The term Merchant Banking has its origin in the trading methods of countries in the late eighteenth and early nineteenth century when trade-taking place was financed by bill of exchange drawn by merchanting houses
SAFETY NET SCHEME OR BUY BACK ARRANGEMENT
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| SAFETY NET SCHEME OR BUY BACK ARRANGEMENT
Under this scheme, the merchant bankers provide a buy-back facility to the individual investor in case the price of the share goes below the issue price after listing. During the past we have seen several shares issued at a premium declining below the issue price on the market. In such circumstances if the investor is given a buy back option or a safety net by the merchant banker, he can exercise it to reduce his losses. Any safety net scheme or buy-back arrangements of the shares proposed in any public issue shall be finalised by issuer company with the lead merchant banker in advance and disclosed in the prospectus. Such buy back or safety net arrangements shall be made available only to original resident individual allottees. Such buy back or safety net facility shall be limited up to a maximum of 1000 shares per allottee and the offer shall be valid at least for a period of 6 months from the last date of dispatch of securities. The financial capacity of the person making available buy back or safety net facility shall be disclosed in the draft prospectus. For investor protection a safety net scheme has been floated by some companies making public issues at a premium. For the purpose of illustration, two instances of public issues with safety net are presented hereunder. Godrej Soaps Ltd.: For the first time, a public issue was offered with a safety net to the investing public against possible loss from a decline in market prices of a share at premium. Godrej Soaps Ltd. made a public issue of Rs. 99.12 crores in April 1993 at a premium of Rs. 130 per Rs. 10 share. The offer was not open .to institutional investors. The Godrej Soaps issue was made to finance the company’s working capital requirements and capital expenditure needs. The merchant bankers to the issue, Kotak Mahindra Finance Ltd., made an innovative offer to buy-back share from individual investors if they opt out of the issue after the allotment is made. The salient feature of the safety-net scheme were: The cap on total number of shares to be bought back was 10 lakh shares or around 15 per cent of the public issue. The buy back option was open for six months after the date of listing Ballarpur Industries Ltd.: Another issue which came up in April, 1993 with a safety net was from Ballarpur Industries Ltd. a company of the Thaper Group. The company came up with an issue of 61,50,000 equity shares of Rs. 10 each with a premium of Rs. 165 per share. One of the lead managers to the issue M/s. HB Portfolio Leasing Ltd. had offered a safety-net for the investors. The salient features of the safety-net scheme were: The scheme was open to all resident Indian individual original allottees. It was restricted to individual investors only, and institutional investors were excluded. Under this scheme, HB Portfolio Leasing Ltd. purchased from individual investors fully paid equity shares allotted at a price of Rs. 175 per share. Download 0.57 Mb. Share with your friends:
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