Friday, March 18, 2005

Underwriting-An important function of Investment Banker

Underwriting is a legal obligation for the Financial Institution to subscribe the “unsubscribed” portion of an Equity/Debt offering made by a company. Any Company which wants to raise money from public by offering Equity shares and is not confident about public subscribing to the full number of shares or the minimum subscription which will enable them to go ahead with the allottment (as per SEBI guidelines) will look out for an underwriter. Underwriter provides a guarantee to the company that he will ensure that the public offer is fully subscribed and in case of any shortfall, he will make good for the shortfall.

The underwriter charges a fee for providing such guarantee known as underwriting commission (irrespective of whether there is an undersubscription or not).

The underwriter's liability is restricted to
(a) Unsubscribed amount or
(b) Pre agreed amount

The underwriter is under no obligation to buy the shares if the public offer is fully subscribed.

The advantages of Underwriting to the issues are

(a) Insurance against full subscription
(b) Big Names attracts more investors
(c) Good pricing and market assistance because of big players

Thursday, March 17, 2005

Cash Withdrawal tax may go........ Good News

The Finance Minister, Mr P. Chidambaram, on Thursday hinted at a softening of the Budget proposal to impose 0.1 per cent tax on bank cash withdrawals of Rs 10,000 and more in a single day.

He said that "Banking Cash Transaction Tax" is not imposed and it is just a proposal. He said that there might be some good news in this regard.

I personally feel that this is really good news that the FM is giving a second thought on this. But the intention behind bringing this tax was good but i feel should be in some better ways.