform and Consumer Protection Act, 2010 4.30
4.7 Evolution of Indian Investment Banking 4.32
4.7.1 Origin 4.32
4.7.2 Growth, Diversification and Consolidation Phase 4.33
4.7.3 Conglomerisation of Indian Universal Banks and Pure Investment Banks 4.34
Case of Axis Bank’s Acquisition of Enam Financial Consultants 4.35
4.7.4 Heterogeneous Industry Structure 4.36
Chapter 5 The Business of Investment Banking 5.1–5.58
5.1 Nature of Contemporary Investment Banking 5.2
5.2 Full Service Investment Banking 5.3
5.2.1 Business Portfolio 5.3
5.2.2 Industry Hierarchy 5.4
5.3 Core Investment Banking 5.5
5.3.1 Business Portfolio of Leading Investment Banks 5.5
5.4 Service Portfolio of Indian Investment Banks 5.7
5.4.1 Core Investment Banking 5.8
5.4.2 Allied Businesses 5.9
5.5 Regulatory Framework for Investment Banking Business in India 5.11
5.6 Introduction to Allied Businesses 5.12
5.7 Asset Management 5.13
5.7.1 Synergies between Institutional Investing and Investment Banking 5.13
5.7.2 Types of Asset Management 5.14
5.8 Mutual Funds 5.15
5.8.1 Evolution and Mutual Fund Environment in USA 5.15
5.8.2 Structure of a Mutual Fund in India 5.16
5.8.3 Regulation of Mutual Funds 5.17
5.8.4 Investment Pattern 5.18
5.9 Hedge Funds 5.19
Case of Long Term Capital Management 5.20
5.9.1 Business Structure 5.21
5.9.2 Regulation of Hedge Funds 5.22
5.10 Private Equity Funds 5.24
5.10.1 Definitions 5.24
5.10.2 PIPE, Buyout and Distressed Assets Funds 5.25
5.10.3 Evolution of Global Private Equity 5.26
5.10.4 Evolution of Indian Private Equity Industry 5.26
5.10.5 Business Structure and Constitution 5.28
5.10.6 Industry Structure 5.29
5.10.7 Regulation of Private Equity in India 5.30
5.11 Securities Business 5.33
Case of MF Global 5.33
5.11.1 Broking and Dealing 5.34
5.11.2 Trading 5.35
5.11.3 Institutional Sales 5.36
5.11.4 Equity, Fixed Income and Quantitative Research 5.36
5.11.5 Investment Advisory and Wealth Management Services 5.37
5.12 Inter-dependence of Business Verticals 5.37
5.12.1 Core Investment Banking Verticals 5.38
5.12.2 Allied Business Verticals 5.38
5.13 Careers and Skill-sets in Investment Banking 5.39
5.14 Conflict of Interest in Investment Banking 5.40
5.14.1 Nature of Conflicts of Interest 5.40
5.14.2 Historical Developments 5.40
5.14.3 Developments after Financial Crisis of 2008 5.42
5.14.4 Indian Scenario 5.43
5.15 Dark Side of Investment Banking 5.44
Case of J.P. Morgan 5.45
5.15.1 Will the Mistakes Be Repeated? 5.46
5.16 The Future of Full Service Investments Banks 5.47
5.16.1 Regulatory Challenges for US Investment Banks 5.47
5.16.2 Business Challenges for Investment Banking 5.48
Annexure - Brief Business Profile of largest American Universal Banks 5.50
J.P. Morgan 5.50
Goldman Sachs 5.51
Morgan Stanley 5.53
Bank of America 5.55
Citigroup 5.57
Chapter 6 Investment Analysis and Valuation 6.1–6.60
6.1 Overview of Investment Analysis 6.2
6.1.1 Investment Analysis in Core Investment Banking 6.2
6.2 Equity Performance Metrics 6.3
6.3 Capital Structure and Leverage 6.6
6.3.1 Measures of Leverage 6.7
6.3.2 Capital Structure Analysis from an Issuer’s Perspective 6.8
6.4 Security Valuation – Bonds and Equities 6.9
6.4.1 Basic Bond Valuation Model 6.9
6.4.2 Bond Valuation with Semi-annual Interest 6.10
6.4.3 Equity Valuation using Dividend Models 6.10
6.4.4 Equity Valuation using Market Multiples 6.11
6.5 Introduction to Corporate Valuation 6.12
6.6 Value and Valuation 6.13
6.7 Corporate Value versus Investment Value 6.13
6.8 Business Valuation 6.14
6.9 Drivers for Value Creation 6.14
6.10 Corporate Valuation using Business Valuation Models 6.15
6.10.1 Overview 6.15
6.10.2 Approaches to Corporate Valuation 6.16
6.10.3 Assessment of Alternative Approaches to Value Measurement 6.16
6.11 Asset Based Valuation Models 6.17
6.11.1 Net Asset Value and Break-up Value 6.18
6.11.2 Principles to Arrive at Realisable Value of Assets 6.20
6.11.3 Valuation of Goodwill 6.21
6.11.4 Arriving at Asset Based Valuation 6.22
6.12 Financial Forecasting 6.23
6.12.1 Introduction 6.23
6.12.2 Determinants for Financial Forecasting 6.23
6.12.3 Revenue Estimates 6.25
6.12.4 Cost Estimates 6.25
6.12.5 Estimation of Capital Requirements and Financing Mix 6.26
6.12.6 Further Guidelines for Financial Forecasting 6.27
6.12.7 Drawing up Statements of Financial Forecast 6.27
6.13 Free Cash Flow 6.29
6.13.1 OCF versus Free Cash Flow to Firm 6.31
6.13.2 Earnings versus Cash Flow 6.31
6.13.3 Other Factors for Estimation of Free Cash Flow 6.33
6.14 Measuring Terminal Value of Free Cash Flow 6.33
6.14.1 Appropriate Tax Rate 6.34
6.15 Measuring Cost of Equity 6.35
6.15.1 The CAPM 6.35
6.15.2 Arbitrage Pricing Model 6.37
6.16 The WACC 6.37
6.17 Cash Flow Based Valuation Models 6.38
6.17.1 Enterprise Cash Flow Model (FCFF) 6.39
6.17.2 Equity Cash Flow Model 6.40
6.18 Economic Profit Model 6.42
6.19 Relative Valuation Models 6.43
6.19.1 EBITDA Multiple 6.44
6.19.2 Price to Book Value Multiple 6.45
6.19.3 Earnings Multiple 6.45
6.20 Contingent Claim Valuation 6.45
6.21 Applicability of Enterprise Valuation Approaches 6.46
6.22 Adjustments and Additional Dimensions in Valuation 6.47
6.22.1 Common Adjustments to Enterprise Valuation 6.47
6.22.2 Arriving at Equity Value and Value Per Share 6.49
6.23 Special Cases in Valuation 6.51
6.23.1 Banks and Financial Companies 6.51
6.23.2 Limited Life SPVs 6.51
6.23.3 Insurance Companies 6.51
6.23.4 Valuation of Holding Companies 6.52
6.23.5 SOTP Valuation 6.53
6.23.6 Intangible Valuation 6.54
6.23.7 Technology Start-ups, Services and Knowledge Driven Companies 6.55
6.24 Arriving at Fair Value 6.56
6.25 Valuation in Investment Banking 6.57
6.25.1 ‘Value’ and ‘Price’ Distinguished 6.57
6.25.2 Application of Valuation in Investment Transactions 6.58
6.26 Judicial Review and Regulatory Oversight on Valuation 6.59
Section – 2
Core Investment Banking
Chapter 7 Domestic Issue Management 7.3–7.66
7.1 Introduction to Issue Management 7.4
7.1.1 Eligibility for Issue Management 7.4
7.1.2 Types of Offers requiring Issue Manager 7.5
7.2 Going Public – Conceptual Framework 7.5
7.3 The Listing Decision – Considerations for an IPO 7.7
7.3.1 The Strategic Dimension 7.8
7.3.2 The Financial Dimension 7.9
7.3.3 The Investment Banking Dimension 7.11
7.3.4 Listing Decision – The Final Take 7.12
7.4 Strategic Considerations for a FPO 7.13
7.5 Strategic Considerations for a Rights Issue 7.14
7.6 Regulatory Framework for Public Offers 7.15
7.7 Issue Manager and the Public Offer Process 7.16
7.8 Issue Plan, Initial Approvals and Appointments 7.17
7.8.1 Issue Planning and Approvals 7.17
7.8.2 Constituting the Issue Management Team 7.18
7.8.3 Inter-se Allocation 7.18
7.9 Creating the Issue Blueprint 7.18
7.9.1 Ascertaining Issuer’s Eligibility Category 7.18
7.9.2 Deciding on the Type of Security 7.20
Case of Tata Steel Issue 7.23
Case of Indian Hotels Issue 7.23
Case of Network 18 Media and Investments Issue 7.24
7.9.3 Choosing the Type of Issue and Method of Delivery 7.24
7.9.4 Capital Structuring 7.27
Case of Biocon Ltd. – Capital Structure. 7.28
7.9.5 Issue Structuring and Minimum Public Shareholding 7.28
Case of TCS IPO 7.31
Case of MCX IPO 7.32
7.9.6 Green Shoe Option 7.33
Case of Tata Consultancy Services 7.34
7.10 Pricing of IPOs 7.35
7.10.1 Pricing versus Valuation 7.35
7.10.2 Illustrative Methodology in IPO Pricing 7.36
Case Analysis - Sampling Analysis of IPO Pricing in Indian Primary Market 7.38
Case of MCX IPO 7.41
7.10.3 IPO Pricing Discussion Summary 7.44
7.10.4 IPO Pricing in a Book-built Offer 7.45
7.10.5 Pricing of FPO 7.45
Case of Tata Steel FPO 7.46
Case of Power Finance Corporation FPO 7.46
Case of Power Grid Corporation FPO 7.47
Case of NMDC Ltd. FPO 7.47
Case of Yes Bank FPO 7.47
7.10.6 Pricing of Rights Offer 7.48
7.10.7 Concluding Observations on FPO and Rights Pricing 7.51
Case of Reliance Industries Right Offer 7.52
7.11 Pre-issue Process (IPO) 7.52
7.11.1 Issue Budget 7.52
7.11.2 Due Diligence Review 7.53
7.11.3 Preparation of Offer Document 7.53
7.11.4 Filing of Offer Document 7.55
7.11.5 Quiet Period 7.56
7.11.6 Tying up Underwriting 7.56
7.11.7 Issue Marketing 7.57
7.11.8 Co-ordination and Compliance 7.58
7.12 Opening of the Issue 7.59
7.12.1 During the Issue Process 7.59
7.13 Post-issue Process 7.60
7.13.1 Determination of Cut-off Price 7.60
Case of I-flex Solutions Ltd. (Presently Oracle Financial Services Software Ltd.) 7.61
7.13.2 Alternative Determination of Price 7.62
7.14 Basis of Allotment 7.63
7.15 Summary of the Issue Process 7.63
7.16 IPO Listing Day Volatility Regulation 7.65
Chapter 8 Underwriting 8.1–8.22
8.1 Concept and Definition 8.2
8.1.1 Definition 8.2
8.1.2 Sub-underwriting 8.3
8.1.3 Underwriting Commission 8.3
8.1.4 Underwriting Agreement 8.4
8.2 Regulatory Framework 8.4
8.3 Devolvement 8.5
8.3.1 Devolvement Notice 8.8
8.4 Business Model 8.9
8.5 Underwriting in Fixed Price Offers 8.11
8.6 Underwriting in Book-built Offers 8.11
8.7 Assessment of an Issue for Underwriting 8.12
8.8 Underwriting – US Model 8.13
8.8.1 Definition 8.13
8.8.2 Types of Underwriting 8.14
8.8.3 Underwriting Documentation 8.14
8.8.4 Underwriting Compensation 8.15
Case of MakeMyTrip Ltd.’s Offer on NASDAQ 8.17
8.8.5 Underwriter’s Risks in Firm Underwriting 8.17
8.8.6 Greenshoe Option 8.18
Case of MakeMyTrip Ltd.’s Offer on NASDAQ 8.19
8.9 Comparative Table of Hard and Soft Underwriting Models 8.19
8.10 Bought Out Deals 8.21
Chapter 9 Cross-border Issuances 9.1–9.52
9.1 Strategic Benefits of International Listing 9.2
Case Study of Saudi Arabian Oil Company Aramco’s Biggest Ever IPO 9.2
Case Study of Alphabet’s Record Bond Issue 9.3
9.2 Cross Listing 9.3
9.3 International Listing Centres 9.4
9.4 Equity Issues through Depository Receipts 9.5
9.4.1 Types of Depository Receipts 9.5
9.4.2 Operational Aspects for Issue of Depository Receipts 9.7
9.4.3 Depository Receipts vis-à-vis Direct Investment 9.8
9.4.4 Status of Depository Receipts in India 9.9
9.4.5 Fungibility of Depository Receipts 9.10
9.4.6 Limited Two-way Fungibility of Depository Receipts 9.12
9.4.7 Re-issue of ADR/GDRs 9.12
9.4.8 Sponsored ADR/GDR Issues 9.12
9.5 Convertible Bonds 9.13
9.5.1 Issue of FCCBs 9.13
9.6 Indian Scenario in GDRs/ADRs/Convertible Bonds 9.14
9.7 Corporate Inversions 9.18
Case of Essar Group 9.19
Cases of Cognizant and iGate 9.19
Case of WNS (Holdings) 9.19
9.8 The FCCB Crisis for Indian Companies (2009–2012) 9.20
Case Study of Suzlon Energy FCCB Crisis 9.21
Case Study of Wockhardt’s Winding Up Petition 9.23
9.9 Domestic Regulatory Framework for Depository Issues 9.24
9.9.1 Salient Features of the Depository Receipts Scheme 2014 9.26
9.10 Issue of IDRs in India 9.27
Case of Standard Chartered Bank IDR Issue 9.28
9.11 Listing Options for Indian Companies 9.28
Case of MakeMyTrip Ltd. IPO on NASDAQ 9.29
Case of Yatra Online Reverse Listing on NASDAQ 9.30
9.12 Public Offers in the USA 9.30
Case of Alibaba Group Holdings IPO 9.30
Case Study of Xiaomi’s Disappointing IPO in Hong Kong 9.32
9.13 US Regulatory Overview and Types of Offers 9.32
9.13.1 Regulatory Framework 9.32
9.13.2 Listing Standards 9.33
9.13.3 Small Company Offers 9.33
9.13.4 Financial Sponsors and SPAC Offers 9.34
9.13.5 Direct Listings 9.34
Case Study of Spotify IPO 2018 9.35
9.14 Important Aspects of the Offer 9.36
9.14.1 Role of Lead Underwriters 9.36
9.14.2 Other Professionals 9.37
9.14.3 The Registration Statement 9.37
9.14.4 Review by the SEC 9.38
9.14.5 Pricing, Underwriting Contract and Lock-ups 9.39
9.15 Steps in the Offer Process in the USA 9.39
Case of Google Inc. 9.41
9.15.1 Issue Close 9.42
9.15.2 Aftermarket and Stabilisation Bids 9.42
Case of Facebook IPO Aftermarket 9.43
9.16 Public Offers in the UK 9.43
9.17 Comparative Schemes of IPO Process 9.45
9.18 Role of Investment Bankers in Cross Border Issues 9.46
Annexure - General Templates in Overseas Capital Market Offers 9.47
Offer Structure of Videsh Sanchar Nigam Ltd. – Offering of GDRs Representing Equity shares (US$ 527 million GDR Issue) 1997. 9.47
Offer Structure of Sterlite Industries (India) Ltd. – Offering of 3.5% Convertible Bonds due 1999 Convertible into GDRs (US$ 100 million FCCB Issue) 1993. 9.50
Offer Structure of Offer Document of Dr. Reddy’s Laboratories Ltd. – Offering of American Depository Shares representing Equity Shares (US$ 115.46 million ADS Issue) 2001. 9.52
Chapter 10 Private Placements 10.1–10.24
10.1 Concept and Background 10.2
10.2 Definitions and Legal Connotations 10.2
10.3 Categories of Private Placement 10.3
10.4 Private Placements within the Purview of Investment Banking 10.4
10.5 Assessment of Private Placement 10.4
10.6 Market Segments for Privately Placed Debt 10.5
10.6.1 PSU Bonds 10.6
10.6.2 Municipal Bonds 10.6
10.6.3 Institutional Bonds 10.7
10.6.4 Corporate Bonds 10.7
Case of Reliance Industries Ltd. and Other Bond Placements 10.7
10.6.5 Securitised Debt Instruments 10.8
10.7 Illustrative Case Study–Private Placement Template for Debt Securities 10.9
10.7.1 Structuring Aspects 10.11
10.8 Market Segments for Privately Placement of Equity 10.12
10.8.1 Structuring Options 10.12
10.9 Private Investment in Public Equity (PIPE) 10.12
10.9.1 Rationale for PIPEs 10.13
10.10 Qualified Institutional Placements (QIPs) 10.14
10.10.1 Rationale for a QIP 10.14
Case of Bharti Airtel’s QIP 10.14
Case of QIP Issues by Leading Banks 10.15
Case of ONGC IPP 10.15
10.11 Regulatory Overview of Private Placements by Listed Companies 10.16
10.12 Regulatory Pricing for PIPEs 10.17
10.13 Regulatory Framework for QIPs 10.18
10.13.1 Regulatory Pricing for QIPs 10.18
10.14 Comparative Analysis of PIPE and QIP 10.20
10.15 International Private Placements 10.21
10.16 Private Placements and Role of Investment Banks 10.23
Chapter 11 Private Equity Advisory 11.1–11.32
11.1 Introduction 11.2
11.2 Role of Investment Banks in Private Equity Advisory 11.2
11.3 Role of VC/PE as Contributors to Growth Capital 11.3
11.3.1 VC Attributes 11.5
11.4 Valuation in Venture Capital Transactions 11.6
11.4.1 Valuation versus Pricing 11.12
11.5 Valuation in Private Equity Transactions 11.13
11.5.1 Valuation Considerations 11.13
11.5.2 Valuation Approaches 11.14
11.6 Process Flow in VC/PE Transactions 11.19
11.7 Transaction Perspectives in Private Equity 11.19
11.7.1 Offer Literature and Financial Model 11.19
11.7.2 Transaction Structuring 11.20
11.7.3 Valuation and Deal Structuring 11.21
11.7.4 Term Sheet 11.22
11.8 Regulatory Requirements in Private Equity Investments 11.25
11.9 Exit Mechanisms for PE Investors 11.26
11.10 Successful Private Equity Transactions 11.28
Case of Warburg Pincus 11.28
Case of Lodha Developers(now known as Macrotech Developers) 11.29
Case of Matrix Laboratories 11.29
Case of Advent-care Hospitals 11.30
Case of Flipkart 11.30
Chapter 12 Buybacks and De-listing 12.1–12.42
12.1 Introduction to Share Repurchase or Share Buyback 12.2
12.2 Conceptual Justification for Share Repurchase 12.2
12.3 Free Cash Flow Conundrum and Share Buyback 12.3
12.4 Implications of Share Repurchase 12.4
12.5 Buybacks in the US Context 12.6
Case of Apple Inc. 12.6
12.6 Equity Repurchases in India 12.7
12.7 Regulatory Framework for Equity Re-purchase 12.8
12.7.1 General Conditions 12.8
12.7.2 Buyback by Listed Companies 12.9
Cases Under the OMR Method 12.10
12.8 Investment Banking Perspectives and Role in Share Buybacks 12.11
12.8.1 Pricing a Buyback Offer 12.11
12.8.2 Fixing the Quantum of Buyback 12.17
12.8.3 Offer Strategy 12.20
12.9 Additional Case Discussions on Share Buyback 12.21
Case of Controversial Buyback by Sterlite Industries (now part of Vedanta) 12.21
Case of Indian Rayon (now part of Grasim) 12.23
Case of Bajaj Auto 12.23
Case of Reliance Industries 12.24
Case of ONGC 12.25
Case of Multi-National Companies 12.26
The Curious Case of Wipro 12.26
Case of TCS Buyback 12.27
12.10 De-listing of a Listed Company 12.28
12.10.1 Introduction to De-listing 12.28
12.10.2 Evolution of De-listing in India 12.28
12.11 De-listings in India 12.29
Case of a MNC Subsidiary De-listing 12.29
12.12 Case for Voluntary De-listing 12.30
Case of Dell MBO 12.31
12.13 Regulatory Requirements for Voluntary De-listing 12.31
12.13.1 Main Provisions 12.32
12.14 Process, Pricing and Role of Investment Banker in Voluntary De-listing 12.32
12.14.1 Pricing a Voluntary De-listing 12.34
12.15 Minority Squeeze Out 12.35
Case of Cadbury India 12.36
12.16 Unique Cases on Voluntary De-listing 12.37
Case of Digital GlobalSoft 12.37
Case of Patni Computer Systems 12.37
Case of Essar Oil 12.37
Case of Astra Zeneca 12.38
Select Cases of Failed De-listing Offers 12.39
Case of Vedanta Ltd. 12.40
12.17 Comparative Scheme of Buyback and De-listing as Exit Offers 12.41
12.18 Compulsory De-listing 12.42
12.19 Re-listing 12.42
Chapter 13 Corporate Restructuring 13.1–13.72
13.1 Overview of Corporate Reorganisations 13.2
13.1.1 Introduction 13.2
13.1.2 Rationale for Corporate Reorganisations 13.2
Case of Aditya Birla Group 13.3
Case of Wipro Restructuring 13.3
Case of Three-way Split of DowDuPont 13.4
Case of Max India Ltd. 13.4
Case of Bajaj Auto Ltd. 13.5
Other Cases of Strategic Corporate Restructuring 13.5
Views of Investment Bankers on Strategic Restructuring 13.6
Case of Mahindra & Mahindra Ltd. 13.6
Case of Refinitiv 13.8
Case of UB Group 13.8
Case of RPG Group 13.9
13.2 Overview and Scope of Corporate Restructuring 13.10
Case of Godrej & Boyce 13.10
13.3 Split-up through Transfer of Assets 13.13
13.4 Demerger of a Company 13.14
13.4.1 Definition of Demerger 13.15
13.4.2 Working of a Demerger 13.16
13.4.3 Further Conceptual Aspects of Demergers 13.18
Case of Demerger
Overview
Investment Banking – Concepts, Analyses and Cases is a long-standing work in the subject and is positioned as a complete textbook for postgraduate level of study in Investment Banking. It covers exhaustively the history, market, business, industry, transaction and service perspective of this important area of financial services. It caters to all postgraduate courses with focus on finance and capital markets in general and investment banking in particular. It comprehensively meets the conceptual and learning requirements for MBA, CA, CS, CMA and other capital market-oriented courses in the Indian context. It will also serve as a useful reference book for CFOs, senior finance professionals, Investment Bankers, Consultants, Law Firms, Chartered Accountants, Company Secretaries and financial services professionals working in capital markets and corporate advisory services.
Key Features
• Thoroughly updated for industry and regulatory changes since 2017 and re-organised accordingly
• Comprehensive and contemporary coverage of the Business of Investment Banking and Core Investment Banking
• New additions in latest cases and transactions including international deals in key areas such as capital market offers, M&A and Corporate restructuring
• Includes more than 200 caselets, illustrated cases and worked-out problems including more than 100 detailed case studies from the Indian corporate sector
• 50 Additional End of the book Cases and Problems and Self-test Questions in each chapter with answers for deeper learning and evaluation
• New Discussions on Securitised products including REITs and INVITs, Global Registered Shares, Cross Listings, IFCs, investment analysis, valuation, Direct Offers, Slump Exchanges and technology disruptions shaping the IB industry
Investment Banking – Concepts, Analyses and Cases is a long-standing work in the subject and is positioned as a complete textbook for postgraduate level of study in Investment Banking. It covers exhaustively the history, market, business, industry, transaction and service perspective of this important area of financial services. It caters to all postgraduate courses with focus on finance and capital markets in general and investment banking in particular. It comprehensively meets the conceptual and learning requirements for MBA, CA, CS, CMA and other capital market-oriented courses in the Indian context. It will also serve as a useful reference book for CFOs, senior finance professionals, Investment Bankers, Consultants, Law Firms, Chartered Accountants, Company Secretaries and financial services professionals working in capital markets and corporate advisory services.
Key Features
• Thoroughly updated for industry and regulatory changes since 2017 and re-organised accordingly
• Comprehensive and contemporary coverage of the Business of Investment Banking and Core Investment Banking
• New additions in latest cases and transactions including international deals in key areas such as capital market offers, M&A and Corporate restructuring
• Includes more than 200 caselets, illustrated cases and worked-out problems including more than 100 detailed case studies from the Indian corporate sector
• 50 Additional End of the book Cases and Problems and Self-test Questions in each chapter with answers for deeper learning and evaluation
• New Discussions on Securitised products including REITs and INVITs, Global Registered Shares, Cross Listings, IFCs, investment analysis, valuation, Direct Offers, Slump Exchanges and technology disruptions shaping the IB industry
