Investment Banking Services
The investment bank is a large financial institution that primarily deals with the creation of capital for companies, the government and other securities.
Investment banking includes a lot of things such as broker trades for institutions and private investors, underwriting new debt and equity securities, helping in the sale of securities, facilitating mergers and acquisitions and more.
In addition to this, investment bankers who work in investment banking play an important role in providing guidance to issuers such as issues and placement of stock.
Investment banks help onboard, complicate financial transactions by providing expert advice such as how much a company is worth, how to deal with the client if he is expecting a merger, acquisition or sales. This may also include raising money for the clients and creating the documentation required for a company to go public.
The points stated above was just the overview of investment banking towards different sectors.
How do Investment Banking Differ From Retail and Commercial Banks
Retail banking provides a variety of banking services which generally belong to similar categories such as debit cards, credit cards, mortgages, insurance, investment, checking funds, fund management and more.
Retail banks accept deposits of money from the public and lend it out to the borrowers. Commercial banks also perform similar operations, however their businesses rather than individuals.
Investment banking, on the other hand, doesn't fall into such activities. For instance, they don’t take deposits. In lieu, they mainly focus on raising money by selling multiple securities such as shares, stocks, bonds to high profile investors such as high net-worth individuals or HNIs and organizations such as pension funds.
From these sales, investment banking assists companies, government bodies or entrepreneurs so that they can finance major projects which require a huge amount of cash, R&D, or an expansion into a new market segment.
Clients of commercial banks are usually a bit more sophisticated organizations with more complex funding requirements, compared to the clients of other commercial or retail banks.
In a nutshell, investment banks act as an intermediary between the persons who have money with those who require funding and great ideas.
Role of Investment Banking
Investment banks offer a wide range of services that usually varies from one organization to another. The main activity of these investment banks is to raise money by finding investors, however, they also have a separate function of giving financial advice to the organization.
Services Offered by Investment Banks are:
Investment banking offers various services such as :
- Adequate research to help investors in deciding which securities to buy
- Development of new securities while keeping in mind current securities.
- Brokerage - Assisting clients to trade with each other.
- Private Equity - Investing in the bank's own money in projects rather than finding new investors.
Some investment banks are a part of retail or commercial banks and some provide separate investment banking services such as asset management along with their investment banking decisions.
Intermediary Between Investors and Organization
When a bank’s client needs some extra cash, one way the bank can help the client is by making a bond or loan which can be repaid with interest, the term is known as debt financing. This is like retail banking that offers you a mortgage to buy a house. Here, the banks usually take care of the financing of clients such as how much amount investors would be willing to make?
Investors benefit from this by getting constant interest payments from the loan or bond, and the receiving organization benefits from a lump sum so that it can pay back after it gradually payback.
Investment banks offer equity financing services only when they find investors whose major interests are to invest directly in the company by becoming shareholders. Shareholders are kind of owners of the organization and receive a proportion of profits, while the company receives a financial contribution that it doesn't need to pay back.
The primary objectives of the investment banks are fundraising and advising their clients. While advising its clients, an investment bank needs to have a clear understanding of the investment and take care of many things such as whether a company would be financially strong enough so that it can handle major activities such as loans, bonds or equity offering.
Investment banks such as Swastika provide advisory services to the organization and in return, they charge a fee for these services. One of the primary issues on which they advise is on Merger and Acquisition (M&A).
M&A activities include:
- A company is seeking to acquire or merge with the other one.
- A company is looking forward to divesting itself of a subsidiary organization.
- A company’s owner looking to sell their business.
An investment bank generally helps organizations ponder how to approach the other company; the best ways to structure the transaction, what should be the fair price to pay and how to finance the acquisition.
Initial Public Offering or IPOs are other services provided by Investment banks. These banks offer IPO launching services. An IPO or initial public offering allows a business to get listed on the top exchanges, giving individuals and organizations an opportunity to easily buy and sell shares.
Listing in the public market is important as it enables a company to grow quickly. Investment banking, here help companies to get listed themselves that include everything from preparations to marketing materials for research analysts and investors to analyze.
How Does Investment Banking Affect Society?
Ordinary people have no direct contact with investment banks. Instead, they show interest in other financial areas such as retail banking or insurance. However, many investment banks have an indirect effect on your lives as they advise and work on the behalf of different clients.
Their clients include government, companies, entrepreneurs, entities and families that run businesses. These clients are those who have a great impact on our lives. Clients of investment banking have a big impact on our lives as they provide us goods and services such as clothes, transport, internet, and also gives us employment.
Banks also love to work with investors such as pension funds, whose performance will heavily impact the value and amount of our pensions. Hence, the role of investment banks is to provide excellent advice and services to organizations that affect everyone’s life, therefore enabling them to grow and prosper more.
Investment Banking Includes:
- IPO Listing
- Startup Funding and Valuation
- Loan Syndication
All About IPOs in India
You might have heard several news articles related to IPOs and their bumper listing. Also, it has found that the stock price jumped to a huge percentage just after getting listed.
IPOs: An Attractive Investment in Today’s Scenario
When it comes to the investment, IPOs are always on peak. Continuous changes and disruptions in the investment makes the stock market to move upto a certain landmark.
Nowadays, every organization wants to achieve the pinnacle at an early stage. Due to this, the constant ups and downs often happen in the market which makes the organization quite difficult to keep up the investment on a profitable level. This gave rise to the initial public offerings.
Recently, it has been found that the rate of IPO subscription has gained nationwide popularity as many investors are now seeking the idea of buying stocks in reputed companies. In addition, the influx of easy money is the other reason for the oversubscription of IPO.
Launching IPOs in India: Here are the Steps All You Need to Know
The biggest stock exchanges in India are NSE and BSE. NSE or National Stock Exchange recently made headlines when NSE has become the largest stock exchange for the derivative trading by volume. BSE on the other hand, has the most number of listed companies.
The process of launching an IPO in India has always remained a hot topic. This is because it is an important event for a company to be listed on the stock exchange as becoming a listed entity made a huge impact on the company's employees and promoters.
A newly listed company firstly needs to make regular disclosure to stock exchange and stock regulators at the same time keeping investors happy.
Despite the above process, an IPO is a desired journey for every company. Here are the 7 steps involved in the listing process of IPO.
Step 1: Hire an Investment Bank
Once a company wants to go public, the foremost thing the company should do is to hire an investment bank.
Investment banks such as Swastika are mostly market intermediaries which are recognized by regulators.
The mandate for investment banks is to analyze the valuation of the company and help investors to buy IPO. For the successful launching of an IPO, investment banks need to underwrite the issue, either themselves or through a third party.
After that, the banks read the financial statements of a company, industry dynamics and risk appetite after which the banks advise their clients to take IPO subscription of a particular company.
2. Prepare Draft Prospectus and Submission with SEBI
The next step for issuing an IPO is the approval of three parties, mainly the issuing company, investment banks and underwriter. When this is done, all of them just need to prepare a draft prospectus and submit that document with SEBI.
The DRHP refers to the draft red herring prospectus as a document that covers extensive details about the company’s business, its plan for the future, and the competitiveness in the industry.
The draft prospectus comprises full details such as the steps a company is planning to use for the growth.
3. Road Shows
As the issue has been approved by the regulator, company management and lead managers travel across the country and sometimes in foreign to market the IPO to potential investors which are mostly FII. It has been noted that nearly 50% shares in IPOs for qualified institutional investors (QIBs), hence makes these investors critical to ensure the success of IPO.
This roadshow phase lasts for at least a few weeks and may take longer if more investors are required to roped in due to the size and attractiveness of the issue.
4. RHP and Pricing
After filing a draft prospectus, the company is not required to disclose how the issue will be priced and when it will be launched. Once the issue gets approved by the regulatory; the company is then all set to launch its IPO. At the same time, the company files an updated version of the prospectus.
5. Bidding through Book Building
After the price of an IPO has been finalized, the IPO is available for bidding. Generally, IPOs are open for three days and it can be extended if the listing goes in under subscription mode.
The maximum days an IPO can be kept open is for 10 days. The IPO bidding is held online as well as offline applications for public offers. Nevertheless, SEBi is making efforts to minimize the offline IPO process while promoting online facilities such as UPI and ASBA.
6. IPO Allotment
Upon IPO completion of bidding, IPO allotment is the next step and responsibility with the issue registrar. In the successful IPO, the number of shares allotted per person is different, so are the possibilities.
Since the stock trading is mandatory in demat format, the registrar has to ensure credits of shares in the respective demat account of successful applicants.
7. Listing and Lock In Period
In India, the IPO process culminates in the form of listing in the company on the stock exchange. While listing in the secondary market, successful applicants can sell their shares on the stock exchange and new investors can purchase.
However, promoters who have listed in IPO, are subjected to specific lock in period that means promoters unable to sell their shares immediately after listing.
Why Should Startups Launch Their IPOs?
Here are some of the valid reasons available:
1. Raising Capital
Startups often refers to a private company which can finance its funds from venture capitals, investors etc. If the company increases its expansion, it can reach upto a stage where the company needs a huge infusion of capital to scale up its operations.
In such cases, the company may approach shareholders and investors but if they fail to offer funds to the company; the company wants to look at other options such as banks.
However, the interest rates of the bank are too high which can hurt the company's finances.
Another option, the company has to go public. Since SEBI made a rule to disclose all the company’s financial statements before launching an IPO, investors can analyze their performance before investing in them.
2. Liquidity for Existing Shareholders
Imagine a company with four shareholders. They invest money in equal proportions and work hard to grow the business. Well, they won't get the fame and enjoy enough profits without going public.
Once the company’s stocks are listed on the exchange, the stock price is based on the company’s performance.
3. Improves the Credibility of the Company
After getting listed on a stock exchange, the investors ensure the complete transparency of the financial data as SEBI enables all the companies to disclose the financial statements periodically. Therefore, if a company goes public, its credibility automatically improves.
4. Helps Assess the Company’s Market Value
IPO helps startups to assess its true market value as the stock firstly listed on exchange, it is valuable only if investors buy the shares. Therefore, it provides a deep insight into the company’s market worth.
5. Provides a Greater Market Visibility
When a company launches its IPO, it automatically grabs attention from the public. Launching an IPO seeks everyone’s attention as the company goes public. Therefore, people who have never heard about the company are willing to know about the IPO and invest in them by doing proper research and assessing its financials.
Startup Funding and Valuation
Startup Valuation of shares is a process of determining the price per share of a company and it is important for regulatory purposes. A startup must prepare a valuation report by a registered valuer with insolvency and Bankruptcy Board under the following circumstances:
- Prior to issuing Equity Shares, Partly, Optional or Compulsory Convertible preference Share or Compulsory Convertible Debentures.
- Prior to issuing shares other than cash.
- Prior to issuing Sweat Equity shares for cash or for consideration other than cash.