End Term Exam Sample Paper

Long Term Financing (BN Murthy)

End Term Exam

Total Marks = 50; Time = 90 Minutes

Part A – 14 Marks

Question 1 – Case study analysis –

Omaxe limited, an Indian real estate player has received an overwhelming response from investors, especially QIBs and HNIs, for their public issue of 2007. A 17.8 million shares issue received bids for 1.22 billion shares, which includes bids for 70.2 million shares at cut off price. The issue was subscribed 68.34 times, as per NSE website. A reserved portion of 10.5 million share for qualified institutional investors received bids for 1 billion shares, which turned into subscription of 95 times. FII were the major supporter to the issue. Non-institutional investors has also given a strong boost to the issue with subscription of 81 times followed by retail 14 times.

Subscription details –

Investor Details	Times
Qualified Institutional Buyers	95.32
Non institutional investors	81.16
Retail individual investors	13.89
Employee Reservation	1.14
Total	68.34

The company had come out with a public issue of 17.8 million equity shares of INR 10 each with an additional green shoe option of up to 1.750 million equity shares in the band of INR 265 to INR 310 per share. In view of Over subscription, the book built price was decided at INR 310. Omaxe has appointed DSP Merrill Lynch ltd, Citigroup Global Markets India and UBS Securities India as global coordinators and joint book running lead managers for the issue. JM Morgan Stanley is the book running lead manager.

The Company’s quote in Indian Markets presently is hovering around INR 140-150. There were no bonus issues, since the public issue. Assume you are one of the lead managers, how would you justify now, the issue pricing compared to the present market price.

Part B – (21 Marks) – Answer Three

Descriptive Answers –

1) What is green Shoe option? Explain with an example, assuming Green Shoe option could be exercised only for 5%, in the instant case, against eligible norms

2) ‘Financing for Debt is cheaper than Equity in long term financing’. Discuss.

3) Elaborate Book building process, including details related to Dutch auction. What distinct advantages you find in book built issue compared to fixed price issues?

4) Assume you are a CFO of a large Singapore company with good financials. You are required to raise debt in the form of $ 1 billion debenture issue in International Capital Markets, being the total cost of a profitable project. Keeping in view the current interest rate & Foreign exchange rate structure, elaborate key factors that you would consider while launching issue?

Part C – (15 Marks) – Attempt all Questions

1) What is due diligence from the Merchant Banker point of view in a capital issue with reference to the Indian Capital Market Regulator’s requirement on Compliance.

2) Explain Leveraged buyout. Give an example from your understanding.

3) Distinguish between Capital Lease and Operating Lease

4) Write Short notes on Securitization & Angel Investor

5) An issuer raised FCD with a coupon rate of 6%, prices at INR 125, per FCD, fully convertible into 5 equity shares at the end of 6 months. The market quote of the share was 35% higher than the conversion price, at the time of conversion. What would be the net yield to an investor, on conversion assuming he sells the converted equity in the market, by paying 1.56% on the sale value as brokerage and other service taxes?