This document discusses investment banking and outlines the regulations around investment banking in the UAE and India. Some key points: 1. Investment banking provides strategic advisory, financing, and risk management to entities. Core activities include managing capital issues, market making, and advisory services for acquisitions and restructurings. 2. In the UAE, investment banks are licensed under Regulation No. 21/2/88 and can engage in activities like participating in company capital, project financing, and portfolio management within certain restrictions. 3. In India, merchant banking is classified into four categories with different capital requirements and permitted activities. Category I can perform the full range of investment banking services.

1. Investment Banking
Refer to Chapter 5
Huges & Macdonald

2. Meaning
 Investment banking is a field of banking that
provides strategic advisory, financing and risk
management entities .
 Core activities
- managing capital issues , including underwriting ;
managing buy backs
- market making
- advisory services regarding acquisition,
restructuring , spin offs , consolidation etc.
- supplementary businesses are forex trading ,
securitisation , loan syndication , project financing
and leasing , etc.

4. Investment Banking in UAE
 Banks in the UAE are divided into two major categories:
- Locally Incorporated Banks - these are public
shareholding companies licensed in accordance with
provisions of Union Law No. (10) of 1980, and
- Branches of Foreign Banks which have obtained
Central Bank's licenses to operate in the country as per
provisions of the said Law.
 Union Law No. (10) of 1980 defined investment bank as
bank that does not accept deposits whose maturities
are less than two years, but may borrow from its head
office, from local or foreign banks, or from financial
markets. Investment banks are licensed under the
Regulation No. 21/2/88 dated 14/6/1988.

8. UAE Central Bank
Board of Directors Resolution
No. 21/2/88 dated 14/6/1988
___________________________
REGARDING THE SYSTEM OF THE INVESTMENT
BANKS IN THE STATE
 Article (1) : The investment banks are meant by virtue of this
system, the banks which are usually called the banks of
business or development or investment or those who grant the
long and medium term loans or other similar expression or
nomination.
Article (2) : The main objectives of the investment banks are
promoting new activities, financing the progress of the existing
business through participation in the capital of the companies
and providing the long and medium term loans.

9. Licensing
 Article (4) : The local companies who are desirous to
obtain 1icences to practice their activities as
investment banks should apply in writing to the
Central Bank and the application should be attached
with a copy of the "Memorandum and articles of
Association" of the company together with a list of
the Founders, as well as the documents that support
the fulfillment of the required conditions in
accordance with the rules of this resolution, provided
that the Founders have obtained an initial approval
from the Central Bank.

10. Investment banking activities : Article 5
 Participating in the capital of the commercial companies, provided that participation should not
exceed 25% of the capital of the concerned Firm/ Company, or 10% of the shareholders equity of
the investment bank whichever is less. It is meant by the shareholders equity, the total of the paid
up capital, reserves and retained profits, after covering any decrease in the value of the assets
 Project financing : Granting medium and long-term loans to finance the projects.
 Working capital financing : Providing the working capital in the shape of credit facilities for
periods not less than two years for the companies in which the investment bank participates, or to
any party that the investment bank may have granted a medium or long-term loan.
 Opening L/C's pertaining to authorised loans provided by the investment bank.
 Issuing the guarantees on behalf of the parties indicated in the above mentioned article no.3.
 Managing Capital issue s : Obtaining the funds through issuing securities, including deposit
certificates, in accordance with the conditions decided by the Central Bank.
 Accepting the medium or the long-term deposits in Dirhams or in foreign, currencies from the
clients for a period not less than two years.
 Opening the current accounts in Dirhams and/or in foreign currencies in the name of the
companies that the investment bank has granted them loans and also in the names of the clients
for whom the bank is acting as a financial agent.
 Borrowing or accepting deposits in Dirhams and/or in foreign currencies for a period not less
than three months from the Head Office or the local or foreign banks or from the financial market.
 Acting as a financial agent on behalf of other parties in accordance with the rules.
 Managing the investment portfolios for others.
 Maintaining the researches and studies for identifying new investments opportunities.
 Doing any other activity, which is usually, considered as one of the investments banks activities
after obtaining the approval of the Central Bank.

11. Prohibited activities
 Article (6) : The investment banks in the state are forbidden
top exercise any activities not stated in the fifth article herein
and in particular they are forbidden to exercise the following
activities :Opening the current accounts for any of the clients
not allowed for the same in accordance with the rules
stipu1ated in this resolution.
 Allowing overdraft exceeding the limit of the credit facilities
granted in accordance with the article mentioned.
 Discounting the Commercial Bills.
 Opening the L/Cs other than those pertaining to approved
loan.
 Granting the personal loans.
 Financing the purchasing of consumable commodities.
 Doing operations in the monetary or financial markets or
dealing with foreign currency which have no connection with
the operation it is allowed to practice.

12. Classification of Merchant banking in India
 Category I, that is—
(i) to carry on any activity of the issue management,
which will, inter alia, consist of preparation of prospectus
and other information relating to the issue, determining
financial structure, tie up of financiers and final allotment
and refund of the subscriptions; and
(ii) to act as adviser, consultant, manager, underwriter,
portfolio manager;
(b) Category II, that is to act as adviser, consultant, co-
manager, underwriter, portfolio manager;
(c) Category III, that is to act as underwriter, adviser,
consultant to an issue;
(d) Category IV, that is to act only as adviser or consultant
to an issue.

13. Capital requirement
 Category Minimum Amount
 Category I Rs. 5, 00, 00, 000
 Category II Rs. 50, 00, 000
 Category III Rs. 20, 00, 000
 Category IV Nil

14. Dubai International Financial Centre (DIFC)
 On 13 July 2003, the Federal Cabinet of the United Arab
Emirates approved Federal Decree No. 35 of 2004 allowing for
the full establishment of the DIFC as a Financial Free Zone
with a substantial degree of sovereignty from the Central Bank
of the United Arab Emirates. Consequently, the “Law of the
Dubai International Centre No. 9 of 2004” was passed on 17
September 2004, which completed the legislative steps
required in order to make the DIFC operational, and to
formally establish the financial and administrative
independence of the DIFC.
 The DIFC is intended to be a well regulated hub for
commercial and investment banks, and other financial
institutions that wish to take advantage of the wealth of
opportunities in the region by providing services in respect of
underwriting, mergers and acquisitions, venture capital/private
equity, foreign exchange trading, trade finance, capital market
and Islamic finance operations.

15. DIFC…
 The DIFC is a wholesale financial centre catering primarily to institutional investors and accordingly does not cater
for retail financial businesses.
 The DIFC focuses on the following financial services sectors
1. Banking Services : DIFC offers a wholesale platform for investment banks and financial intermediaries looking to
establish underwriting, M&A advisory, venture capital, private equity, private banking, trade finance and brokerage
service operations and to take advantage of the numerous associated opportunities in the region.
2.Capital Markets : The Dubai International Financial Exchange (“DIFX”) provides a liquid and transparent market for
the hundreds of successful privately owned companies in the region and soon to be privatised businesses which
require listings on a liquid, transparent and efficient stock exchange. It also offers facilities to companies from
outside the region to be dual listed.
3. Asset Management & Fund Registration : More than a trillion dollars of wealth is held by institutional and private
investors in the region. Many regional companies and retail banks outsource the management and administration of
these funds to specialist providers outside the region. The DIFC offers a highly attractive opportunity for asset
management firms and private banks to gather and manage this growing pool of assets closer to their client base.
4. Insurance and Reinsurance : With economic growth, industrialisation and improved regulation, the region is
experiencing a changing attitude towards risk and an increasing awareness of the need for insurance. Due to slow
growth in more mature traditional markets, the world’s insurance and reinsurance companies are now assessing
markets such as the Middle East. The DIFC has set out to create a global [re-]insurance hub to foster the
development of a thriving insurance market by attracting global insurance and reinsurance companies, brokers,
captives and other service providers.
5. Islamic Finance : The global market for Islamic financial products is worth over $260 billion and is expected to grow
at 12 to 15 per cent a year over the next ten years. It is likely to account for some 50 to 60 per cent of the total
savings of the world's 1.2 billion Muslims within the next decade. There is a growing number of infrastructure
projects within the region requiring Sharia compliant finance, but the market is still under-developed and
fragmented. Dubai aims to become a major centre for product innovation for Islamic investors and borrowers.

16. List of various financial activities that may be
carried out within the DIFC
- Accepting deposits
- Providing Credit
- Dealing in Investments as Principal
- Dealing in Investments as Agent
- Arranging credit or deals in Investments
- Managing Assets
- Advising on Financial Products
- Operating a Collective Investment Scheme
- Providing Custody
- Arranging Custody
- Effecting Contracts of Insurance
- Carrying out Contracts of Insurance
- Insurance Broking
- Insurance Management
- Providing money services
- Managing profit sharing investments

19. Issue Management Activities in India
 The activities or sub-activities may be grouped on the following lines:
 (a) Capital structuring with the relative components and formalities such as composition of debt
and equity, type of instruments, etc.
 (b) Drafting and design of the offer document and of the advertisement or publicity material
including newspaper advertisement and brochure or memorandum containing salient features of
the offer document.
 (c) Selection of various agencies connected with issue, such as registrars to the issue,
printers, advertising agencies, etc.
 (d) Marketing of the issue, which shall cover, inter alia, formulating marketing strategies,
preparation of publicity budget, arrangements for selection of (i) ad-media, (ii) centres for holding
conferences of stock brokers, investors, etc., (iii) bankers to the issue, (iv) collection centres as per
schedule III, (v) brokers to the issue, and (vi) underwriters and underwriting arrangement,
distribution of publicity and issue material including application form, prospectus and brochure and
deciding upon the quantum of issue material.
 (e) Post-issue activities, like follow-up with bankers to the issue and Self Certified Syndicate
Banks to get quick estimates of collection and advising the issuer about the closure of the issue,
based on correct figures, finalisation of the basis of allotment or weeding out of multiple
applications, listing of instruments, despatch of certificates or demat credit and refunds and
coordination with various agencies connected with the post-issue activity such as registrars to the
issue, bankers to the issue, Self Certified Syndicate Banks, etc.
 Ordinarily, one lead merchant banker shall be responsible for the post-issue activities.
 Even if many of the post-issue activities are handled by other intermediaries, the designated lead
merchant banker shall be responsible for ensuring that these intermediaries fulfil their obligations.

20. The IPO life cycle
1. Issuer Company - IPO Process Initialization
1.Appoint lead manager as book runner.
2.Appoint registrar of the issue.
3.Appoint syndicate members.
2. Lead Manager's - Pre Issue Role - Part 1
1. Prepare draft offer prospectus document for IPO.
2.File draft offer prospectus with SEBI.
3.Road shows for the IPO.
3. SEBI – Prospectus Review
1.SEBI review draft offer prospectus.
2.Revert it back to Lead Manager if need clarification or changes
(Step 2).
3.SEBI approve the draft offer prospectus, the draft offer prospectus
is now become Offer Prospectus.

21. The IPO life cycle
4. Lead Manager - Pre Issue Role - Part 2
 Submit the Offer Prospectus to Stock Exchanges, registrar of the issue and get it approved.
 Decide the issue date & issue price band with the help of Issuer Company.
 Modify Offer Prospectus with date and price band. Document is now called Red Herring Prospectus.
 Red Herring Prospectus & IPO Application Forms are printed and posted to syndicate members; through which they are
distributed to investors.
5. Investor – Bidding for the public issue
 Public Issue Open for investors bidding.
 Investors fill the application forms and place orders to the syndicate members (syndicate member list is published on the
application form).
 Syndicate members provide the bidding information to BSE/NSE electronically and bidding status gets updated on
BSE/NSE websites.
 Syndicate members send all the physically filled forms and cheques to the registrar of the issue.
 Investor can revise the bidding by filling a form and submitting it to Syndicate member.
 Syndicate members keep updating stock exchange with the latest data.
 Public Issue Closes for investors bidding.
6.Lead Manager – Price Fixing
 Based on the bids received, lead managers evaluate the final issue price.
 Lead managers update the 'Red Herring Prospectus' with the final issue price and send it to SEBI and Stock Exchanges.

22. The IPO Life Cycle
7. Registrar - Processing IPO Applications
 Registrar receives all application forms & cheques from Syndicate
members.
 They feed applicant data & additional bidding information on computer
systems.
 Send the cheques for clearance.
 Find all bogus application.
 Finalize the pattern for share allotment based on all valid bid received.
 Prepare 'Basis of Allotment'.
 Transfer shares in the demat account of investors.
 Refund the remaining money though ECS or Cheques.
8. Lead manager – Stock Listing
 Once all allocated shares are transferred in investors dp accounts, Lead
Manager with the help of Stock Exchange decides Issue Listing Date.
 Finally share of the issuer company gets listed in Stock Market.

23. Eligibility for fixed price IPO
 An issuer may make an initial public offer, if:
(a) it has net tangible assets of at least Rs 30 million in each of the preceding three
full years (of twelve months each), of which not more than 50% are held in monetary
assets.
In case more than 50% of the net tangible assets are held in monetary assets, the
issuer has made firm commitments to utilise such excess monetary assets in its
business or project.
(b) it has a track record of distributable profits in terms of section 205 of the
Companies Act, 1956, for at least three out of the immediately preceding five years.
This does not include extraordinary items.
(c ) it has a net worth of at least Rs. 10 million in each of the preceding three full
years (of twelve months each).
(d) the aggregate of the proposed issue and all previous issues made in the same
financial year in terms of issue size does not exceed five times its pre-issue net worth
as per the audited balance sheet of the preceding financial year.
(e) if it has changed its name within the last one year, at least 50% of the revenue for
the preceding one full year has been earned by it from the activity indicated by the
new name.
 Otherwise the issuer has to opt for book building issues.

24. Book Building process
 The Issuer who is planning an offer nominates lead merchant banker(s) as 'book
runners'.
 The Issuer specifies the number of securities to be issued and the price band for the
bids.
 The Issuer also appoints syndicate members with whom orders are to be placed by
the investors.
 The syndicate members input the orders into an 'electronic book'. This process is
called 'bidding' and is similar to open auction.
 The book normally remains open for a period of 5 days.
 Bids have to be entered within the specified price band.
 Bids can be revised by the bidders before the book closes.
 On the close of the book building period, the book runners evaluate the bids on the
basis of the demand at various price levels.
 The book runners and the Issuer decide the final price at which the securities shall be
issued.
 Generally, the number of shares are fixed, the issue size gets frozen based on the
final price per share.
 Allocation of securities is made to the successful bidders. The rest get refund orders.

25. ISSUE TYPE OFFER PRICE DEMAND PAYMENT RESERVATIONS
Fixed Price Price at which Demand for the 100 % advance 50 % of the shares
Issues the securities are securities offered payment is required offered are reserved for
offered and is known only to be made by the applications below Rs.
would be allotted after the closure investors at the 1 lakh and the balance
is made known in of the issue time of application. for higher amount
advance to the applications.
investors
A 20 % price Demand for the 10 % advance 50 % of shares offered
Issues band is offered securities offered payment is required are reserved for QIBS,
by the issuer , and at various to be made by the 35 % for small investors
within which prices, is QIBs along with the and the balance for all
investors are available on a application, while other investors.
allowed to bid real time basis on other categories of
and the final the BSE website investors have to
price is during the bidding pay 100 % advance
determined by period.. along with the
the issuer only application.
after closure of
the bidding.

26. THANK
YOU
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