idlc merchant bankikng

[Type the document title]

Chapter 1

Theoretical Background


Overview of Merchant Bank

A merchant bank is a financial institution which provides capital to companies in the form

of share ownership instead of loans. A merchant bank also provides advisory on corporate

matters to the firms they lend to.

Today, according to the US Federal Deposit Insurance Corporation (acronym FDIC), "the

term merchant banking is generally understood to mean negotiated private equity investment

by financial institutions in the unregistered securities of either privately or publicly held

companies. Both commercial banks and investment banks may engage in merchant banking

activities. Historically, merchant banks' original purpose was to facilitate and/or finance

production and trade of commodities, hence the name "merchant". Few banks today restrict

their activities to such a narrow scope.

Merchant banking has been a very lucrative-and risky-endeavor for the small number of bank

holding companies and banks that have engaged in it under existing law. Recent legislation

has expanded the merchant-banking activity that is permissible to commercial banks and is

therefore likely to spur interest in this lucrative specialty on the part of a greater number of

such institutions. Although for much of the past half-century commercial banks have been

permitted (subject to certain restrictions) to engage in merchant-banking activities, the

term merchant banking itself is undefined in U.S. banking and securities laws and its exact

meaning is not always clearly understood.

Now we will looks at the private equity market in the United States, examining that market in

terms of its evolution, typical uses of funds, and forms taken by the investments. (In

examining the private equity market, one needs to be aware that the private equity market is,

in fact, private. Data are limited and could be subject to error.) Discussed next is commercial

bank involvement in merchant banking: the structure of commercial bank involvement, the

evolution of that involvement, and the recent track record. The major provisions of the

Gramm-Leach-Bliley Act of 1999, legislation which authorizes financial holding companies

to engage in merchant banking, is looked at next. The final section focuses on the relationship

among merchant banking, risk, and the regulators.

http://en.wikipedia.org/wiki/Investment_bank

http://en.wikipedia.org/wiki/Commercial_bank

http://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corporation


Definition and Early History of Merchant Banking

Although not defined in U.S. federal banking and securities laws, the term merchant banking

is generally understood to mean negotiated private equity investment by financial institutions

in the unregistered securities of either privately or publicly held companies. Both investment

banks and commercial banks engage in merchant banking, and the type of security in which

they most commonly invest is common stock. They also invest in securities with an equity

participation feature; these may be convertible preferred stock or subordinated debt with

conversion privileges or warrants. Other investment bank services-raising capital from

outside sources, advising on mergers and acquisitions, and providing bridge loans while bond

financing is being raised in a leveraged buyout (LBO)-are also typically offered by financial

institutions engaged in merchant banking.

Merchant banks first arose in the Italian states in the Middle Ages,1 when Italian merchant

houses-generally small, family-owned import-export and commodity trading businesses-

began to use their excess capital to finance foreign trade in return for a share of the profits.

This trade generally consisted of lengthy sea voyages. Thus, the investments were very high

risk: war, bad weather, and piracy were constant threats, and by their nature the voyages were

long-term and illiquid.

Later, the center for merchant banking shifted from the Italian states to Amsterdam and then,

in the eighteenth century, to London, where immigrants from Prussia, France, Ireland, Russia,

and the Italian states formed the core of early British merchant banking. Like the Italian and

Dutch houses before them, these British houses were generally small, family-owned

partnerships, and most of them continued both to trade for their own businesses and to

finance the trading by others. By the end of the eighteenth century, however, the British

merchant houses had increased in size and sophistication and began specializing in trade,

marketing, or finance. As the nineteenth century opened, virtually no mercantile houses

remained focused on both trade and finance.

http://www.fdic.gov/bank/analytical/banking/2001sep/footnote2.html#1


The Private Equity Market in the United States

The private equity market in the United States has evolved over the years, with financial

institution involvement only becoming significant in the 1960s and 1970s. Where these funds

are invested also has changed over time. Currently, most private equity funding is used to

fund start-up or early-stage companies or to bring large public companies private. Private

equity investments can be made through limited partnerships or they can be direct

investments. Subsidiaries of banking organizations are probably the largest direct investors in

this market.

Evolution of the Private Equity Market

Given its history, merchant banking is often thought of as a European, and especially British,

financial specialty, and British institutions continue to maintain a major presence in this area.

Since the 1800s and even earlier, however, U.S. firms (such as J.P. Morgan) also have been

active in merchant banking. However, although both investment banks and commercial

banks, as well as other types of businesses, have been authorized to engage in private equity

investment in the United States, financial institutions have not been major providers of

private equity.

Until the 1950s, U.S. investors in private equity were primarily wealthy individuals and

families. In the 1960s and 1970s, corporations and financial institutions joined them in this

type of investment. (In the 1960s, commercial banks were the major providers of one kind of

private equity investing, venture-capital financing.) Through the late 1970s, wealthy families,

industrial corporations, and financial institutions, for the most part investing directly in the

issuing firms, constituted the bulk of private equity investors.

In the late 1970s, changes in the Employee Retirement Income Security Act (ERISA)

regulations, in tax laws, and in securities laws brought new investors into private equity. In

particular, the Department of Labor's revised interpretation of the "prudent man rule" spurred

pension fund investment in private equity capital.2 Currently, the major investors in private

equity in the United States are pension funds, endowments and foundations, corporations, and

wealthy investors; financial institutions-both commercial banks and investment banks-

represent approximately 20 percent of total private equity capital, divided approximately

equally between the two. The U.S. Department of the Treasury (Treasury) estimates that at



year-end 1999, commercial banks accounted for approximately $35 billion to $40 billion, and

investment banks for approximately another $40 billion, of the $400 billion total investment

in the private equity market.

At $400 billion as of year-end 1999, the private equity market is approximately one-quarter

the size of the commercial and industrial bank-loan market and the commercial-paper

market.3 In recent years, funds raised through private equity have approximately equaled and

sometimes exceeded funds raised through initial public offerings and public high-yield

corporate bond issuance.4 The market also has grown dramatically in recent years, increasing

from approximately $4.7 billion in 1980 to its 1999 figure. Despite this tremendous growth,

the private equity market is extremely small compared with the public equity market, which

was approximately $17 trillion at year-end 1999.

Typical Uses of Private Equity

Private equity financing is an alternative to raising public equity, issuing public debt, or

arranging a private placement of debt or bank loan. The reasons companies seek private

equity financing are varied. For example, other forms of financing may be unavailable or too

expensive because the company's track record is either nonexistent or poor (that is, the

company is in financial distress). Or a private company may want to expand or change its

ownership but not go public. Or a firm may not want to take on the fixed cost of debt

financing.

Public firms may seek private equity financing when their capital needs are very limited and

do not warrant the expense, time, and regulatory paperwork required for a public issue. They

also may seek private equity to keep a planned acquisition confidential or to avoid other

public disclosures. They may use the private equity market because the public market for new

issues in general is bad or because the public equity market is temporarily unimpressed with

their industry's prospects. Finally, very often in recent years, managements of large public

firms have felt their firms will benefit from a change in capital structure and ownership and

will choose to go private by means of a leveraged buyout (LBO).5

Although companies seek private equity for all these reasons, most private equity funding has

been used for one of two purposes: to fund start-up or early-stage companies (venture capital)

or to bring large public companies private in LBOs. Of the $400 billion in outstanding private





equity investment at year-end 1999, venture-capital investments accounted for approximately

$125 billion and nonventure-capital investments for approximately $275 billion. LBOs were

by far the most common use of nonventure-capital private equity.

Table 1 provides estimates of the private equity raised, and its uses, for each year from 1993

to 1999. From the table one can see that private equity investment increased substantially

over this seven-year period, going from $22 billion raised in 1993 to over $108 billion raised

in 1999. In 1999, for the first time since 1985, venture-capital fundraising accounted for a

larger percentage of total private equity fundraising than buyout/mezzanine financing. Before

the mid-1980s, two-thirds of private equity investments were used to finance venture-capital

investments.

Commercial Bank Involvement in Merchant Banking

Commercial banks have historically utilized Small Business Investment Corporations

(SBICs) or "5 percent subs" (defined below) for their domestic private equity investments,

and Edge Act Corporations or foreign subsidiaries to make their foreign private equity

investments. Several very large bank holding companies have come to dominate merchant

banking, directing as much as 10 percent of their capital to these activities. For the most part,

reported earnings from these merchant-banking activities have been very good.

Structure

Before passage of the Gramm-Leach-Bliley Act (GLBA), commercial banks and bank

holding companies (BHCs) had two primary vehicles for making private equity investments

in domestic corporations. They could make these investments through SBICs and/or through

"5 percent subs." Typically, banks engaged in domestic merchant banking have used both of

these vehicles; for equity investments in foreign companies, they have used foreign

subsidiaries or Edge Act Corporations. As mentioned above, although these subsidiaries have

sometimes organized limited partnerships in which they acted as general partners, more often

they have invested directly in private equity or have acted as limited partners in a partnership.


Evolution

A few very large BHCs dominate merchant banking, directing as much as 10 percent of their

capital to these activities. Citigroup, Chase, Bank of America, FleetBoston, and Wells Fargo

have the largest presence in this area. In 1999, Chase, FleetBoston, Wells Fargo, J.P. Morgan,

and First Union reported an aggregate investment of over $5 billion in venture-capital

investments, and they expect to continue to expand this area of their business.6

Many banks entered merchant banking in the 1960s to take advantage of the economies of

scope produced when private equity investing is added to other bank services, particularly

commercial lending. As lenders to small and medium-sized companies, banks become

knowledgeable about individual firms' products and prospects and consequently are natural

providers of direct private equity investment to these firms. As mentioned above, commercial

banks were the largest providers of venture capital in the 1960s.

In the middle to late 1980s, the decision to enter merchant banking was thrust on other banks

and bank holding companies by unforeseen events. In those years, as a result of the LDC

(less-developed-country) debt crisis, many banks received private equity from developing

nations in return for their defaulted loans. At that time, many of these banks set up merchant-

banking subsidiaries to try to get some value from this private equity.

Also at about that time, most commercial banks began refocusing their private equity

investments to middle-market and public companies (often low-tech, already profitable

companies) and, rather than providing seed capital, financed expansion or changes in capital

structure and ownership. Most particularly, they took equity positions in LBOs, takeovers, or

recapitalizations or provided subordinated debt in the form of bridge loans to facilitate the

transaction. Often they did both. Commercial banks financed much of the LBO activity of the

1980s.

Then, in the mid-1990s, major commercial banks began once again focusing on venture

capital, where they had substantial expertise from their previous exposure to this kind of

investment. Some of these recent venture-capital investments have been spectacularly

successful. For example, the Internet search engine Lycos was a 1998 investment of Chase

Manhattan's venture-capital arm.



Recent Track Record

Commercial banks are permitted to report either realized or unrealized gains on their

merchant-banking portfolios, as long as they are consistent in the reporting. This option

makes it difficult for one to compare different entities' financial results and could lead to an

overly liberal reporting of profits. However, the Federal Reserve Board (FRB) generally

considers bank holding companies that are engaged in merchant banking to have reported

their earnings conservatively on these equity investments.

These reported earnings have been good. The FRB estimates that revenue from private equity

investment for the small number of BHCs with a significant presence in this field was

approximately 12 percent to 13 percent of total BHC net income in the three-year period from

1995 through 1997. The FRB further estimates that rates of return on merchant-banking

activities have averaged approximately 30 percent annually over the past five years. Another

source, the National Venture Capital Association, estimates an overall 85 percent rate of

return for venture capital funds invested in early-stage companies in 1999.Most bank

subsidiaries' venture-capital investments have recently been averaging returns of

approximately 40 percent, compared with 10 percent to 15 percent on commercial lending.

The merchant-banking subsidiaries of Chase, Wells Fargo, J.P. Morgan, First Union, and

FleetBoston reported in the aggregate $5 billion in net income for 1999. Chase's merchant-

banking subsidiary Chase Capital Partners reported $2.5 billion in net income in 1999-22

percent of Chase's total reported net income. Wells Fargo's merchant-banking activities

accounted for 13 percent of its 1999 reported income; J.P. Morgan's for 15 percent; First

Union's for 8 percent; and FleetBoston's for 9 percent.

These merchant-bank subsidiary returns are particularly good when one considers that

merchant banking requires very low overhead. For instance, Wells Fargo has 92,000

employees, but only 14 partners ran its merchant-bank subsidiary, which was responsible for

16 percent of Wells Fargo's total fourth-quarter 1999 net income. Similarly, First Union has

70,000 employees, but only 16 people conducted its merchant- banking activities, which

brought in 13 percent of First Union's fourth-quarter 1999 net income.


Overview of NBFIs in Bangladesh

Non-Bank Financial Institutions (NBFIs) play a significant role in meeting the diverse

financial needs of various sectors of an economy and thus contribute to the economic

development of the country as well as to the deepening of the country’s financial system.

According to Goldsmith (1969), financial development in a country starts with the

development of banking institutions. As the development process proceeds, NBFIs become

prominent alongside the banking sector.

Both can play significant roles in influencing and mobilizing savings for investment. Their

involvement in the process generally makes them competitors as they try to cater to the same

needs. However, they are also complementary to each other as each can develop its own

niche, and thus may venture into an area where the other may not, which ultimately

strengthens the financial mobility of both. In relatively advanced economies there are

different types of non- bank financial institutions namely insurance companies, finance

companies, investment banks and those dealing with pension and mutual funds, though

financial innovation is blurring the distinction between different institutions. In some

countries financial institutions have adopted both banking and non-banking financial service

packages to meet the changing requirements of the customers. In the Bangladesh context,

NBFIs are those institutions that are licensed and controlled by the Financial Institutions Act

of 1993 (FIA ’93). NBFIs give loans and advances for industry, commerce, agriculture,

housing and real estate, carry on underwriting or acquisition business or the investment and

re-investment in shares, stocks, bonds, debentures or debenture stock or securities issued by

the government or any local authority; carry on the business of hire purchase transactions

including leasing of machinery or equipment, and use their capital to investing companies.

The importance of NBFIs can be emphasized from the structure of the financial system. In

the financial system of Bangladesh, commercial banks have emerged in a dominant role in

mobilizing funds and using these resources for investment. Due to their structural limitations

an rigidity of different regulations, banks could not expand their operations in all expected

areas and were confined to a relatively limited sphere of financial services. Moreover, their

efforts to meet long term financing with short term resources may result in asset-liability

mismatch, which can create pressure on their financial base. They also could not broaden

their operational horizon appreciably by offering new and innovative financial products.


These drawbacks led to the emergence of NBFIs in Bangladesh for supporting

industrialization and economic growth of the country,

Emergence of Non Bank Financial Institution in Bangladesh

Initially, NBFIs were incorporated in Bangladesh under the Companies Act, 1913 and were

regulated by the provision relating to Non-Banking Institutions as contained in Chapter V of

the Bangladesh Bank Order, 1972. But this regulatory framework was not adequate and

NBFIs had the scope of carrying out their business in the line of banking. Later, Bangladesh

Bank promulgated an order titled ‘Non Banking Financial Institutions Order, 1989’ to

promote better regulation and also to remove the ambiguity relating to the permissible areas

of operation of NBFIs. But the order did not cover the whole range of NBFI activities. It also

did not mention anything about the statutory liquidity requirement to be maintained with the

central bank. To remove the regulatory deficiency and also to define a wide range of

activities to be covered by NBFIs, a new act titled ‘Financial Institution Act, 1993’ was

enacted in 1993 (Barai et al. 1999).Industrial Promotion and Development Company (IPDC)

was the first private sector NBFI in Bangladesh, which started its operation in 1981. Since

then the number has been increasing and in December 2006 it reached 29.1 of these, one is

government owned, 15 are local (private) and the other 13 are established under joint venture

with foreign participation.


Introduction

Origins

East West University is a foundation that upholds eastern cultures and values, and

evocatively fusions eastern and western thought and innovation. To do this it offers

undergraduate degree on different major subjects like Finance, Marketing, HRM, Economics

etc. Financial Markets and Institutions (Fin 335) is one of the courses of Finance major.

Precisely it teaches us about the Financial Markets and Institutions of Bangladesh and whole

of the world.

While doing the course we have learned many factors. To implement all of those or in other

way to practically experience those issues Mr. Tanbir Ahmed Chowdhury, course teacher of

Financial Markets and Institutions has given us this term paper on “Merchant Banks”.

Objectives of The Study

The paper will be constructed with an objective to illustrate an overall analysis of the

Merchant Banking of IDLC. However, salient objectives of our report are:

To provide an overall idea about how IDLC Finance ltd perform their term Merchant

banking operations.

To assemble the basic structure of Merchant Banking operations of IDLC Finance ltd.

To highlight the performance of IDLC regarding Merchant Banking operations

By doing the report, we will be able to know Merchant Banking, the private equity market in

the United States, examining that market in terms of its evolution, typical uses of funds, and

forms taken by the investments and commercial bank involvement in merchant banking: We

will also be able to know the current market situation of the Merchant Banking. We will be

exploring the facts how individuals get influenced towards Merchant Banking, what they feel

about different Services of it and what are the comparisons.

This report will also let us know the possible commendations for Merchant Banking.


Scope and Methodology

The methods that have been followed throughout the study may be detailed as follows:

Primary sources of data for this report have been collected through the interviews of

IDLC Finance Ltd officials.

The annual reports of IDLC Finance Ltd as well as their brochure have been great

sources of secondary data.

Website of IDLC Finance Ltd and Internet also help us a lot by providing secondary

data

Limitation

There were some obstacles, which were hard to meet up with. The limitations are:

Lack of adequate information due to confidentiality.

Lack of documented and concrete secondary materials.

Direct observation of the customer service of the company requires extensive time

involvement, which may not be possible.

Organizational personnel’s reluctance to answer the questions


Chapter 2

Performance Evaluation on Merchant Banking of

IDLC Finance LTD


Company Profile

IDLC Finance Limited is a multi-product financial institution, offering unique financial solutions to meet diverse needs of its clients.

It was established in 1985 with the collaboration of reputed international development agencies such as:

Korean Development Leasing Corporation (KDLC), South KoreaKookmin Bank, South KoreaInternational Finance Corporation (IFC) of the World Bank GroupAga Khan Fund for Economic Development (AKFED)German Investment and Development Company (DEG)

Although it initially started with lease financing, IDLC has built a diversified portfolio of products and services over the years with the objective of modernizing the financial service industry of Bangladesh. With this promise, IDLC plays a pioneering role in introducing and popularizing a variety of financial instruments suiting ever-changing requirements of its clients.

Over the years, IDLC has attained a significant presence in the corporate sector of Bangladesh. IDLC is highly respected by its clients, peers, employees and regulators for its strong corporate governance, statutory compliance, high ethical standards, a progressive and enabling working environment, and strong commitment to environmental and social development.

IDLC Finance, listed both on the Dhaka Stock Exchange and Chittagong Stock Exchange, is the leading non-bank financial institution in Bangladesh. The company has diversified its functional areas into other financial services including short-term finance, corporate finance and merchant banking activities. In 1997, it expanded its range of services by introducing housing finance to individuals, developers and corporate bodies. Under its broader merchant banking functions, IDLC operates as issue manager, underwriter, trusteeship manager, bridge financier and investor in the private placement of shares and stocks.

IDLC continues to play a pioneering role in introducing and popularizing a variety of financial instruments suiting ever-changing requirements of its fast-growing clients.


Vision

IDLC will be the best financial brand in the country.

Mission

IDLC will focus on quality growth, superior customer experience and sustainable business practices.

For the Company: Relentless pursuit of customer satisfaction through delivery of top quality services.

For the Shareholders: Maximize shareholders' wealth through a sustained return on their investments.

For the Employees: Provide job satisfaction by making IDLC a centre of excellence with opportunity for career development.

For the Society: Contribute to the well being of the society, in general, by acting as a responsible corporate citizen.

Goal:

Long term maximization of stakeholders' value in a socially responsible manner.

Corporate Philosophy

Discharge the functions with proper accountability for actions and results and bind to the highest ethical standards.

Corporate Governance

Corporate governance is the system by which companies are directed and controlled by the management in the best interest of all the stakeholders, thereby ensuring greater transparency and better and timely financial reporting. The Board of Directors is responsible for proper governance which includes setting out Company's strategic aims, providing the necessary leadership to implement such aims, supervising the management of the business and reporting to the shareholders on their stewardships.

The maintenance of effective corporate governance remains a key priority of the Board of IDLC Finance Limited. To exercise clarity about directors' responsibilities towards the shareholders, corporate governance must be dynamic and remain focused on the business objectives of the Company and create a culture of openness and accountability. Keeping this in mind, clear structure and accountabilities supported by well understood policies and procedures to guide the activities of the Company's management have been instituted.


Shareholding Structure

Sl.No. Name Of Shareholders No.Of Shares %

01. Sponsors/Directors

The City Bank Limited 28,082,630 28.37

Transcom Group 13,199,930 13.33

- Eskayef Bangladesh Limited 7,920,000 8.00

- Transcraft Limited 3,973,130 4.01

- Bangladesh Lamps Limited 1,306,800 1.32

Sadharan Bima Corporation 7,541,820 7.62

Mercantile Bank Limited 7,425,000 7.52

Reliance Insurance Co. Limited 6,930,000 7.00

Sub-Total 63,179,380 63.82

02. General

Institutions

Bangladesh Fund 3,156,310 3.19

Eastern Bank Limited 2,163,400 2.19

ICB 1,185,840 1.20

Marina Apparels Limited 990,000 1.00

Other Institutions 6,411,700 6.48

Sub-Total 13,907,250 14.05

Individuals

General Public(Individuals) 21,913,370 22.13

Sub-Total 21,913,370 22.13

Total Holdings 99,000,000 100.00


IDLC Subsidiaries

IDLC Securities Limited

IDLC Securities Limited, a fully-owned subsidiary of IDLC.

Offers full-fledged international standard brokerage services for both retail and institutional clients.

It has seats on both Dhaka Stock Exchange Limited and Chittagong Stock Exchange Limited.

It is also a Depository Participant (DP) of Central Depository Bangladesh Limited (CDBL).

IDLC Investments Limited

As per requirement of the Securities & Exchange Commission (SEC), IDLC formed a separate subsidiary on May 19, 2010 in the name of ‘IDLC Investments Limited’, in order to transfer its existing merchant banking activities to the newly formed entity.

IDLC applied to SEC to transfer the existing merchant banking license of IDLC Finance Limited to IDLC Investments Limited.

IDLC Investments Limited has started its operations from August 16, 2011 to offer merchant banking services to both its individual and institutional clients.


Functions of IDLC

IDLC play a variety of functions by providing its customers a number of products and services. Its functions can be categorized into four major groups. They are as follows,

Corporate DivisionConsumer DivisionSME Division Capital Market

Corporate Division

IDLC has extensive knowledge, expertise and experience to offer a range of financial solutions in response to the needs of a broad spectrum of clientele, comprising of local and multinational corporate houses in Bangladesh.

Lease FinancingTerm Loan FinancingBridge FinancingLoan to Corporate Houses to Procure Commercial SpaceLong Term Finance for Real Estate DevelopersWorking Capital FinancingProject FinancingClub Financing for Relatively Larger ProjectsPreferred Equity Investments.

Consumer Division

Deposit SchemesHome LoanCar LoanPersonal Loan

SME Division

SME Loan ABASHAN LoanMedium Enterprise FinanceSupplier FinanceWomen Entrepreneur LoanCommercial Vehicle Loan


Capital Market

Portfolio Management

Investment Banking

Research

Brokerage Service

Merchant Banking of IDLC

IDLC performs its merchant banking operations through IDLC Investments LTD. The

authorized and paid-up capital of IDLC Investments Limited are Tk. 3,000,000,000

(Bangladesh Taka Three Billion only) and Tk. 400,000,000 (Bangladesh Taka Four Hundred

Million only) respectively with due approval from the Securities and Exchange Commission,

Bangladesh.

IDLC offer a variety of services under merchant banking to its clients including are portfolio

management, issue management, underwriting of securities, advisory services and so on.

Portfolio Management

MAXCAP

MAXCAP is a personalized discretionary investment account designed for high net worth

clients, both individuals and institutions. MAXCAP account is ideally suitable for any

individual having little or no experience of investing in the capital market of Bangladesh.

MAXCAP also allows experienced investors and institutions to achieve greater sector and

style diversification in their investment portfolios.

Key Features

Minimum Investment Amount: Individual: BDT 5 Lacs and 5 Hundred

Minimum Investment Amount: Corporate: BDT 10 Lacs

Minimum Investment Horizon: 1 Year

Margin Loan Facility: Yes, based on investor’s preference


Investment area in MAXCAP:

Provident Fund

Gratuity Fund

Company’s Own Surplus Fund

Funds will not be invested in securities having lock in period of more than 1

year

Funds will not be invested in private venture capital

Funds amounting to more than 30% of your total assets will not be invested in

unlisted equity/debt securities, including IPO and pre-IPO private placements

Funds amounting to more than 30% and 60% of total assets will not be

allocated in a single security and single industry respectively

Key Benefits

Analysis and periodic review of your individual risk profile and investment

objectives.

Thorough and diligent effort in formulating appropriate investment strategies, and

constructing and rebalancing your portfolio

Continuous monitoring of capital market changes, and active management

Risk control and portfolio performance reviews on a regular basis

Periodic reporting of your portfolio and financial status

Investment Process

The investment process has been carefully designed to ensure:

Independent professional judgment and responsibility in each area of decision

making.

Elimination of all sorts of conflicts of interest.

Fair dealing and objectivity in every transaction.

Compliance of law and other fiduciary duties


Fees and Charges

Documentation Fee: Taka 500 (one off).

Management Fee: 2.50% p.a. on the value of the securities, charged on a quarterly

basis.

Settlement Fee: 0.35% on the transaction value.

Termination Fee (before 1 year): 0.50% on the total amount.

Pre-matured Withdrawal Charge (before 1 year): 0.50% on the withdrawal amount

Out of Pocket and Third-party Charges (Central Depository, SMS charges etc.)

Cap Investment

Cap Invest is an Investor’s Discretionary Account that provides margin loan facilities to the

investors:

Major Services

Extending margin loan facilities to enable investors to earn enhanced return

Registering the securities, and collecting dividends and bonus shares.

Subscribing to the rights issues.

Completing dematerialization process.

Keeping the securities in safe custody

Major Characteristics

Cap Invest clients will have absolute discretionary power to make their own

investment decisions.

IDLC, the Portfolio Manager, will provide all support for efficient execution of the

trades.

Clients can trade with any of our designated brokers or directly through Merchant

Bank Division.

Clients will be allowed to invest only in the securities carefully selected and approved

by the Portfolio Manager.

The Portfolio Manager will extend Margin Loan to the clients to facilitate

enhancement of their return on investments through leveraging


All the securities purchased for the clients shall remain in lien in favor of the Portfolio

Manager.

Clients will have access to various research materials on market, industry and

companies prepared by the independent research team of the Portfolio Manager.

Investment in "Cap Invest" will be considered allowable investment for obtaining tax

rebate. Additionally, capital gains from investments are currently completely tax-

exempt.

Clients can place Trade Orders through Internet/SMS/Mobile Application.

Key Features

Minimum Investment Amount: Taka 10 Lacs *

Margin Loan Amount: Maximum 0.75% * of client's equity, but not exceeding Taka

80 Million. However clients below 1 million investments will be allowed at 0.5% loan

of their respective equity.

Margin Call: In the event of the client’s equity falling below 50% of the total debt

liability, the Portfolio Manager will call for additional margin deposit from the client

to maintain the stipulated equity to debt ratio of the given loan ratio

Fees and Charges

Documentation Fee: Taka 500 (one off)

Management Fee.

Client’s Equity LevelTaka 10 Million and aboveBelow Taka 10 Million

Management FeeAt 1.00% pa, charged quarterlyAt 1.50% pa, charged quarterly

Interest on Margin:

Client’s Equity LevelTaka 10 Million – 30 MillionBelow Taka 10 Million

Management FeeAt 15.25% pa, charged quarterlyAt 15.50% pa, charged quarterly


Investment Banking

With a rich experience in Investment Banking, IDLC assist its clients to its best throughout

the IPO process, along with sustained market support. IDLC core strength lies in:

Correctly positioning the company in the financial market to procure the right profile

of institutional and retail investors

Valuation of the enterprise

Showcasing the enterprise to the right investors

Optimum pricing of the companies

Devising the best financial structure, and

Completing the entire process smoothly and efficiently, leveraging our strong co-

ordination with regulatory authorities

The objective is to value and place the company in the financial market correctly, provide

maximum return to the investors, ensure growth and continuous value-creation for the

company going public. Therefore, IDLC post-listing support enables the companies to face

the new regulatory environment they enter after listing.

IDLC Investment Banking Team is capable of devising innovative solution for raising

capital, both debt and equity, from the market, matching the unique needs and constraints of

the corporate clients. Equipped with some of the most qualified, experienced and innovative

personnel in the sector, IDLC is committed to provide the best solution to its corporate clients

in terms of managing public offers.

IDLC Investment Banking operation focuses on

Initial Public Offering (IPO)

Repeat Public Offering (RPO)

Rights Issue Management

Corporate Advisory on Pre-IPO Capital Raising

Underwriting

Participation in the Pre-IPO Placement/Capital Raising of forthcoming IPOs

Merchant Banker Service in substantial Share Acquisition and Take Over


Research

IDLC encourage and uphold discipline in investment through rigorous Research in the

investment arena. Research coverage includes but not limited to listed companies, sector and

economy of Bangladesh. IDLC qualified and dedicated professionals provide insightful

opinion regarding different covered areas to facilitate investment decision.

Company Coverage

Bank Cement Ceramic Engineering Financial Institution Fuel and Power Insurance. Mutual Funds Pharmaceuticals and chemicals Services and Real Estate Tannery Telecommunication Textile Travel and Leisure

Sector Coverage

Cement Energy Pharmaceuticals Spinning

Economic Coverage

National Budget Review Monetary Policy Statement Review Economic Review Special Coverage

Market Commentary

Daily Market Commentary Monthly Market Review Weekly Mutual Fund Update Capital Market-Yearly Review


Brokerage Services

Trade Execution in Dhaka and Chittagong Stock Exchange Limited

Appointment of dedicated and skilled sales representative

Opportunities for trading through different financial instruments

Custodial Services

Safe keeping of securities

Exclusive arrangement for clients to keep their shares in safe custody in

vaults

Full service Depository Participant (DP) of CDBL

Beneficial Owner (BO) account opening and maintenance

Dematerialization – the process of converting physical scripts to script-less

shares to the CDBL part of the Company register

Re-materialization

Freeze request and release request and suspensions

Transfers and multiple accounts movement

Pledging, un-pledging and confiscation

BO International Securities Identification Number (ISIN) balances and master

maintenance inquiry

Internet Trading

Trading Facilities

Call Center

I-trade

M-trade


IDLC Expertise in Issue Management

Executed Deals

No. Issue Issue SizeYear of

Issuance

1. Bank Asia Limited (Co-Issue Manager) BDT 300 M 2003

2. Berger Paints Bangladesh Limited BDT 139 M 2005

3. Marico Bangladesh Limited (Joint Issue Manager) BDT 283 M 2009

4. RAK Ceramics (Bangladesh) Limited (Lead Issue Manager) BDT 1,656 M 2010

5. The City Bank Limited (centers Issue) BDT 3,927 M 2010

6.BRAC Bank Limited (Issuance of Subordinated Convertible

Bonds)BDT 3,000 M 2010


IDLC Expertise in Underwriting

No.Issue Nature of Underwriting Year

15. Dhaka Bank Limited Rights Offer 2005

16. Uttara Finance & Invesment Limited Rights Offer 2005

17. Premier Leasing International Limited IPO 2005

18. Pragati Life Insurance Limited IPO 2006

19. Jamuna Bank Limited IPO 2006

20. Berger Paints Bangladesh Limited IPO 2006

21. LankaBangla Finance Limited IPO 2006

22. S. Alam Cold Rolled Steels Limited IPO 2006

23. Southeast Bank Limited Rights Offer 2006

24. InTech Online Limited Rights Offer 2006

25. BRAC Bank Limited IPO 2007

26. Pheonix Finance & Investment Limited IPO 2007

27. Paramount Insurance Limited IPO 2007

28. Islami Bank Bangladesh Limited Mudaraba Perpetual Bond RPO 2007

29. Summit Alliance Port Limited IPO 2008

30. Dacca Dyeing & Manufacturing Company Limited IPO 2009

31. Marico Bangladesh Limited IPO 2009

32. GrameenPhone Limited IPO 2009

33. RAK Ceramics (Bangladesh) Limited IPO (Book Building Method) 2010

34. United Airways (Bangladesh) Limited IPO 2010

35. Malek Spinning Mills Limited IPO 2010

36. Beacon Pharmaceuticals Limited IPO 2010

37. Prime Bank Limited Rights Offer 2010

38. BD Wielding Electrodes Limited Rights Offer 2010

39. Subordinated 25% Convertible Bond of BRAC Bank Limited RPO 2010

40. Barakatullah Electro Dynamics Limited IPO 2011

41. MJL Bangladesh Limited IPO (Book Building Method) 2011


IDLC FINANCE LIMITED(Merchant Banking Operation)Profi t and Loss Accountfor the period ended August 15, 2011*

2011 2010NoteParticulars Taka Taka

Interest income

Interest expenses 18.3 (353,952,752) (593,332,470)

Net interest income 195,672,542 200,849,707

Custodial Fees 133,678 494,353

Advisory Fee 3,350,000 -

Issue Management Fee 4,800,000 13,686,104

Documentation Fees 169,000 934,500

Portfolio Management Fee 100,324,985 201,232,558

Settlement charges 67,174,109 302,107,202

Underwritng Commission 846,289 928,950

Total fees & commission income 176,798,061 519,383,667

Total opera ng income 372,470,603 720,233,374

Administrative expenses 18.4 40,227,592 42,655,975

Depreciation on property and equipment 8,1 3,129,577 2,189,907

Other expenses 18.5 14,069,353 62,047,573

Total opera ng expenses 57,426,522 106,893,455

Profi t before provision 315,044,081 613,339,919

Provision for future losses 1,489,931 (2,282,821)

Profi t before tax (PBT)

549,625,294 794,182,177

313,554,150 615,622,740

IDLC INVESTMENTS LIMITEDStatement of Financial PositonAs at 31 December 2011

BDTPARTICULARS

2011

ASSETS

Non-Current Assets 23,310,561

Property, Plant and Equipment - Net o Accumulated Deprecia on 22,785,767

Intangible Assets 524,794

Deferred tax - assets 104,993

Current Assets 4,906,751,637

Margin loan to por olio clients 4,726,534,315

Accounts Receivable 94,196,255

Advance, Prepayments & Deposits 55,000

Advance Income Tax (AIT) 737,665

Cash & Cash Equivalents 85,228,402

TOTAL ASSETS 4,930,167,192

EQUITY AND LIABILITIES

Shareholders' Equity 460,117,768

Share capital 400,000,000

Accumulated profi t 60,117,768

Deferred Liabili es - Gratuity payable 2,579,472

Current Liabli es 4,467,469,953

Borrowing from Banks and Fianancial Ins tu ons 3,669,276,020

Deposit from por olio clients 491,320,832

Accounts Payables 250,456,907

Accruals and Provisions 35,925,510

Other Payables 3,880,235

Inter-company account 16,610,449

TOTAL EQUITY AND LIABILITIES 4,930,167,192


Bibliography

Class Lectures of Dr. Tanbir Ahmed Chowdhury.

Financial Markets and Institutions, 7thEdition. Written by, Jeff Madura.

Official website of IDLC Finance Ltd.

Official website of Bangladesh Bank.

Annual Report 2011, IDLC Finance Ltd.

Wikipedia.com/merchantbank

Businessweek.com

www.dsebd.org.

idlc merchant bankikng

Documents