Description
It explains various sources of funding like equity shares, preference shares, debentures, term loans, demergers and spin off, leveraged buyout
Project Financing
Structure
• • • • Long term funds Large amount Leverage aspects Control aspects
Equity shares
• • • • • Most potent source of financing without any obligation Permanent capital to the company Claim on residual income Control on company No legal recourse to compel the company for distribution of profit • Preemptive rights
– Power to maintain proportionate interest in assets, earnings and control of the company (section 81) – Shareholders also called pro-rata owners
Preference Shares
• Provides source of capital from those who are Similar to equity shares in terms of maturity, no obligations, claim on residual income • Redeemable or callable preference shares (Amendment 1988) • Conversion feature incorporated • Priority claim on assets as against common shares • Normally do not have direct controlling right
Debentures
• Viable alternative to term loans • Typically secured bonds in India, though unsecured debentures also being issued. • Less than 1 year: commercial paper • May carry ‘call’ and ‘put’ options • May be convertible into shares: partially or fully • Low cost high risk source
Term Loans
Banks and Financial institutions • Commercial banks: historically provide working capital though recently have started term lending. • Financial institutions
– All India: IFCI, ICICI, IDBI, IL&FS, IDFC, SIDBI, LIC, GIC – State level: SIDC, SFC
External Sources
Especially needed for future growth
• • • • • • • • • • Licensing Franchising Strategic Alliances Joint ventures Mergers and acquisitions Demergers and spin-offs Leveraged buy-out Private placements Angel investors Venture capital
Demergers and spin-offs
• Separation of one company from parent company
– Ownership interests are disposed off to the owners of the head company (Direct route) – New interests are created with new owners (Indirect route)
• When carrying off legacy affects growth • The two entities have no linkage in terms of product or market • Creates enough wealth for the entities.
Leveraged buy-out
• Highly leveraged transaction or ‘bootstrap’ transaction. • Buying out control of an organization from borrowed funds from banks, financial institutions, angel investors, venture capital. • Reversed leveraged buyout: exiting LBO
– offering new shares to the public which has initially went private through LBO.
Private placements
• Offer and acceptance of equity or other securities to a limited number of high worth individuals or FIs. • Normally when more funds required soon after an IPO.
Angel Investors
• An affluent individual who provides capital for start up usually in exchange for ownership equity or convertible debt.
– Friends, family
• Healthcare, medical services, biotech and software most popular areas of angel investors • Very high risk involved hence angels usually aim for very high returns • Definite exit strategy through IPO or acquisition. • There were 234000 active angels in US in 2006. • Angel groups are local organisations made up of 10 to 150 accredited investors. • In 1996 only 10 groups of angels in US which increased to 150 in 2007
doc_864829088.ppt
It explains various sources of funding like equity shares, preference shares, debentures, term loans, demergers and spin off, leveraged buyout
Project Financing
Structure
• • • • Long term funds Large amount Leverage aspects Control aspects
Equity shares
• • • • • Most potent source of financing without any obligation Permanent capital to the company Claim on residual income Control on company No legal recourse to compel the company for distribution of profit • Preemptive rights
– Power to maintain proportionate interest in assets, earnings and control of the company (section 81) – Shareholders also called pro-rata owners
Preference Shares
• Provides source of capital from those who are Similar to equity shares in terms of maturity, no obligations, claim on residual income • Redeemable or callable preference shares (Amendment 1988) • Conversion feature incorporated • Priority claim on assets as against common shares • Normally do not have direct controlling right
Debentures
• Viable alternative to term loans • Typically secured bonds in India, though unsecured debentures also being issued. • Less than 1 year: commercial paper • May carry ‘call’ and ‘put’ options • May be convertible into shares: partially or fully • Low cost high risk source
Term Loans
Banks and Financial institutions • Commercial banks: historically provide working capital though recently have started term lending. • Financial institutions
– All India: IFCI, ICICI, IDBI, IL&FS, IDFC, SIDBI, LIC, GIC – State level: SIDC, SFC
External Sources
Especially needed for future growth
• • • • • • • • • • Licensing Franchising Strategic Alliances Joint ventures Mergers and acquisitions Demergers and spin-offs Leveraged buy-out Private placements Angel investors Venture capital
Demergers and spin-offs
• Separation of one company from parent company
– Ownership interests are disposed off to the owners of the head company (Direct route) – New interests are created with new owners (Indirect route)
• When carrying off legacy affects growth • The two entities have no linkage in terms of product or market • Creates enough wealth for the entities.
Leveraged buy-out
• Highly leveraged transaction or ‘bootstrap’ transaction. • Buying out control of an organization from borrowed funds from banks, financial institutions, angel investors, venture capital. • Reversed leveraged buyout: exiting LBO
– offering new shares to the public which has initially went private through LBO.
Private placements
• Offer and acceptance of equity or other securities to a limited number of high worth individuals or FIs. • Normally when more funds required soon after an IPO.
Angel Investors
• An affluent individual who provides capital for start up usually in exchange for ownership equity or convertible debt.
– Friends, family
• Healthcare, medical services, biotech and software most popular areas of angel investors • Very high risk involved hence angels usually aim for very high returns • Definite exit strategy through IPO or acquisition. • There were 234000 active angels in US in 2006. • Angel groups are local organisations made up of 10 to 150 accredited investors. • In 1996 only 10 groups of angels in US which increased to 150 in 2007
doc_864829088.ppt