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Investment Banking. and present. Shashank More. Fin Gyaan Session 1. Structure of an I-bank. Intermediary Directing / Facilitating the Flow of Capital. Clients Seeking Capital. Investors With Capital. INVESTMENT MANAGEMENT. (Private Wealth / Asset Management). INSTITUTIONAL.

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investment banking
Investment Banking

and present

Shashank More

Fin Gyaan Session 1

structure of an i bank
Structure of an I-bank

Intermediary Directing / Facilitating the Flow of Capital

Clients Seeking Capital

Investors With Capital

INVESTMENT MANAGEMENT

(Private Wealth / Asset Management)

INSTITUTIONAL

PUBLIC

INVESTORS

COMPANIES

INVESTMENT BANKING

MERCHANT

MARKETS

BANKING

Advisory

Financing

Traditional Private

Sales

Equity Fund

Groups

Group

Trading &

Country

Debt Product

§

§

Real Estate Private

Strategy

Equity Fund

Teams

Groups

RETAIL

GSS/Prime

PRIVATE

Industry

Equity

§

§

INVESTORS

Infrastructure

COMPANIES

Brokerage

Teams

Product

Fund

Groups

SSG

Derivatives

§

GLOBAL INVESTMENT RESEARCH

GOVERNMENT &

Operations, Technology

Human Capital

Legal/Management

GOVERNMENTS

& Finance

Management

Compliance Controls

AGENCIES

& AGENCIES

*Including Services

EXECUTIVE OFFICE

Chinese Wall

Source: GS Sumer Internship presentation 2006

work done by ibd team
Work done by IBD Team
  • Relationship Development
  • Acquisition Strategy
  • IPO Advisory
  • Sale Advice
  • Execution of M&A
  • Debt advisory
recent trend
Recent Trend
  • Debt Restructuring to avoid bankruptcy
  • Global Expansion by Firms
  • Structured Products that aid fund raising for deals
  • Participation by Private Equity and VC Firms
types of valuations
Types of Valuations
  • Market Based (# of shares outstanding * Share Price)
  • Comparables Method (Very common in IPOs)
    • P/E , P/B , EV/EBITDA, EV/EBIT
  • Sum of the Parts Valuation
      • Most often method used in M&A today
  • Cash Flow based Valuations
      • Used in Manufacturing Industries
fcf based valuation
FCF based Valuation
  • EV (Enterprise Value) = Equity Value + Net Debt
  • Net Debt = ST and LT loans – Operating Cash – Liquid and short term investments
sector preparation
Sector Preparation
  • Detailed sector analysis of at least 2 sectors
  • Choose common sectors
  • Imp. points to think over:
    • What has been happening in the sector?
    • Where is the sector headed?
    • FDI norms in the sector.
    • Which stocks in the sector are over valued? Avg P/E
    • Stocks to buy in the sector?
    • Which company should come out with an IPO?
    • What M&A opportunities are there?
    • Evaluative parameters of the sector. E.g. EV/Reserves, ARPU, Avg. cost per seat mile
deal preparation
Deal Preparation
  • All the deals of the sector that you are preparing
  • Major historic deals and all recent deals
  • Questions
    • Why did the deal happen?
    • Did it make strategic sense?
    • Value of the deal
    • Transaction multiples
    • Was it over valued?
    • What happened after the deal got executed?
key industry
Key Industry
  • Infrastructure
  • Real Estate
  • Steel
  • Mining
  • Metals (Aluminum)
  • Banks and Financial Services
  • Automobile
  • Telecom
  • Airlines
  • Spirits Business
  • Retail
  • IT & BPO Services
steel industry
Steel Industry
  • Major Deals
      • MittalArcelor
      • Tata Corus
      • Essar Steel acquired a Canadian firm
  • Parameter for Evaluation: EV/Tonne
  • Why did Mittal buy Arcelor? (Image makeover)
  • Did Tata Steel over-pay?
  • What is Tata Steel doing with Corus?
  • Other important issues:
    • How is raw material sourced?
banks financial services
Banks & Financial Services
  • Major Deals
      • Nationalization of RBS
      • India: ICICI BOR Deal
  • Events out of the credit crisis
  • BASEL III Norms (How is it better than the previous norms? Should BASEL be made a regulation?)
  • Parameter: Geographical Spread, CASA: Current Account Savings Account, Advances Growth, Gross NPA ratio, Net NPA/Net advances, RWA/Total Assets, Cost / Income Ratio, Cost of Funds, NIM-Net Interest Income/(Average Interest Bearing assets),
  • Capital Adequacy ratio-need to raise capital
  • CARMEL Model
telecom
Telecom
  • Major Deals
      • Idea Cellular - Spice
      • Hutch – Vodafone
      • Unitech-Telenor, Swan- Etisalat
      • NTT Docomo-Tata teleservices
      • Bharti-Zain Deal
  • Parameters:
      • Revenue=Subscribers x ARPU (ARPU is more for Airtel and Vodafone because old post paid urban customers)
      • Revenue = RPM x MOU
      • Spectrum availability (900 Mhz, 1800 MHz)
      • EVA/No. of subscribers
  • Common Questions:
      • After the huge price war, where do you see the industry headed?
      • Details of 3G Spectrum allocation. Was it overpriced?
      • Why did Hutch Sell? What was the value that Vodafone saw? What is tax issue that Vodafone is facing now?
      • What are the tax hiccups they face with the Indian revenue authorities?
    • Possible mergers is a very relevant question for this sector
bharti mtn deal
BhartiMTN deal
  • $24-billion cash-and-share swap deal which will have over 200 million subscribers and $20 billion in annual revenues
  • Bharti to buy 49% of MTN for $14 billion MTN, to acquire 33% of Bharti for about $10 billion
  • Merged entity to be the world’s third-largest mobile phone operator by subscribers that would straddle Africa, Asia and the Middle East.
  • South African government keen on dual listing –Indian laws do not allow dual listing
  • GDR issues with voting rights may fall under SEBI takeover code
coal and iron ore
Coal and Iron Ore
  • Indian Power and mining companies scouting for raw materials in Australia, Indonesia and South Africa
  • Look at major mines acquired by Indian companies abroad
  • Shift in industry practice from long term contracts to short term contracts
  • Coal India IPO:
  • Multiples, EV/Reserves EV/Resources
airlines
Airlines
  • Major Deals
      • Kingfisher – Air Deccan
      • Jet – Air Sahara
  • Parameters: Average fuel costs, average yield/passenger, average yield/kg, Passenger Load Factor, Number of Departures, revenue/passenger-km
  • What is the current industry scenario? Further Consolidation?
  • Details regarding Jet & Kingfisher agreement/ Deccan buyback
  • Details of Air India’s sovereign backed debt issue
  • Details regarding changes in the loan structure for airline industry
  • How much impact does fuel prices make on the industry?
others
Others:
  • Oil and Gas:
    • Imperial Energy Corp Plc-ONGC
    • Reliance petroleum Ltd-Reliance Industries Ltd
  • Pharma: Ranbaxy-Daiichi Sankyo, PiramalAbott (Why is pharma the source of many acquisitions?)
  • Auto and auto ancillary: JLR-Tata Motors
  • Infrastructure and Engineering sector
  • Retail (Recent FDI controversies in Retail. Should the 74% cap be raises?)
  • FMCG
primary market
Primary Market

The market for new issue of securities.

  • Primary market issuers are bodies corporate, mostly companies under the Companies Act, 1956. Other bodies corporate are corporations owned pre-dominantly by the Government.
  • The main market for new issuances are Public Issues (IPOs and FPOs), Rights Issues and Private Placements.
  • The main constituents of the primary market are – Investors, Issuers, Instruments and intermediaries.
primary market1
Primary Market
  • Investors are in three categories – Institutional, HNI and Retail.
  • The main instruments that can be issued are pure equity (ordinary shares), pure debt such as NCDs/long term notes or bonds and convertibles. Convertibles can be debt convertibles such as PCDs/FCDs and equity convertibles such as warrants.
  • The main intermediaries associated with the primary market are merchant bankers, underwriters and brokers. The service providers are bankers, registrars, depository participants, couriers and printers.
institutional investors
Institutional Investors
  • Also known as Qualified Institutional Buyers (QIBs) as per regulations –
    • Multilateral, Bilateral and Domestic Financial Institutions (MFIs/ DFIs)
    • Foreign Institutional Investors (FIIs)
    • Unregistered Foreign Investors (FDI Investors)
    • Foreign Venture Capital Investors (FVCIs)
    • Domestic Venture Capital Investors (VCs)
    • Domestic Mutual Funds (MFs)
    • Commercial Banks
non institutional investors
Non-Institutional Investors
  • High Networth Investors – These are investors who cannot be categorized either as Institutional or Retail –
    • Non-banking Financial Companies
    • Capital Market Intermediaries (other than in issues wherein they are acting in official capacity)
    • Investment companies, trusts, societies and other incorporated bodies
    • Partnership Firms
    • HUFs and Individuals
  • Retail Investors –
    • Are those whose application in a public issue does not exceed Rs. 100,000 in value.
    • Any of the above category of investors under the HNI category can be a retail investor if the application size does not exceed the above limit.
methods of raising funds
Methods of Raising Funds
  • IPO
    • Fixed Price Offer – also known as 100% retail offer
    • Book Built Offer – price discovery through book building
    • FPO and Right Issues
    • Qualified Institutional Placement
recent trends in equity capital markets
Recent trends in Equity Capital Markets
  • Large number of divestments
  • Near zero fees
  • Standard chartered issued India’s first ever IDR
depository mechanism
Depository Mechanism
  • Depository - security that represents ownership in a foreign security. Therefore they are negotiable securities in a foreign jurisdiction that represent a company’s publicly traded domestic equity.
  • An ADR is an American security that is issued through a public offering in the US which requires SEC registration.
  • A GDR is issued anywhere in the world through a public offer but only through private placement (Rule 144A) in the US.
underwriting
Underwriting
  • Contingent Obligation
  • Underwriting Agreement and Commission
  • SEBI (Underwriters) Rules 1993
  • Devolvement
    • Tata Motors Rights Issue – JM Financial
    • Hindalco Right issue
fight for league tables
Fight for League Tables
  • Major banks are getting mandates at near zero fees to get top spots in the league tables
  • Evaluation criteria used by companies is 70% based on bid and 30% technical based on the presentation
  • Coal India IPO total banker’s fees is expected to be around Rs. 12,000/- to be shared among 5 bankers
  • Banker’s expense expected to go upto Rs. 25 crores
stages of fund raising
Stages of fund raising
  • VC or seed investment
    • Now even VCs have started to approach I-banks for advisory
    • Evaluate individual more than company
  • PE investment
    • If company does not wish to list to avoid regulatory compliance
  • IPO
    • To gain visiblity
    • Have to abide by regulatory compliance
    • PE firms can invest as PIPE
  • Delisting
    • Market is undervaluing the firm
    • Change in strategic objectives due to change in control
company specific preparation
Company specific preparation
  • Know as much as possible about the bank you are interviewing
  • Regions and areas of operation
  • Sector of expertise (This will give you a point of discussion in the ppt and interview)
  • Scale in India
  • Major deals that it has been a part of
stock market specific questions
Stock market specific questions
  • Where is the stock market headed?
  • Are Indian companies overvalued? What is the average P/E?
  • Which industries are you bullish on?
  • Which companies would you invest in?
  • Do you have a portfolio?
  • What is your criteria of choosing stocks?
preparation stuff
Preparation stuff
  • HR Questions
    • Why IBD?
    • Why not Markets / Consulting?
    • Lifestyle management
    • Finance personality you are a fan of
  • Other resources
    • Vault Guides
    • Text Books
      • Corporate Finance, Macroeconomics, Valuation
    • Online News resources
      • Bloomberg
      • http://online.wsj.com/public/page/news-mergers-acquisitions.html
      • http://www.marketwatch.com
      • http://money.cnn.com/news/deals/mergers/dealchart.html
thank you
Thank You

Questions ???