Deal Process and Role of Investment Banker
The Process start with typically with issuer rolling out a plan to raise funds through private placement route.
Issuer appoints investment banker (with a universal banking background or pure IBs with strong institutional broking background) as an arranger to whole placement.
Investment Bankers are short-listed and finalized through talks and invitation of quotes.
The Investment Bankers ascertain that the company has taken the necessary approval from it board, shareholders and existing lender for the proposed debt and has the necessary power under it memorandum and the article of association, Section 293(1)(a) and 293(1)(d) of the Companies Act.
Investment Banker then become familiar with company’ business, industry pace and financial, the information is put together in form of a private placement memorandum.
Next the Investment Bankers arrive at the instrument in offer and the deal structure, uses his conventional wisdom, ingenuity and market intelligence to arrive at the coupon rate and suitable enhancement, if any.
As soon as the structure has evolved, the rating process starts.
Rating is important because it enhance the possibility of closing the deal early.
A listing application is made to be filed as soon as the issue is placed and allotment gets completed. If the issue does not satisfy the requirement of Rule 19(2)(b) of the SCR Rule, suitable exemption needs to be obtained for listing the privately placed debt.
In the placement part of the deal, the private placement memorandum is circulated among the closed set of appropriate potential investors.
The institutional investors process the proposal internally and take approval from their credit rating or investment committee or their BoDs, before issuing the commitment letters.
After receiving the commitment letters from all investors, the issue is treated a closed and issuer puts up the letter of intent for consideration by its BoD.
These letter stipulate the general terms and conditions applicable to the particular sanction.
After the board of the company accepts the letter of intent, the company proceeds with the documentation.
The documentation consists of entering into a subscription agreement, which would be common if there is more than one lender. This is because, the security ha to be created in common and therefore, a common subscription agreement is created with all the lenders and all the issuer.
Next is to make allotments and receive the funds from the investors by complying with the procedure prescribed under the Companies Act.
The listing application if required, is also simultaneously filed with the stock exchanges.
The role of investment banker usually ends with the receipt of commitment letters from the investors and the acceptance thereof by the issuer.
The post-sanction formalities are normally handled by the in-house professionals of the company, their auditor or it practicing company secretaries.
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