Fund raising basics by Vipul Thakkar- Haribhakti (Jan 2012)

Client name - Event - Presentation title Page TiE Funding Clinic Presentation on Fund Raising – Equity / Debt By Haribhakti SME Transformation & Support Solutions Private Limited

Agenda
Different Funding Options
Different forms of Debt
Debt options & relevance to business
Approach to apply
Client name - Event - Presentation title Page

Fund Raising Options
Equity
Raising money for company activities by selling common or preferred stock. In return for the money paid, shareholders receive ownership interests in the corporation. (Owned Funds)
Subsidy
Monetary assistance granted by the government to a person or group in support of an enterprise regarded as being in the public interest.
Debt
Raising of funds by borrowing (Debt Fund). That part of a firm's total capital which commonly comprises of loan-capital and short term bank loans such as overdraft. Part of a firm's total financing, it commonly comprises of (1) short-term bank borrowings (such as overdraft), (2) cash raised through debt instruments (such as bonds), (3) off-balance-sheet financing (such as operating leases), (4) and trade credit.

Equity Financing
Public Issue
Initial Public Offering
Further Public Offering
Rights Issue
Preferential Offer
Private Equity

Subsidy
Economic benefit (such as a tax allowance or duty rebate) or financial aid (such as a cash grant or soft loan) provided by a government to
support a desirable activity (such as exports)
keep prices of staples low
maintain the income of the producers of critical or strategic products
maintain employment levels or
induce investment to reduce unemployment.
The basic characteristic of all subsidies is to reduce the market price of an item below its cost of production. Also called subvention.

Debt Financing
Working Capital financing
Cash Credit/Bank overdraft
Bill discounting/Factoring
Letters of Credit
Term loan:
Normally given to the borrowers for acquiring long term assets i.e. assets which will benefit the borrower over a long period viz purchases of plant and machinery, constructing building for factory etc
Project Financing:
Financing of long-term infrastructure and industrial projects based upon complex financial structure where project debt and equity are used to finance the project, rather than the balance sheets of Promoters/Project Sponsors
Private and public debt
Private debt comprises bank-loans while Public debt is a freely tradable financial instruments on the stock exchange or over the counter

Debt Financing ……..cont
Securitization
Occurs when a company groups together assets or receivables and sells them in units to the market through a trust. Any asset with a cash flow can be securitized. The cash flows from these receivables are used to pay the holders of these units. Companies often do this in order to remove these assets from their balance sheets and monetize an asset.
Secured and unsecured debt
Defined on basis of recourse to assets
Syndicated and bilateral debt
A syndicated loan that is granted to companies that wish to borrow more money than any single lender is prepared to risk in a single loan, In such a case, a syndicate of banks can each agree to put forward a portion of the principal
Mezzanine Debt
Refers to a subordinated debt or preference shares which represents a claim on a company's assets which is senior only to that of the shares.

Comparison - Syndicated Debt & Mezzanine Debt Criteria Syndicated Debt Mezzanine Security Secured Subordinated Charge on Assets (Ranking) First Second Covenants Tight Flexible Coupon Floating Fixed Rate Prime Risk Adjusted Equity Kicker None Warrants Prepayment Penalties Yes Fixed Period Expected Returns 12% - 14% 13% - 20% Capital Provider Chartered Banks Private Capital

Reasons for availing Debt Finance
Use of Funds – Working capital, Project Loan, Fixed Asset creation, Purchase of Equipment .
Security for debt – Function of use of funds, creation of charge/mortgage – mitigating against delinquency.
Repayment profile – Cash flow – Source and timing - thus maturity/tenor of loan.
Credit standing of Borrower
Credit Ratios – Debt Equity, Interest Cover, Debt service coverage.
Credit History – Years of operations, relationships with lending institution/banks.
Risk Assessment by Lender – Security/Asset cover, equity invested-in by borrower, cash flow profile of borrowers’ business/operations.

Debt Raising - Seven level analysis

Client name - Event - Presentation title Page Individual Company Rating

Page History Future Potential Plans Packaging

Debt Financing – Execution overview
Preparation of Project/Funding requirement
Assessment of cash flow – Funding requirements and cash flows for repayments
Preparation of documents – CMA/CAS for working capital, project report for capital projects, detailed report for project financing
Discussion with relationship lenders/Retaining an arranger
Commercial terms
Security and Underwriting
Proposal within the lenders’ credit system
Legal Documentation – Loan documents, covenants, restrictions
Page

Approach
Analyse the prevailing internal structures & processes
Take measures to improve gaps, if any
Understand the funding requirement
Analyse the various funding options available & check which fits well
Present the actual data in requisite format

Questions
?

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Page Disclaimer: This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact Haribhakti SME Transformation & Support Solutions Pvt. Ltd to discuss these matters in the context of your particular circumstances. Haribhakti SME Transformation & Support Solutions Pvt. Ltd. , its directors, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it. Thank You

Fund raising basics by Vipul Thakkar- Haribhakti (Jan 2012)

by Enterprising INDIA on Feb 11, 2012

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Fund raising basics by Vipul Thakkar- Haribhakti (Jan 2012) Presentation Transcript