NATIONAL UNIVERSITY OF SINGAPORE
NUS BUSINESS SCHOOL
Department of Finance
BMA5318: Investment Banking
(Summer I: May-June 2012)
Instructor: Banikanta Mishra
Office: BIZ 1 Level 7-77
Prerequisite: BMA5008 (Financial Management)
COURSE SYNOPSIS: This course is a blended introduction to Investment Banking (IB). It would combine theory and practice. To buttress our understanding of practice, we would do some case studies and also have practitioners give a Street Talk every week; some of them may discuss live projects and I may pitch in with my experience with past ones I have been directly involved in. Moreover, we would have both qualitative and quantitative discussions on most topics, the latter mainly being numerical examples (not any rocket science or high-flying calculus). Though we would talk about the global scenario, our focus, whenever possible, would be on Asia.
After gaining an idea into what IB is and understanding the basics of Trading, we would study in detail the capital-raising process, mainly Underwriting and Syndication. Here, we would learn about IPO and SEO and ADR and GDR as well as about NIF and RUF. We would also get familiar with Euromarket and the innovative Euro instruments like Euronote and Euro-CP as well as Eurobond and Euroequity. This would also give an opportunity to get a glimpse into Financial Engineering in debt and equity instruments as well as about Structured Financing. We would then talk about MADS (merger, acquisition, divestiture, and spinoff) and learn how to evaluate them. Wealth Management and Mutual Fund would commence one of our focus areas, and, here, we would learn how an AMC works. This would lead to an insight into Hedge Funds and Private Equity. In that light, we would also talk about LBOs and LBO valuation. Project Financing (PF) and PPP (Public Private Partnership) would be touched upon, with a discussion of their forms and Risk Management techniques in PF. We would end with Securitization, wherein we would study about MBS and ABS as well as about CMO, understanding the beauty and risks of these instruments and innovations like IO and PO that have accompanied them.
REFERENCES: The class discussions and handouts would be exhaustive and self-sufficient. I would refer to the following books for topics they cover well; so, they are referred to in the Course Content by the two-letter code. You may refer to none, some, or all, as you like.
DS: An Introduction to Investment Banks, Hedge Funds, and Private Equity: The New Paradigm, David Stowell, Academic Press – Elsevier, 2010
RP: Investment Banking: Valuation, Leveraged Buyouts, and Mergers & Acquisitions, J Rosenbaum and J Pearl, John Wiley, 2009
SW: Global Banking, RC Smith, I Walter, and G DeLong, Oxford University Press, 2012
TL: The Business of Investment Banking: A Comprehensive Overview, K Thomas Liaw, John Wiley, 2012
TE (Term Essay: Individual Assignment) 15%
MT (Take Home Midterm: Individual Assignment) 20%
CP (Class Participation) 15%
CR (Two Brief Group Case Reports: Response to Selected Questions) 20%
CA (Detailed Case Analysis: Group Assignment) 30%.
TE: Each week, we would have a Street Talk by a practitioner (tentative schedule given below). At the end of the term - by 11:00am on 18 June 2012 - you should submit – hard or soft copy – a Term Essay, which should summarize all the Talks and also include your comments on the issues raised in the Talks as well as about Investment Banking in general, with some focus on Asia. The Essay should be confined to 15 pages, including Excel sheets, if any (each page represents one side of an A4 sheet, with one inch-margin on all sides and 1.25 line-spacing). You should write the summary of each Talk immediately after it is held, and compile all of them at the end.
Managing Director, Financial Institutions Coverage, SE Asia
Standard Chartered Bank, Singapore
Vice President – Compliance
Invenio Holdings Pte. Ltd, Singapore
Subsidiary of Olam International Ltd
Wealth Management and Compliance
Founder and Managing Partner
SRB2 Group LLC, US
Managing Director and Chief Investment Officer
J P Morgan, Singapore
J P Morgan Chase Bank, Singapore
Project Finance Case Study
Sundaram Asset Management Co., India
AMC Scenario in India
MT: There would be a Take-Home Mid-term, due, in hardcopy format, at the beginning of the 8th class. Use only A4-size paper (even for attached Excel sheets, if any). Questions would be a combination of conceptual, theoretical, and numerical (can be subjective or objective).
CP: Your score on this front would depend on your attendance, your involvement in the class and case discussions (especially answering questions and raising interesting issues), and your participation in the discussion following the Street Talks.
CR: We would discuss a case in each of the 6th (Week-3) and 10th (Week-5) classes. So, there would be two in all. You should submit, at the beginning of the respective class, a group Case Report - in hardcopy format - addressing merely those questions assigned by me below, which would require you to focus only on selected parts of the case. Ideally, there should be 3-5 students in each group. Here are the case questions.
SZLN: Acquiring PEM (Ivey Case: Merger & Acquisition) à [Max four A4 pages of text with 1.25 line-spacing and additional two A4 pages of Excel sheets; one-inch margin on all sides] 1) Determine the value of PEM shares to SZLN. 2) Design an appropriate offer (e.g. exchange of shares, open market purchase).
Softbank’s New Strategy: The Largest LBO in Japan (University of Hong Kong Case: LBO) à [Max four A4 pages of text with 1.25 line-spacing and additional two A4 pages of Excel sheets; one-inch margin on all sides] 1) Prepare Vodafone KK’s pro-forma future cash-flow statement for 2006-2008. 2) Estimate the AIC (all-in-cost) of the debt-financing alternatives in terms of yen.
CA: This is also a group project. You would have to read the following case and analyze it in detail to answer all the questions given below. The report – soft or hard copy - is due by 11:00am on 18 June 2012.
Shenzhen Development Bank (Harvard Case: Private Equity) à [Max twelve A4 pages of text with 1.25 line-spacing and additional six A4 pages of Excel sheets; one-inch margin on all sides] 1) What makes Shenzhen Development Bank (SDB) an attractive target for investment, and what are the potential sources of value? 2) What are the key risks for investing in SDB, and how can TPG Newbridge Capital (TNC) mitigate these risks? 3) Why can TNC win the deal? What is the value-added from TNC as a private-equity investor? 4) Is TNC paying the right price for SDB? What is an appropriate valuation range? 5) Why has the TNC-SDB deal failed to go through the transition stage? What are the key lessons that can be learnt from the failure? 6) Given the public failing-out, should TNC continue to pursue the investment or should it walk away? If TNC decides not to give up, what should it do immediately to save the deal and what should be the key initiatives in its turnaround plan post-investment?
OFFICE HOUR: I would typically be available in office an hour before the class starts on Tuesdays and Fridays, but I would still advise you to check with me - email or cell - before coming to meet me. I can also meet at other times. Knowing that you are very busy, I would try to cater to your convenient timings. But, please get a prior appointment by calling me in my cell or, better, sending me an e-mail; I would call you back if there is some urgency. If you have any questions or concerns about the course, please do not hesitate to talk to me or the Finance Chairperson or write to one of us.
COURSE CONTENT: (Please refer to References for the two-letter codes.)
Introduction: [TL] (8 May)
Investment Banking (IB) is what IBers (Investment Bankers) Do
Types of Investment Banks
Trends in IB
IB in BRICS countries and Asia
Capital Raising Process: [SW] (8 May)
Underwriting, Syndication, Private Placement
IPO (Initial Public Offering) and SEO (Seasoned Equity Offering)
Valuation of IPOs
NIF (Notes Issuance Facility) and RUF (Revolving Underwriting Facility)
Euronote, Euro-CP (Commercial Paper), Euro-MTN (Medium Term Note)
Financial Engineering: [Notes] (8 and 11 May)
ADR & GDR
Other Innovations in Equity
ICON (Indexed Currency Option Note)
DCB (Dual Currency Bond)
Other Innovations in Debt
Trading & Arbitrage: [TL] (11 and 15 May)
Brokerage and Market-Making
MADS: [RP] (15 and 18 May)
Merger & Acquisition
Motivation for M&A
Evaluation of M&A Deals
Divestiture and Spin-Off
Wealth Management and Mutual Fund: [SW] (22 and 25 May)
Mutual Funds: Varieties
Managing MF AMC (Asset Management Companies)
Hedge Funds: [DS] (29 May)
Overview and Recent Performance
Market Liquidity and Efficiency
Lockups, Gates, Side-Pockets
HF versus PE (Private Equity) and MF (Mutual Fund)
High-Water Marks and Hurdle Rates
Private Equity: [DS] (1 June)
PE Transaction Participants
Structure of a PE Fund
Capitalization of a PE Transaction
PIPE (Private Investment in Public Equity)
VC (Venture Capital) and PE
LBO (Leveraged Buy Out): [RP] (5 and 8 June)
Economics of LBOs: Return Analysis
Exit or Monetization Strategies
Financing Structure of LBO
LBO Valuation: The Nitty Gritties
Asset-Based and Project Financing: [SW] (8 and 12 June)
Structure of a PF Deal
BOT (Build Operate Transfer) Model and Its Variants
PPP (Public Private Partnership)
Identifying PF Risk
Managing PF Risk
Take or Pay and Take & Pay Contracts
Input-Price Swap and Output-Price Swap
Other PF Risk Management Techniques
Securitization: [TL] (12 and 15 June)
Asset-Backed Security, Mortgage-Backed Security
Pay-Through and Pass-Through
Securitization Structure and Credit Enhancement
CMO (Collateralized Mortgage Obligation)
Prepayment (or Call) Risk and Extension Risk
Floaters and Inverse Floaters, IO and PO