Mezzanine in India – Market Study
Mezzanine Financing
Mezzanine is a type of financing which allows companies to obtain loans for expansion without offering any collateral. However if the business defaults on the loan the lender can convert the loan into an ownership stake, thus making it a hybrid of debt and equity financing.
Through mezzanine financing business owners can quickly generate capital without the need to issue the shares of the company. In case of default the outstanding amount is converted into appropriate ownership share which can be sold or transferred depending on the lenders discretion. It is usually a subordinate to debt provided by senior lenders such as venture capital companies and banks.
However the interest rates are quite high in mezzanine financing to account for the minimal due diligence, no collateral and low priority given to mezzanine financing with respect to repayments of the company’s loan obligations (senior debts).
Mezzanine financing is treated as equity in the company’s balance sheet and hence makes it easier for the company to obtain financing from banks. To obtain mezzanine financing a company must be a reputed player in the industry with a history of profitability and viable expansion plans.
Indian Market
Mezzanine products have grown increasingly popular in the recent years. Since it does not involve any collateral it emphasizes on legal terms, contracts etc. It was originally developed in the North American markets but now is an established financial instrument in European markets as well.
Indian sub-debt market has three main players:
a) SIDBI : has given generous debts to top MFIs
b) FIIs: subscribe to sub debt of the company where they already have a stake.
c) IFMR : support ...
... middle of paper ...
...lauses
• Subordinated debt instruments shall not be issued with a ‘put option’. Call option may be exercised after the instrument has run for at least five years
Conclusion:
Mezzanine products earlier found competition from banks but contraction of global credit risk have made mezzanine financing more appealing.
The market for Mezzanine funds are not developed in India, some sort of financing is available but to the upper strata of enterprises. Though it is difficult to find Mezzanine investment deals due to lack of knowledge, Mezzanine financing is steadily rising to plug the gap between growth capital supply and demand and the trend shows that mezzanine loans will appear more frequently as a financing option in the next two years.
Due to the flexibility and its structure, in a growing economy like India, Mezzanine financing is an extremely useful financing option.
Stein, J. (1992). Convertible Bonds As Backdoor Equity Financing. Retrieved on June 12, 2006, from the World Wide Web at: http://www.financeprofessor.com/summaries/Stein1992ConvBond%20paper.htm.
approach was to be utilized as a framework for financing (Kronenfeld, 2011). In 1972, benefits
An alternative to traditional equity and debt financing is leasing. Leasing is undertaken primarily for what purposes?
receive bank financing for this new entity of HKD 2.3bn as a Delay Draw Term Loan (“DDTL”) plus HKD
What is the difference between a. and a. The argument of the debt financing being a risky venture since the proposition was to pay out to a sinking fund does not make sense. Over the course of the next seven years, CCI had a historical growth. in revenue of 9%. This growth along with the $2M tax shelter would.
Thirdly, serial borrowing and repurchase throughout several years is considered. This is essentially the financial policy the company has adopted these years. This policy is less risky measured by coverage ratios and is more acceptable to stockholders. However, UST has imminent challenges and value enhancing objectives to meet. If the company has debt capacity untapped upon, large sum repurchases avoid excessive advisory fee, negotiation time and effort, potentially credit rating charge while immediate significant tax shield benefit is made possible.
All business activities require finance to establish itself physically in a location and to fund daily activities of the business. This money can be acquired in two ...
In our business world, ‘Capital is the lifeblood of every business venture’ (Smith, 2012). Capital can build up company, purchases non – current assets for instance machinery or plant and paid off daily expenses for examples wages, lighting, power etc. Every company needs to have someone to manage the finance by thinking different types finance which are internal short term, internal long term, external short term and external long term financial resources. These are the main four ways which can raise the capital but those sources may relate to different repayment rate and length and the amount will be received. When the owner and manager thinking to apply internal or external financial resources they need to consider Purpose, Amount, Repayment, Interest and Security which is name as PARIS. Purpose is identifying what type of finance are suitable to required, amount is how much should be borrow, repayment is how much and when should the business pay the finance back. Interest is how much is the finance cost and security is the business need put down the business assets or personal household as a deposit before receive any finance. These are the main concepts owner and manager need to remember before apply any type of finance. (Cox and Fardon, 2009) Director and manager need to think effectively for rising capital in an effective way which includes lower repayment and the control of the company. (Gillespie, 2001)
The lifestyle of people across the world is developing rapidly. As there is a growing concern for people about the lifestyle and way of living, the scope for the microfinance industry is also at a growing pace. A large number of people across the world prefer finance for the purpose of purchase of consumer durables as well as lifestyle products. As the credit card EMI options are more expensive, people prefer NBFCs for the purpose of consumer durable loans. The project done in bajaj finserv explains the role of NBFCs in the consumer durable loans and the procedure undertaken in order to disburse the consumer durable loans.
A key benefit of equity financing is that the company will not be debt repayments. This is beneficial...
For an organisation to rise fund, they usually tend to look at the stock market and capital market to do it so. This is two markets are usually seemed similar by the investors as they both contributes to the development of an economy. But there are significant difference between them. The capital market is a market that consist of stock market as well as the bond market. As a result, the capital market provides a long-standing finance using the debt capital and the equity capital. Capital markets divided into two sectors known as primary markets and secondary markets. The primary market is where securities are issued for the first time whereas the secondary market is where securities that have been already issued are traded among investors (Difference...
The capital structure of a firm is the way in which it decides to finance its operations from various funds, comprising debt, such as bonds and outstanding loans, and equity, including stock and retained earnings. In the long term, firms seek to find the optimal debt-equity ratio. This essay will explore the advantages and disadvantages of different capital structure mixes, and consider whether this has any relevance to firm value in theory and in reality.
stripping them off their assets and saddle them with debt, private equity firms build companies; they
Smaller companies are much more likely to obtain an attentive audience with a commercial loan officer after the start-up phase has been completed. In determining whether to extend debt financing--essentially, make a loan--bankers look first at general credit rating, collateral and your ability to repay. Bankers also closely examine the nature of your business, your management team, competition, industry trends and the way you plan to use the proceeds. A well-drafted loan proposal and business plan will go a long way in demonstrating your company's creditworthiness to the prospective lender.
Sources of finance are the different methods for a business to earn and obtain money. There are lots of ways to obtain money but two large basic sources of finance, which are the “owner’s capital” and “capital borrowed”. They are also called internal sources of finance and external sources of finance. In those sources, they are mainly divided in two groups, which are short-term sources of finance and long-term sources of finance.