Tapping the Market Liquidity and Alternative Funding Structures Presented by Norman Wilson, ABIF
Local liquidity pressures leading to increase in foreign currency financing for a number of major transactions $3,000m $99m Combined Bank Loan Trend
-Fiji Govt floated U$150m bond -FNPF offshore investment flowing back in F$100m -GFC impact -Increase in oil price to U$150/barrel – liquidity drain 2 SRD increase totalling 3% Inflow from bond issuance U$100m -Recall of offshore investment -Improvement in Trade deficit - Increase in Foreign loan - IMF SDR Increase Devaluation Redemption of RBF Notes $75m $515 m FCY Loans MNC Profits Bank Capital $1,359m $99m $100m $200m Relationship between Domestic Liquidity and Reserves
Financing sources 1. Equity Self Private equity (institutional investors) Angel investors Stock exchange (IPO)
Financing sources 2. Debt Senior debt, i.e. banks. Commercial paper/ Bonds Mezzanine finance
Capital structure options 1. Raise own Capital, from savings and borrowing from family members. 2. Own equity + debt financing. 3. Own equity + Private equity + debt (bank) 4. Own equity + Mezzanine Finance + bank finance
Assumptions: Initial Capital – FJ$8m Bank debt – 9% Mezzanine Finance – 12% Private equity – 20% Raise own Capital - 100% 100% equity, carrying 100% risk as well. Low Return on Equity because its all self funding. Pay back period is about 5yrs Own equity + debt financing (40%+60%) Return on Equity is higher as equity is reduced Pay back period is 4.3yrs Sales cost – 60% (Gross Profit margin of 40%) Overhead – 25% (Net Profit margin of 15%) 12
Assumptions: Initial Capital – FJ$8m Bank debt – 9% Mezzanine finance – 12% Private equity – 20% Sales cost – 60% (Gross Profit margin of 40%) Overhead – 25% (Net Profit margin of 15%) Own equity + Private equity + debt (bank) 20% + 20% + 60% Return on Sales again lower than option 1, because of interest portion. ROE is higher as Investment is only 20% of total capital. Pay back period is about 5 yrs. Own equity + Mezzanine Finance + bank finance (20% + 20% + 60%) Return is sales is the lowest because of higher interest from Mezzanine Finance. Pay back period is about 4.6 yrs 34
Summary of return on Shareholders Equity
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