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		<title>SOURCES OF LONG TERM FINANCE</title>
		<link>http://tuyetanh.co.uk/2010/01/11/sources-of-long-term-finance/</link>
		<comments>http://tuyetanh.co.uk/2010/01/11/sources-of-long-term-finance/#comments</comments>
		<pubDate>Mon, 11 Jan 2010 01:20:27 +0000</pubDate>
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				<category><![CDATA[Uncategorized]]></category>

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		<description><![CDATA[Need for long term Finance
Long term vs. short term(working capital) funds requirements
For modernization, expansion, diversification; huge quantities reqd., irreversible decision
Asset-liability mismatch, interest rate risk, liquidity risk, if LT reqts.met by ST funds
Equity Capital
Authorized, Issued, Subscribed and Paid up capital
Par/face value, Issue Price, Book value and Market Value
Rights of equity shareholders
Right to Income :   PAT less [...]]]></description>
			<content:encoded><![CDATA[<p style="text-align: left;"><strong>Need for long term Finance</strong><br />
Long term vs. short term(working capital) funds requirements<br />
For modernization, expansion, diversification; huge quantities reqd., irreversible decision<br />
Asset-liability mismatch, interest rate risk, liquidity risk, if LT reqts.met by ST funds<br />
<strong>Equity Capital</strong><br />
<em>Authorized, Issued, Subscribed and Paid up capital<br />
Par/face value, Issue Price, Book value and Market Value<br />
Rights of equity shareholders<br />
Right to Income :   PAT less preferred dividends<br />
Right to Control : voting rights<br />
Pre-emptive Right : for additional issues, rights issue in the same proportion<br />
Right in liquidation : residual claim over assets</em><br />
<strong>4. Advantages and Disadvantages of equity Capital</strong><br />
*Advantages<em><br />
No fixed maturity, no obligation to redeem<br />
No compulsion to pay dividends<br />
Provides leverage capacity<br />
Dividends tax exempt for investors<br />
</em>* Disadvantages<em><br />
Dilution of control of existing owners<br />
High Cost: rate of return expected by equityholders higher than debtholders<br />
Dividends are not tax deductible: hence cost is higher<br />
Issue costs higher: underwriting, brokerage, other issue expenses<br />
Higher servicing costs:</em> hold AGMs(Annual General Meeting), post annual reports etc.<br />
<strong>5. Internal Accruals</strong><br />
<em>Readily available, no talking to outsiders<br />
Effectively additional equity capital, however no issue costs of loss due to underpricing<br />
No dilution of control<br />
No expansion in equity base, hence no dilution of EPS, BV per share etc.<br />
Quantum very limited<br />
High Opportunity costs: dividends forgone by equity holders<br />
Requires careful attention to Net Present Value of projects<br />
Consists of retained earnings and depreciation charges</em><br />
<strong>6. Preference share</strong><br />
<em>Is a hybrid form of financing , payment after debt but before equity<br />
</em>*Equity features :<em><br />
out of distributable profits<br />
not an obligatory payment<br />
dividends not tax deductible<br />
</em>* Debt features :<em><br />
dividend rate is fixed<br />
capital is redeemable<br />
normally no right to vote<br />
Can have other features like cumulative, convertible, participating…..</em><br />
<strong>7. Preference Capital</strong><br />
Disadvants<em><br />
* No obligation to pay dividend, no bankruptcy or legal action for non payment<br />
* Financial distress of redemption obligation not very high<br />
* Part of net worth, hence increases its creditworthiness/ leverage capacity<br />
* No dilution of control<br />
* No pledging of assets required<br />
</em>Advants<em><br />
Expensive source since dividends not tax deductible<br />
Though no legal consequences, liability to pay dividends stands, can spoil company’s image<br />
Can acquire voting rights in some cases<br />
Have claim prior to equity holders</em><br />
<strong>8. Term Loans</strong><br />
<em>Provided by FIs/banks<br />
Can be in domestic/foreign currency , liability on FC loans translated to rupees for payment<br />
Are typically secured against fixed assets/ hypothecation of movable properties, prime security/ collateral security<br />
Definite obligations on interest and principal repayment; interest paid periodically; based on credit risk and pegged to a floor rate<br />
Carry restrictive covenants for future financial and operational decisions of the company, its management, future fund raising, projects, periodic reports called for</em><br />
<strong>9. Term Loans</strong><br />
Advants<em><br />
Interest on debt is tax deductible<br />
Does not result in dilution of control<br />
Do not partake in value created by the firm<br />
Issue costs of debt is lower<br />
Interest cost is normally fixed, protection against high unexpected inflation<br />
Has a disciplining effect on management<br />
</em>Disadvants<em><br />
Entails fixed obligation for interest and principal, non payment can even lead to bankruptcy/ legal action<br />
Debt contracts impose restrictions on firm’s financial and operational flexibility<br />
Increases financial leverage, excess raises cost of equity to the firm<br />
If inflation rate dips, cost of debt higher than expected</em><br />
<strong>10. Debentures</strong><br />
<em>Like promissory notes , are instruments for raising LT debt<br />
More flexible compared to term loans as they offer variety of choices as regards maturity, interest rate, security, repayment and other special features<br />
Interest rate can be fixed/floating/deep discount<br />
Convertibility : Can be FCDs, NCDs, PCDs<br />
Warrants : Can have warrants attached, detachable or non detachable, detachable traded separately<br />
Option : Can be with call or put option<br />
Redemption: Bullet payment or redeemed in instalments<br />
Security: Secured or unsecured<br />
Credit rating : Need to have a credit rating by a credit rating agency<br />
Trustee: Need to appoint a trustee to ensure fulfilment of contractual obligations by company<br />
DRR : Company needs to create a DRR if maturity more than 18 months</em><br />
<strong>11. Other forms of Finance</strong><br />
<em>* Leasing: asset leased out in lieu of lease rentals, title not transferred, only economic use of assets given; can be financial lease or operating (service) lease<br />
* Hire Purchase : ownership transferred to the buyer after all the installments paid up<br />
* Securitisation: assets involving financial claims pooled and financial instruments created, thus creating cash out of receivables<br />
* Government Subsidies : central and state govts offer cash subsidies to units in backward areas, classified in three categories<br />
* Sales tax deferments and exemptions : payment deferred for a fixed period, like interest free loan; or exemptions given for certain no. of years<br />
* Suppliers credit : available from suppliers of machinery, other fixed assets, terms devised to defer payment, or pay in installments over a period of time</em><br />
<strong>12. Leasing vs. Hire Purchase</strong><br />
* Leasing<br />
<em>Ownership not transferred to lessee<br />
Depreciation benefit to lessor<br />
Magnitude of funds high, for big ticket items<br />
No margin money/down payment required<br />
Maintenance of asset by lessor in operating lease<br />
Tax benefits of depreciation taken by lessor; lessee gets tax shield on lease rentals<br />
Considered off balance sheet mode of financing, as no asset or liability figures in balance sheet</em><br />
Hire-Purchase<br />
<em>Ownership transferred to hirer on payment of all instalments<br />
Depreciation shield available to hirer<br />
Maybe for smaller value capital goods<br />
Some down payment reqd<br />
Maintenance cost borne by hirer</em><br />
<em>Hirer allowed depreciation claim and finance charge for taxation; seller may claim interest on amount borrowed to acquire asset<br />
Asset figures in balance sheet on complete of purchase</em><br />
<strong>13. Raising Long Term Finance</strong><br />
<em>Initial Public Offer (IPO)<br />
Secondary Public offer<br />
Rights Issue<br />
Bought out deals<br />
Euro Issues<br />
Private Placement<br />
Preferential allotment<br />
Venture Capital/ Private Equity transactions<br />
Obtaining a term loan</em><br />
<strong>14. Initial Public Offer</strong><br />
Advants<br />
<em>Access to larger amount of funds<br />
Further growth limited companies not using this route<br />
Listing: provides exit route to promoters; ensures marketability of existing shares<br />
Encash on value created in the firm<br />
Recognition in market<br />
Stock prices provide useful indicators to management<br />
Sometimes stipulated by private investors in the company</em><br />
Advanta<br />
<em>Pricing may have to be attractive to lure investors<br />
Loss of flexibility<br />
Higher accountability<br />
More disclosure requirements to be met<br />
Visibility in market<br />
Cost of making a public issue quite high</em><br />
<strong>15. Steps in an IPO</strong><br />
<em>Approval of BOD<br />
Shareholders’ approval<br />
Appointment of lead manager(s)<br />
Due diligence by LM<br />
Appointment of intermediaries like registrars, printers, bankers, advertisers<br />
Prepare draft prospectus<br />
Filing with SEBI<br />
Listing applications filed alongwith draft prospectus<br />
Agreement with registrars and depositories<br />
Appoint underwriters (if reqd.)<br />
Make changes in draft prospectus as per SEBI observations, SE suggestions<br />
File prospectus with ROC<br />
Issue marketing exercise commences<br />
Application forms dispatched<br />
Issue opened<br />
Basis of allotment finalised<br />
Allotments made, refunds posted, shares listed on SEs</em><br />
<strong>16. Other aspects of a public issue</strong><br />
<em>* Eligibility criteria defined : net worth, track record of profitability, issue in same year; secondary issues have no such restrictions<br />
* Book Building process : process of tendering quantities at prices within a band<br />
* Issue expenses : underwriting, brokerage commissions, fees to managers to the issue, registrars, printers, advertisers, listing fees, stamp duty<br />
* Issue pricing : free pricing, disclose basis for issue price<br />
* Public issue of debt : appointment of debenture trustee, creation of DRR, credit rating reqd., security to be created<br />
</em><strong>17. Rights Issue</strong><em><br />
Issue of capital to existing shareholders<br />
Offer made on a pro rata basis<br />
Offer document called Letter of Offer<br />
Option given to apply for additional shares<br />
Rights renunciation : are tradeable, may be sold off in the market<br />
Value of a share after rights:<br />
(NP 0 +S)/(N+1); N=no. of existing shares required for rights; P 0 =cum rights MP per share; S= subscription price of rights issue<br />
Value of a right = (P 0 –S)/(N+1)<br />
Comparison with Public issue : with familiar investors, hence likely to be more successful; less floatation costs since no underwriting; but lower pricing to benefit shareholders</em><br />
<strong>18. Private Placement</strong><br />
<em>Sale of securities directly to wholesale investors like FIs, banks, MFs, FIIs,PE funds etc.<br />
Called private placement in equity/equity related instruments, in unlisted companies and in all cases of debt<br />
Called preferential allotment in case of unlisted companies for equity/equity related instruments<br />
Different from reservations made for such QIBs out of a public issue<br />
Subject to SEBI regulations on pricing, lock in period, open offer to be made to public<br />
QIB placement guidelines recently issued by SEBI for compliance and disclosures</em><br />
<strong>19. Private Placement</strong><br />
<em>Less expensive mode<br />
Lesser SEBI and other regulations<br />
Easier to market the issue to a few investors<br />
Entry of wholesale financially sophisticated investors in company’s profile<br />
May use this route until IPO decision taken<br />
Less administrative maintenance</em><br />
Advants<br />
<em>Does not qualify for listing in an unlisted company<br />
Restrictive covenants may be imposed by the investors<br />
May call for management participation<br />
Issue pricing more tight</em><br />
<strong>20. Venture Capital/Private Equity</strong><br />
<em>Equity finance to potentially high growth companies<br />
Reasonably long to medium term commitment<br />
Hands on management approach, active participation in management<br />
Considered value add investor<br />
VC: primarily high risk high return investment esp. in technology oriented/ knowledge intensive businesses with long development cycles, greenfield ventures<br />
Can be in unlisted or listed (PIPES) Companies<br />
Exit route to be defined at the time of investment<br />
Restrictive clauses on promoters’ holding sell off and other financial/operational issues<br />
Detailed memorandum/business plan on company, its financials to be prepared<br />
Shareholders agreement to be signed by both parties<br />
Valuation of Company key issue<br />
Leads to dilution of control by existing promoters</em><br />
<strong>21. Obtaining a Term Loan</strong><br />
<em>Submission of loan application : a project report containing complete details of the project given to the FI/Bank<br />
Initial processing of loan application : prepare flash report to decide if project worth an appraisal or not<br />
Project Appraisal: Detailed appraisal done to decide if project taken or not, in terms of market, technical, financial, managerial appraisal<br />
Issue of Letter of Sanction: to the borrower containing amount sanctioned and terms and conditions thereto<br />
Acceptance of terms and conditions by the borrowing unit: through a board meeting and conveyed to the FI/Bank<br />
Execution of loan agreement: signed by both parties<br />
Disbursement of loan: in tranches based on progress of the project, tie up of means of finance<br />
Creation of security: formalities to be completed within a timeframe<br />
Monitoring: at implementation and operational stage thru periodic progress reports, site visits etc. </em></p>
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		<title>When Grandma Goes To Court</title>
		<link>http://tuyetanh.co.uk/2009/12/27/when-grandma-goes-to-court/</link>
		<comments>http://tuyetanh.co.uk/2009/12/27/when-grandma-goes-to-court/#comments</comments>
		<pubDate>Sun, 27 Dec 2009 23:12:44 +0000</pubDate>
		<dc:creator>admin</dc:creator>
				<category><![CDATA[Uncategorized]]></category>

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		<description><![CDATA[Lawyers should never ask a Mississippi grandma a question if they aren&#8217;t
prepared for the answer.
In a trial, a Southern small-town prosecuting attorney called his first
witness, a grandmotherly, elderly woman to the stand. He approached her
and asked, &#8216;Mrs. Jones, do you know me?&#8217; She responded, &#8216;Why, yes, I do
know you, Mr. Williams. I&#8217;ve known you since [...]]]></description>
			<content:encoded><![CDATA[<p>Lawyers should never ask a Mississippi grandma a question if they aren&#8217;t<br />
prepared for the answer.</p>
<p>In a trial, a Southern small-town prosecuting attorney called his first<br />
witness, a grandmotherly, elderly woman to the stand. He approached her<br />
and asked, &#8216;Mrs. Jones, do you know me?&#8217; She responded, &#8216;Why, yes, I do<br />
know you, Mr. Williams. I&#8217;ve known you since you were a boy, and<br />
frankly, you&#8217;ve been a big disappointment to me. You lie, you cheat on<br />
your wife, and you manipulate people and talk about them behind their<br />
backs. You think you&#8217;re a big shot when you haven&#8217;t the brains to<br />
realize you&#8217;ll never amount to anything more than a two-bit paper<br />
pusher. Yes, I know you.&#8217;</p>
<p>The lawyer was stunned. Not knowing what else to do, he pointed across<br />
the room and asked, &#8216;Mrs. Jones, do you know the defense attorney?&#8217;</p>
<p>She again replied, &#8216; Why yes, I do. I&#8217;ve known Mr. Bradley since he was<br />
a youngster, too. He&#8217;s lazy, bigoted, and he has a drinking problem. He<br />
can&#8217;t build a normal relationship with anyone, and his law practice is<br />
one of the worst in the entire state. Not to mention he cheated on his<br />
wife with three different women. One of them was your wife. Yes, I know<br />
him.&#8217;</p>
<p>The defense attorney nearly died. </p>
<p>The judge asked both counselors to approach the bench and, in a very<br />
quiet voice, said, &#8216;If either of you idiots asks her if she knows me,<br />
I&#8217;ll send you both to the electric chair.&#8217;</p>
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		<title>Body language &#8211; How to Read Others Thoughts by Their Gestures</title>
		<link>http://tuyetanh.co.uk/2008/12/11/body-language-how-to-read-others-thoughts-by-their-gestures/</link>
		<comments>http://tuyetanh.co.uk/2008/12/11/body-language-how-to-read-others-thoughts-by-their-gestures/#comments</comments>
		<pubDate>Thu, 11 Dec 2008 08:10:05 +0000</pubDate>
		<dc:creator>admin</dc:creator>
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		<description><![CDATA[http://tuyetanh.co.uk/stuff/How to Read Others Thoughts by Their Gestures.pdf
]]></description>
			<content:encoded><![CDATA[<p><a href="http://tuyetanh.co.uk/stuff/How to Read Others Thoughts by Their Gestures.pdf">http://tuyetanh.co.uk/stuff/How to Read Others Thoughts by Their Gestures.pdf</a></p>
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		<title>Hello world!</title>
		<link>http://tuyetanh.co.uk/2008/10/21/hello-world/</link>
		<comments>http://tuyetanh.co.uk/2008/10/21/hello-world/#comments</comments>
		<pubDate>Tue, 21 Oct 2008 12:42:49 +0000</pubDate>
		<dc:creator>admin</dc:creator>
				<category><![CDATA[Uncategorized]]></category>

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