There are several activities that have to be performed by the issue manager in order to raise money from the capital market. Adequate planning needs to be done while chalking out an appropriate marketing. An analytical study of various sources, the quantum, the appropriate time, the cost of raising capital and the possible impact of such resources of the overall capital structure will greatly help this task. The various activities involved in raising funds from the capital markets are described below:
1. Signing of MoU: Signing of MoU between the client company and the merchant banker-issue management activities marks the award of the contract. The role and responsibility of the merchant banker as against the issuing company are clearly spelt out in the MoU.
2. Obtaining appraisal note: An appraisal note containing he details of the proposed capital outlay of the project and the sources of funding is either prepared in-house or is obtained from external appraising agencies viz., financial institutions/banks etc. A project may be funded either by borrowing money from outside agencies or by injecting capital.
3. Optimum capital structure: The level of capital that would maximize the shareholders value and minimize the overall cost of capital has to be determined. This has to be done considering the nature and size of the project. Equity funding is preferable especially when the project is capital intensive.
4. Convening meeting: A meeting of the board of directors of the issuing company is convened. This is followed by an EGM of its members. The purpose of these meetings is to decide the various aspects related to the issue of securities. An application to RBI, seeking its permission is made, where capital issue of shares is to be offered to NRIs/OCBs or FIIs.
5. Appointment financial Intermediary: Financial intermediaries such as Underwriters, Registrars, etc. have to be appointed. Necessary contracts need to be made with the underwriter to ensure due subscription to offer. Similar contracts when entered into with the Registrars to an issue, will help in share allotment related work, appointment of bankers to an issue for handling the collection of applications at various centers, printers for bulk printing of Issue related stationery, legal advisors and advertising agency. Simultaneously consents from various experts such as auditors, solicitors, legal advisors etc has to be obtained under Section 58 of the Companies Act, 1956.
6. Preparing documents: As part of the issue management procedure the documents to be prepared are initial applications of submission to those stock exchanges where the issuing company intends to get its securities listed. MoU with the registrar, with bankers to the issue, with advisors to the issue and co-managers to the issue, agreement for purchase of properties etc. This has to be sent for inclusion in the prospectus.
7. Due diligence certificate: The lead manager issue a due diligence certificate which certifies that the company has scrupulously followed all legal requirements has exercised utmost care while preparing the offer document and has made a true fair and adequate disclosures in the draft offer document.
8. Submission of offer document: The draft offer document along with the due diligence certificate is filed with SEBI. The SEBI in turn makes necessary corrections in the offer document and returns the same with relevant observations, if any within 21 days from the receipt of the offer document.
9. Finalization of collection centers: In order to collect the issue application forms from the prospective investors to lead manager finalizes the collection centers.
10. Filing with RoC: The offer document completed in all respects after incorporating SEBI observation is filed with Registrar of Companies (RoC) to obtain acknowledgement.
11. Launching the issue: The process of marketing the issue starts once legal formalities are completed and statutory permission for issue of capital is obtained. The lead manager has to arrange for the distribution of public issue stationary to various collecting banks, brokers, investors etc. The issue is opened for public immediately after obtaining the observation letter from SEBI which is valid for a period of 365 days from the date of issue. Conducting press conferences, brokers’ meets, issuing advertisements in various newspapers and mobilizing brokers and sub-brokers marks the launching of a public issue. The announcement regarding opening of issue is also required to be made through advertising in newspapers, 10 days before the opening of the public issue.
12. Promoters’ contribution: A certificate to the effect that the required contribution of the promoters has been raised before opening the issue, has to be obtained from a Chartered Accountant, and duly filed with SEBI.
13. Issue closure: An announcement regarding the closure of the issue should be made in the newspaper.