What is INVESTMENT BANKING?

• Investment banking is a field of banking that aids companies in acquiring funds. In addition to the
acquisition of new funds,investment banking also offers advice for a wide range of transactions a
company might engage in.
• Through investment banking, an institution generates funds in two different ways. They may draw on
public funds through the capital market by selling stock in their company, and they may also seek
out venture capitalor private equity in exchange for a stake in their company.

so an investment bank is...

• a financial institution whose expertise lies in its ability to manage capital market risk on behalf of clients
through a variety of financial engineering solutions.
• Investment banks are also referred to as “investment houses”. Investment house is a legal phrase that
connotes certain powers that the government allows local investment banks to engage in under license.

UNDERWRITING
• The process by which investment bankers raise investment capital from investors on behalf of
corporations and governments that are issuing securities (both equity and debt).

THE UNDERWRITING CYCLE

• The underwriting cycle begins when an issuer decides that it wishes to raise funds through debt, quasi-
equity or equity. Issuance of debt in the capital market take the form of commercial papers. Commercial
papers are issued on either a short-term or long-term basis.
• Once a financing decision has been made, the issuer may ask several investment houses to submit
indicative proposals to act as lead underwriter and issue manager for its issue.
• Soon after the proposals are submitted, the issuer may ask potential underwriters to make presentations
regarding their proposal.
• Once all the proposals are in and the presentations complete, the issuer selects an underwriter.
• An investment bank that is awarded the role of lead underwriter is said to be given a “mandate” for a
deal. As soon as it has been awarded, the lead underwriter moves quickly to form an underwriting
syndicate of other investment banks who will sell the deal through their respective sales and distribution
networks based on terms and conditions for the instrument that will be dictated by the lead underwriter.
• While the syndicate is being formed, the lead underwriter assists the issuer in the preparation of
documents that need to be submitted to the SEC. They also assist Commercial Paper issuers in applying
for a credit rating.
• Only the SEC gives its approval for the issue, the lead underwriter develops the final terms and
conditions for the offering in consultation with the issuer.
• An underwriting agreement is signed between the issuer and syndicate where the terms and conditions of
the issue as well as the responsibilities of all investment banks are formalized.

TYPES OF UNDERWITING
(i) Firm Underwriting.
Generally, underwriters agree to buy such number of shares or debentures which are not to be
taken up by the public but sometimes, the underwriting agreement provides that the underwriters
will purchase certain shares (as greed upon) themselves. Such an agreement of outright purchase
of securities with the underwriters is called Firm Underwriting. This liability is in addition to the
shares not taken up by the public. Such an agreement creates confidence in the minds of
investing public.

(ii) Sub-Underwriting.

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 In case of large issue, an underwriter does not wish to carry the whole risk on his shoulders, he
may enter into the contract wit other underwriters to share the risk. This contract entered into
between the main underwriter and the other underwrites is called Sub-underwriting an he other
underwriters are called Sub-underwriters. The company is nowhere in the picture. Sub-
underwriters are offered a commission slightly below the underwriting commission.

(iii) Syndicate Underwriting.

This is an underwriting agreement between he issuing company and 2-3 or more firms of
underwriters to underwriters a large issue. They agree with the company to share the joint
responsibility in an agreed ratio. Some-times, these underwriters to the contract form a new
consortium or syndicate.

SYNDICATION
• is a temporary association of investment bankers brought together for the purpose of selling new
securities. One investment banker is selected to manage the syndicate called the originating house,
which does underwriting of the major amount of the issue.
• There are two types of underwriting syndicates, divided and undivided.
*Divided syndicate- each member group has liability of selling a portion of offerings assigned to them.
*Undivided syndicate- each member group is liable for unsold securities up to the amount of its
percentage participation irrespective of the number of securities that group has sold.

FINANCIAL ADVISORY
• it refers to advice provided by an investment bank with regard to overall financial strategy and condition
of a firm.
• A financial advisor can help the company decide what sorts of financial instruments need to be offered
to funders, in what sequence they should be offered and for how much. They can also demonstrate the
effect on firm value of various financing alternatives. Unlike in the case of an underwriter who is
concerned with the particular transaction, a financial adviser can take a longer-term, more strategic view
of a firm's financial plans.

DISTRIBUTION
• Another function of investment banker it to market the security issues. The investment banker acts as a
specialist to distribute securities efficiently for the corporation. It can be very expensive and ineffective
for a corporation to sell an issue by establishing marking and selling organization by its own. Investment
banker has established marketing and sales network to distribute securities. For a reputed invest banker,
with its past history of selecting good companies and pricing securities builds a broad client base over
time, and further increases the efficiency with which securities can be sold.

II. ILLUSTRATIONS

METRO – PACIFIC INVESTMENTS

Metro Pacific Investments Corporation is raising the groundwork of basic services into a whole new level of
systems and organizational initiatives to pave the way for a strategic response to the changing times. We are
moving up on our commitment to meet the growing demand for vital services reaching far and wide, while
providing continuous supply of clean and potable water, efficient distribution of electrical power, state-of-the-art
tollway systems and world-class medical care.
Metro Pacific Investments Corporation (“the Group” or “the Company”) was incorporated and registered with
the Securities and Exchange Commission (“SEC”) on 20 March 2006 to serve as a holding company for
investments in real estate and infrastructure projects. On 15 December 2006, the Company listed with the
Philippine Stock Exchange.

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The major shareholder of the Company is Metro Pacific Holdings, Inc. (“MPHI”), which owns 55.6% of the
shares of the Company as of 31 December 2009. MPHI is a Philippine corporation whose major stockholders are
Enterprise Investment Holdings, Inc. (“EIH”) (60.0%), Intalink B.V. (“Intalink”) (26.7 %) and First Pacific
International Limited (“FPIL”) (13.3%). Intalink B.V., FPIL and EIH are affiliated companies of First Pacific
Company Limited (“First Pacific”).

The Group’s major subsidiaries and their corresponding incorporation / registration dates:

DMCI – MPIC Water Company - 17 November 2006

Metro Pacific Tollways Corporation - 13 November 2008

The Group’s affiliates and their corresponding acquisition dates:

Medical Doctors Inc. – 1 June 2007

Davao Doctors Hospital – 31 May 2008
Riverside Medical Center – 31 May 2010
Beacon Electric Asset Holdings Inc. – 2 October 2009
Manila North Harbour Port, Inc. – 5 November 2009

BDO CAPITAL AND INVESTMENT CORPORATION

Top investment house in the Philippines today from among more than 30 active local investment houses despite
being established only nine years ago. The multiple awards BDO Capital received from four prestigious
international finance magazines are a testimony to its dominance in the Philippine investment banking industry.
Wide experience in various industries has enabled BDO Capital to capture major deals in the market with the
assistance of parent bank’s relationship managers. BDO Capital’s expertise not only lies on the origination and
execution of deals but also on its knowledge of the industry where a particular client is. In this way, the needs of
the clients can be carefully assessed and the optimal structure can thus be recommended.
Capital strength and stability through strong parent company support (SM and BDO). SM is the Philippine’s
largest mall owner and operator while BDO is the largest bank in the country today. With these two groups
backing up, BDO Capital will remain a major force in the investment banking industry for years to come.
Strong distribution capability through SM’s strong network of investors, clients, and suppliers, and BDO’s more
than 660 branches nationwide. Issuers/borrowers are assured of wide distribution of its product offerings
compared to other non-bank-affiliated houses which have limited distribution network.
Extensive contacts with industry regulators and foreign investment houses BDO Capital maintains very cordial
relationship with regulators such the Philippine Securities and Exchange Commission and Philippine Stock
Exchange which somehow helps push the deal. For deals involving international distribution, BDO Capital has
been the “local house of choice” by foreign houses owing to satisfactory experience the latter had with BDO
Capital. BDO Capital’s knowledge of the peculiarities in the local market, as well as its distribution capability
are major factors why BDO Capital is preferred from among other local houses.
One-stop-shop investment house allowing BDO Capital to cover all aspects of a deal: deal origination,
structuring and execution through BDO Capital, funding through the parent Bank (Corporate Banking,
Commercial Banking, Trust or Treasury) and affiliate Private Bank, fiduciary roles (trusteeship, loan agency,
registry, paying agency, etc.) through the Bank’s Trust Banking Group, secondary market trading through
affiliated brokerage houses and the Bank’ Treasury Group, and insurance services through the Bank’s insurance
subsidiary. Not all investment houses can offer all these services. Clients can therefore enjoy the benefits of
saving some costs and the need to deal with several parties to the transaction.

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