Issue Management-2


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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 capital markets and get listed on the American stock exchanges. Discuss the process of issue of ADR.


Q4.Write short notes on:

  1. IDR
  2. Rights Issue
  3. 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.


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 Africa. The listing of 25% of the company owned by the Kenyan government-which is expected to raise $800 million and value Safaricom at $3.2 billion-seems remarkable considering the country only recently emerged from intertribal violence touched off by disputed presidential elections in December. More than 1,000 people died and 500,000 were displaced from their homes-and trading at the Nairobi Stock Exchange collapsed.

But Safaricom, in which Britain’s Vodafone (VOD) indirectly holds a 40% stake, already has overcome tough circumstances to become one of Africa’s most profitable and well-regarded companies. The share offering also seems to have been a hit. Some 750,000 Kenyans, who could buy shares for 8¢ apiece, applied for an allotment, sometimes lining up at banks to register. “Initially I didn’t know so much about the shares, but I was able to consult with some colleagues and they said, ‘An IPO is very good, don’t be left out,'” says Thomas Bwire, 27, a part-time preschool teacher who hopes to make enough money to open his own school.

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 Africa that trading volumes in some other exchanges in the region have plunged as investors set aside money to buy Safaricom shares. At the Uganda Securities Exchange in Kampala trading has fallen by half (, 5/30/08). “The tremendous demand for Safaricom, the amount of money that has been raised is mind-boggling in terms of the Kenyan market,” says Mohammed Hassan, joint managing director at Dyer & Blair Investment Bank in Nairobi, which, along with Morgan Stanley (MS), is lead adviser for the issue. Morgan Stanley is also the global coordinator.

Safaricom, founded in 1997, is among the companies to have shown that mobile-phone service in emerging markets was not only possible, but profitable (, 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 Africa have followed similar strategies. Among the regional success stories are South Africa’s MTN, Luxembourg-based Millicom and Netherlands-based Celtel, now a unit of Kuwait’s Zain, which competes with Safaricom in Kenya. All got a boost from the introduction of low-cost handsets designed for emerging markets by Nokia and other handset makers.

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, Zimbabwe’s Econet, 49% owned by Essar Group  of India, is preparing to launch service in Nairobi and Mombasa in coming months.

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 Kenya’s image as one of the most stable African states.

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 Dubai.

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 Kenya is back on track. “It has restored investor confidence in this country. The level of interest in Safaricom is simply amazing,” says Humphrey Gathungu, investment manager at Stanbic Investments in Nairobi, a subsidiary of South Africa’s Standard Bank Group (SBKJ.F).

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 Nigeria, sub-Saharan Africa’s most populous country. Angola is launching a stock exchange, and there is talk of telco privatizations in Ghana. Vibrant capital markets would do a lot to attract investment and allow Africa to share the growth that is transforming India and other developing regions.

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 is a

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


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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