Issue Management
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Assignment A
Q1.Discuss the importance and the need
for merchant banking activities.
Q2. The IPO process of a company ends with the listing of the security on the
stock exchange. Discuss the post issue formalities of a merchant banker.
Q3. American Depositary Receipt or ADR is
an instrument through which non-US companies can raise capital from the US
Q4.Write short notes on:
- IDR
- Rights Issue
- DHRP
Q5.At the time of raising money from the
markets a company has option to raise by the issuance of different kinds of
securities. Discuss the different kinds of securities through which a company
can raise money from the market, citing their advantages and disadvantages as
well.
ASSIGNMENT B
Q1. Underwriting is an agreement entered into before the shares are brought before the
public that in the event of the public not taking the whole of them the
underwriter will take an allotment of such part of the shares as the public has
not subscribed for. Comment upon the importance and need for underwriting.
Q2. "Reverse
book-building allows shareholders to tender their shares at a price of their
choice and the acquirer the freedom to accept or reject the offer”. Briefly
describe the process of reverse book building and discuss its utility both to
the company and the investor.
Q3. It is mandatory to appoint a merchant
banker for any prospective issue. Discuss the functions of a merchant banker
before an IPO is launched in the market.
CASESTUDY
Safaricom's
Big IPO in Africa
The success of the Kenyan mobile
service provider restores investor confidence in a country rocked by violence
and political instability
The
mobile-phone industry has shown it can thrive in countries beset by political
turmoil, so why shouldn't a mobile industry initial public offering thrive?
On June 9, shares in Kenyan
mobile service provider Safaricom
will begin trading on the Nairobi Stock Exchange, in the biggest IPO ever in
sub-Saharan But Safaricom, in which
In fact, demand from domestic investors is so strong the government may exercise an option to increase the portion of Safaricom shares allocated to Kenyans beyond the current 65% of the total. That will leave a relatively small slice for foreign institutional investors, who are also keen to get in on the action. (Indeed, shares allotted to non-Kenyan investors are already six times oversubscribed.) Even after a 10% premium tacked on for foreign buyers, fund managers say the issue is priced right. And the size of the IPO means the stock will be easy to trade, in contrast to many other African issues where volumes are often thin.
Demand Affects Other Exchanges
"From a valuation point of
view it's an attractive story," says Jens Schleuniger, a fund manager who
follows African stocks for the DWS Investments unit of Deutsche Bank (DB).
"It's going to be a very sizable company in African terms, with strong
management and a dominant market position." Demand has been so strong in
Safaricom, founded in 1997, is among the companies to have shown that mobile-phone service in emerging markets was not only possible, but profitable (BusinessWeek.com, 8/27/07). But to succeed, it has had to innovate from the top down. To overcome lack of reliable power, for instance, Safaricom built base stations powered by diesel generators. To make service accessible to very poor people, it sells prepaid airtime on scratch cards for as little as 40¢.
And it has encouraged local entrepreneurs to offer shared "village phones" to people who can't afford their own handsets.
Room for Growth in Crowded
Market
Other companies operating in
sub-Saharan Today, Safaricom commands more than 70% of the Kenyan mobile market. The company reported profit of $223 million in the fiscal year ended Mar. 31, a 15% increase compared with a year earlier, on sales of $987 million. Even though the market is getting more crowded, there is still room for growth. In addition to existing competition from Celtel, a third competitor,
After all, only about a third of Kenyans have mobile-phone subscriptions, and the economy has grown 6% or better the last two years. Indeed, the economic growth partly reflects the benefits of bringing communications to a country that until a few years ago had virtually no phone network outside the major cities. Still, prospects for the initial public offering looked shaky earlier this year. After Kenyan President Mwai Kibaki claimed victory in flawed elections, rioting broke out between his Kikuyu tribe and members of the Luo and other tribes who supported opposition candidate Raila Odinga. A measure of stability has returned after former U.N. Secretary General Kofi Annan negotiated a power-sharing deal, but the violence shook
The Benefits of a Vibrant
Capital Market
Among ordinary Kenyans, the IPO
got a boost when Odinga, now Prime Minister, urged people to buy Safaricom
shares. Foreign investors are watching the political situation carefully, but
it hasn't stopped them from putting up money. "People who invest in Africa
are used to risk," says John Porter, Morgan Stanley's head of equity capital
markets for the Middle East and Africa, based in In a way, the political turmoil demonstrated the resilience of the mobile-phone industry. There were some disruptions of service, but overall, traffic rose as people called to trade information or check on the well-being of loved ones. If the IPO continues to go smoothly, it will provide a strong signal that
The next test will be the performance of the shares once they begin trading June 9. A successful IPO could help pique international interest in African shares, which have already gotten a boost from successful bank IPOs recently in
Q1.Discuss the difficulties faced by a
company before launching an IPO in Africa .
Q2. How would a successful IPO affect the
fortunes of people in Africa ?
Q3. Enumerate the reasons that led to the
success of the Safaricom IPO.
Assignment C
Q1.
__________ are the economies Central nervous system.
a)
Financial Instruments
b)
Financial Markets
c)
Financial Institutions
d)
Financial Companies
Q2. The most important
economic function of financial institutions is:
a) Financial
intermediation.
b) Setting the interest
rates for personal loans and commercial paper.
c) Redistributing
income and wealth.
d) “Creating” money
through loans from excess reserves.
e) Facilitating the
financing of federal budget deficits.
Q3. Primary and
Secondary markets
a) Compete with each
other
b) Complement each
other
c) Function
independently
d) Control each other
Q4. The markets in
which the general public is least likely to learn about activities are:
a) Primary markets.
b) Secondary markets.
c) Money market
markets.
d) Residential real
estate markets.
Q5. Money markets can broadly be
characterized as:
a) Wholesale markets.
b) Direct markets.
c) Primary markets.
d) Secondary markets.
Q6. The best-known capital market
securities are.
a) CDs and stocks.
b) Mutual funds and bonds.
c) Commodities and futures.
d) Stocks and bonds.
Q7. Financial markets
and institutions
a) Involve the movement
of huge quantities of money.
b) Affect the profits
of businesses.
c) Affect the types of
goods and services produced in an economy.
d) all of the above.
e) Only (A) and (B) of
the above.
Q8. Renewal Fees for Category 1 Merchant Bankers is:
a)
Rs 100000 for first two years
b)
Rs 50000 for first two years
c)
Rs 150000 for first two years
d)
Rs 100000 for first three years
Q9. For any issue of Rs 400 cr and above, the
number of merchant bankers to be appointed is:
a)
2
b)
3
c)
5
d)
4
Q10. The minimum net worth required for a
category III Merchant Banker is:
a)
Rs 10 lakhs
b)
Rs 15 lakhs
c)
Rs 50 lakhs
d)
Rs 20 lakhs
Q11. The bondholder is entitled to
participate along with shareholders in earnings of the corporation in which
kind of bond?
a)
Convertible Bond
b)
Treasury Bond
c)
Participating Bond
d)
Zero Coupon Bond
Q12.
Which of the following bonds pay no interest between issue and redemption,
except at maturity?
a)
Convertible Bond
b)
Treasury Bond
c)
Participating Bond
d)
Zero Coupon Bond
Q13. Which of the following are
characteristics of Commercial Paper?
I.
Short term Promissory Note
II.
Maturity> 1 year
III.
Secured Promissory Note
IV.
Issued at discount
a)
I and II only
b)
I and III only
c)
I and IV only
d)
I, II and IV
Q14. A type of
negotiable (transferable) financial security that is traded on a local stock
exchange but represents a security, usually in the form of equity that is
issued by a foreign publicly listed company is called:
a) Depository Receipt
b) Common Stock
c) Preferred Stock
d)
Mortgage
Backed Securities
Q15. What type of issue has to be
necessarily credit rated before being launched:
a)
Stock issue
b)
Debenture Issue
c)
Preferred Stock Issue
d)
Private Placement
Q16. When an
already listed company makes either a fresh issue of securities to the public
or an offer for sale to the public, it is called
a) FPO.
b)
IPO
c)
Private Placement
d)
Rights Issue
Q17. Which of the following is not a pre
issue activity?
a)
Appointment of Intermediaries
b)
Drafting the offer Document
c)
Appointment of Compliance
Officer
d)
Listing
Q18. Which of the following does not have
details of either price or the number of shares being offered or the amount of
issue? However, this prospectus mentions the number of shares and the upper and
lower price bands.
a)
Red Herring prospectus
b)
Draft Prospectus
c)
Abridged Prospectus
d)
Offer Document
Q19.
Which of the following is not a basis for the issue price as mentioned in the
prospectus?
a)
EPS
b)
P/E
c)
Net Asset Value per share
d)
Goodwill of the company
Q20. Which of the following is not a post
issue activity?
a)
Post issue monitoring Report
b)
Redressal of Investors
Grievances
c)
Dispatch of refund orders
d)
Appointment of intermediaries
Q21. Book Building
a) method of placing an issue
b) method of entry in foreign market
c) price discovery mechanism in case of an IPO
d) none of the above
Q22. In a book built issue a ______ investor can bid at cut-off price.
a)
QIBs
b)
Employees of the issuer company
c)
Retail
d)
Financial institution
Q23. A fixed price issue has to be listed
within ______ days of closure of issue.
a)
10 days
b)
15 days
c)
30 days
d)
50 days
Q24.Bankers to an issue are appointed by
the _______.
a)
Lead banker
b)
Issuer company
c)
SEBI
d)
All of the above
Q25. Brokers to an issue are ________.
a)
Merchant bankers
b)
Members of stock exchange
c)
Company members
d)
Appointed by Lead bankers
Q26. Stock exchange
helps in
a) fixation of stock prices
b) ensures safe and fair dealing
c) induces good performance by the company
d) all of the above
Q27. A form of underwriting where the
underwriter agrees to take up take up a specified number of
securities, irrespective of the securities offered to the public is:
a) Firm underwriting
b) Sub-underwriting
c) Joint underwriting
d) Syndicate underwriting
Q28. For successful implementation of the Green shoe option, the
following intermediary is appointed:
a)
Merchant Banker
b)
Stabilizing Agent
c)
Banker to an issue
d)
Underwriter
Q29. Which of the following is false?
Limitations to the book building process include the following:
a)
It’s suitable for mega issues
only
b)
Issue Company should be
fundamentally weak
c)
Book building works well in
weak markets only
d)
Only b and c
e)
All of the above
Q30. In
reverse book-building, instead of placing bids for buying the stock,
shareholders place bids:
a)
At or above the base offer price
b)
At the offer price
c)
At the Base Price
d)
At neither the base price nor the offer
price
Q31. Financial
securities are assets for the __________ and liabilities for the _________.
(a) issuer, buyer.
(b) buyer, issuer.
(c) grantor, grantee.
(d) brokerage house,
client.
Q32. Performance
evaluation of issues done on the basis of
1) Data related to
merchant banker
2) Issue analysis
3) Activity analysis
4) Operational analysis
5) Financial analysis
a) Only 3 & 5
b) Only 3, 4 & 5
c) Only 5
d) All statements are
necessary
Q33. Issue analysis
means
1) understand the
development of capital market
2) the role of merchant
banker
3) Performance of the
issue
a) Only 1
b) Only 2
c) Only 1 &2
d) All statements are
necessary
Q34. Performance
evaluation of merchant banker is based on:
1) Past experience of
merchant bankers
2) Financial performance
3) Operation efficiency
a) only 1
b) only 2
c) only 2 & 3
d) 1, 2 & 3
Q35. SEBI’s regulation does not consider
the financial performance of a company in specifying the eligibility norms for
a public issue.
a)
True
b)
False
Q36. (I) Banks are
financial intermediaries that accept deposits and make loans.
(II) Included under the term banks are firms such as commercial
banks, savings and loan
associations, mutual savings banks, credit unions, and insurance companies.
a) (I) is true, (II) false.
b) (I) is false, (II) true.
c) Both are true.
d) Both are false.
Q37. Banks, savings and
loan associations, mutual savings banks, and credit unions
A) are no longer
important players in financial intermediation.
B) have been providing
services only to small depositors since deregulation.
C) have been adept at
innovating in response to changes in the regulatory environment.
D) all of the above.
E) only (A) and (C) of
the above.
Q38. Which of the
following is not a financial performance Indicator?
a) Earning per share (EPS)
b) Dividend per share (DPS)
c) Dividend pay-out ratio (DPR)
d) Rate of Interest offered
Q39. Which of the
following is not a operational performance Indicator?
a) Profit before tax (PBT)
b) Profit after tax (PAT)
c) Net profit (NP)
d)
Earnings Per Share
Q40. Which of the following is not a party
to a syndicated loan?
a)
Lead Manager
b)
Broker
c)
Participating Bank
d)
Facility Manager
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