Sources of finance

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Sources of finance

  1. 1. Sources of finance EQUITY – Equity, preference, internal accruals DEBT – Term Loans, Debentures, Working Capital Advances
  2. 2. Methods of raising Equity Capital <ul><li>IPO </li></ul><ul><li>Seasoned Offering </li></ul><ul><li>Rights issue </li></ul><ul><li>Private placement </li></ul><ul><li>Preferential allotment </li></ul>
  3. 3. Long-term Debt <ul><li>Term Loans- </li></ul><ul><ul><li>Currency flexibility </li></ul></ul><ul><ul><li>Security </li></ul></ul><ul><ul><ul><li>First equitable mortgage on all immovable properties of borrower </li></ul></ul></ul><ul><ul><ul><li>Hypothecation of all movable properties of borrower </li></ul></ul></ul><ul><ul><li>Interest payment & principal repayment </li></ul></ul><ul><ul><li>Restrictive covenants </li></ul></ul>
  4. 4. Term Loan Procedure <ul><li>Submission of loan application </li></ul><ul><ul><li>Promoter’s background </li></ul></ul><ul><ul><li>Particulars of the industrial concern </li></ul></ul><ul><ul><li>Particulars of the project </li></ul></ul><ul><ul><li>cost of the project </li></ul></ul><ul><ul><li>Means of financing </li></ul></ul><ul><ul><li>Marketing and selling arrangements </li></ul></ul><ul><ul><li>Profitability and cash flow </li></ul></ul><ul><ul><li>Govt. consent and economic considerations </li></ul></ul><ul><ul><li>………………….. </li></ul></ul>
  5. 5. <ul><li>Initial processing of loan application </li></ul><ul><li>Appraisal of the proposed project </li></ul><ul><li>Issue of the letter of sanction </li></ul><ul><li>Acceptance of the terms and conditions </li></ul><ul><li>Execution of loan agreement </li></ul><ul><li>Creation of security </li></ul><ul><li>Disbursement of loans </li></ul><ul><li>Monitoring </li></ul>
  6. 6. Debentures <ul><li>FCDs and PCDs </li></ul><ul><li>Floating rate bonds </li></ul><ul><li>Secured premium Notes (issued by TISCO) : The principal amount of the SPN is to be repaid in 4 equal annual instalments with an equivalent additional amount with each instalment </li></ul><ul><li>Structured Notes : A debt obligation which is derived from another debt obligation. They can also be securitized debt instruments. </li></ul><ul><ul><li>Pass Through Certificates (PTCs) </li></ul></ul><ul><ul><li>Collateralised Mortgage Obligations (CMOs) </li></ul></ul><ul><li>………………… . </li></ul>
  7. 7. <ul><li>Indexed Bonds : the payoff of a indexed bond consists of – (1) a fixed amount </li></ul><ul><li>(2) a variable component whose value depends on some index </li></ul>
  8. 8. Working Capital finance <ul><li>Forms of bank finance </li></ul><ul><ul><li>Cash credits / ODs </li></ul></ul><ul><ul><li>Loans, purchase / discount of bills </li></ul></ul><ul><ul><li>LOCs </li></ul></ul><ul><li>Other sources </li></ul><ul><ul><li>Deferred credit </li></ul></ul><ul><ul><li>Lease and hire purchase finance </li></ul></ul><ul><ul><li>Unsecured loans and deposits </li></ul></ul><ul><ul><li>Short-term loans from FIs, CPs </li></ul></ul><ul><ul><li>Factoring </li></ul></ul>
  9. 9. Raising capital in International financial markets <ul><li>Euromarkets – a collection of international banks that help firms in raising capital in global market </li></ul><ul><li>Eurocurrency loans – the most common instrument of external borrowing </li></ul><ul><li>It is a deposit of currency in a bank outside the country of the currency </li></ul>
  10. 10. <ul><li>Eurocurrency loans are syndicated loans, wherein a group of lenders(banks) participate jointly in the process of lending under a single loan agreement. The syndicate of lenders is represented by the lead bank. </li></ul><ul><li>Floating rate is applicable on eurocurrency loans which is linked to LIBOR (London Inter bank Offer Rate) </li></ul>
  11. 11. <ul><li>The borrower often enjoys the multi-currency option which enables it to denominate the interest and principal in the new currency opted for. </li></ul>

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