PART -1 FINANCIAL RESOURCE PLANNING 1 1. INTRODUCTION Whether you are thinking of starting up your own business or if an existing business is thinking of expanding, it is likely that money will be needed. The money needed to start a business is called business finance. Where do businesses get the finance to start a business or to finance expansion? This resource will look at some of the possibilities. When you are working through the resource, remember that some sources of finance will be appropriate for some businesses but not for others. For an individual thinking of setting themselves up as a mobile sandwich van, the sources of finance are going to be quite different to that needed and available by someone like Liverpool Football Club when trying to build a new stadium. Liverpool FC are planning to build a new stadium to replace the famous Anfield stadium. The cost to fund this project will be in the region of £215 million. Raising that sum of money presents different problems to raising the money to pay for setting up a mobile sandwich bar! There are a number of factors to think about when looking at this area of business. We will be looking at the following: 2 An Overview of sources of finance - short term or long term? Short term sources of finance: o Bank overdraft o Trade Credit o Leasing o Bank loans o Credit cards Long term sources of finance: o Bank loans o Share capital o Debentures o Asset sales o Venture capital o Retained profit o Owners' capital o Government, local authority or EU grants 3 2. COMPANIES NAME AND HOW TO RAISE TO FUNDS. 2.1. RELIANCE GROUP FIRMS SEEK SHAREHOLDER NOD TO RAISE FUNDS Date &place Press Trust Of India / New Delhi Aug 11, 2012, 00:54 IST Why raise? Requirement of different companies Reliance Communications, Reliance Power, Reliance Infrastructure Reliance Capital. Source of funds 15,000 crore at current valuations through equity dilution of up to 25 per cent in four of its companies. Details The Anil Ambani-led Reliance Group plans to seek shareholders’ nod to raise funds, estimated at about Rs 15,000 crore at current valuations, through equity dilution of up to 25 per cent in four of its companies. The companies include Reliance Communications, Reliance Power, Reliance Infrastructure and Reliance Capital. Shareholders’ approval to enabling provisions for raising funds from institutional investors would be sought at the annual general meetings (AGMs) of these firms next month. 4 All four companies will hold their AGMs on September 4, where shareholders’ nod would be sought on these matters, among other issues, but approvals have been taken for such enabling provisions in the past as well without any actual equity dilution having taken place. When contacted, a Reliance Group spokesperson said these were only enabling resolutions and there were no concrete plans under way at any of the four companies. ―As clarified in the explanatory statement attached to the notice, these are merely enabling resolutions taken as per usual practice at our AGMs every year, in the interests of maintaining financial flexibility. ―There are presently no plans by any of our group companies, namely, RCap, RCom, R-Infra or RPower to make any fresh issue of capital,‖ the spokesperson said. Individually, RCom said in its AGM notice to shareholders it would seek their approval for authorising the board to issue equity shares, convertible debentures or other such securities, to qualified institutional buyers to the tune of up to 25 per cent stake in the company. The other three firms, RPower, R-Infra and Reliance Capital, would also seek approval of their shareholders for similar resolutions, they said in their respective AGM notices. According to current market valuations of the four companies, equity issuance of up to 25 per cent stake in each of them could fetch close to Rs 15,000 crore. The four firms command a cumulative market value of about Rs 60,000 crore. The combined cash position of these firms at consolidated level more than halved to nearly Rs 4,000 crore at the end of the last fiscal 2011-12, from over Rs 8,300 crore a year ago. Another group company, Reliance MediaWorks recently said its board has approved raising funds up to Rs 600 crore by way of rights issue of its equity shares to its shareholders. Besides, it has also signed a term sheet with a global private equity fund, which would acquire "a substantial minority stake in Reliance MediaWorks' Film and Media Services division for an investment of Rs 605 crore." Reliance Group has previously raised nearly USD 7 billion from financial markets globally in less than three years, but some of its recent attempts, such as a Singapore listing of RCOM's undersea cable arm and equity sale in its telecom tower unit could not materialise due to adverse market conditions 5 2.2. BHARTI INFRATEL FILES FOR IPO MAY RAISE FUND Date &place Press Trust of India / Mumbai Sep 14, 2012, 15:35 IST Source of funds Expected to raise up to $1 billion (about Rs 5,500 crore) threw the IPO (initial public offer) Why raise? By Compass vale Investments Pte, GS Strategic Investments, Anadale and Nomura Asia Investment (IB) Pte, the filing added. Details Bharti Airtel, the key promoter entity of Infratel, will not participate in the share sale, which owns around 86% stake in the tower unit,Bharti Airtel today said its tower unit Bharti Infratel has filed papers for an initial public offer with market regulator Sebi and is expected to raise up to $1 billion (about Rs 5,500 crore). "Bharti Infratel, a subsidiary of Bharti Airtel, has filed its draft Red Herring Prospectus with the Securities and Exchange Board of India (Sebi) on September 14, 2012 in relation to its initial public offer of equity shares," Bharti Airtel said in a filing to the BSE. The IPO will constitute a fresh issue of equity shares by Bharti Infratel and an offer for sale portion by Compassvale Investments Pte, GS Strategic Investments, Anadale and Nomura Asia Investment (IB) Pte, the filing added. It said, however, the committee of directors, which was looking at the details of listing of Bharti Infratel, has decided not to participate in the offer for sale of equity shares in the proposed issue. Effectively, it means that Bharti Airtel - the key promoter entity of Infratel - will not participate in the share sale. 6 Although the company did not say as to how much money it is looking to garner from the IPO, market sources familiar with its plans said it could be in the region of $1 billion. Bharti Infratel has more than 33,000 towers in operation. Other players in the tower business include Anil Ambani-led Reliance Infratel and Viom Networks — a joint venture between Tata Teleservices and Kolkata-based Quippo Infrastructure. So far, none of the tower companies is listed in India, although Reliance Infratel had plans to do so. 2.3. EXIM BANK RAISES SGD250 MILLION; Date &place MDT/PTI | 11/09/2012 11:21 AM | Mumbai. Source of funds The bond issue was priced at 3.375% given the huge demand and the 100% sovereign guarantee Exim offers sets new record pricing at 3.375% Why raise? & details. The Exim Bank has mopped up 250 million in Singapore dollars (SGD) at a coupon of 3.375%, the cheapest five-year money raised by any domestic institution so far, reports PTI quoting sources. This is the second overseas debt raising by the bank in 40 days. On 1st August, it had sold $500 million bonds at a coupon of 4%, which were just 348 basis points above the US treasury's. The issue was over-subscribed by five times. According to sources at the merchant bankers, the issue had a guidance pricing between 3.375% and 3.350%. 7 "But the issue was finally priced at 3.375% given the huge demand and the 100% sovereign guarantee Exim offers," a merchant banking source told PTI. TCA Ranganathan, Chairman and Managing Director of Exim Bank could not be reached to independently confirm the bond sale. "This was an excellent issuance by a sophisticated issuer like Exim Bank. Their inaugural five-year SGD 250 million bond was strongly subscribed by several regional asset managers and private banks resulting in tight pricing of 3.375% per annum, which, on a swapped basis is circa 5 bps per annum, tighter than trading levels of their recently issued five-year $bonds," Citi India head for capital markets origination Rajiv Nayar told PTI commenting on bond sale. Over 50 investors participated in the programme with around 82% coming in from Singapore, around 14% from Hong Kong and around 4% from Europe, the source said. Out of this, around 42% are banks, around 30% AMCs with private banks constituting around 28%, sources added. The issue had a rating of Baa3 from Moody's and BBB- from S&P. It can be noted that domestic banks have been on a fund raising spree since July, which was kicked by the nation's largest lender SBI mopping up $1.25-billion through a bond sale at 4.125% coupon or 375 bps over the US government bonds. Since then, ICICI Bank, Axis Bank, IDBI Bank, IOB, Union Bank among others together raised over $3 billion from overseas bond sale. Corporates waiting to mop up dollar funds are Jindal Steel & Power, and Power Finance Corp among others. 8 2.4. TATA STEEL TO RAISE FUNDS Date &place MDT/PTI | 28/08/2012 10:59 AM , New Delhi.