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    piete de capital

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    ESM 2013_Ch 14_Intl Debt and Equity Financing

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    piete de capital

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
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    17 views35 pages

    ESM 2013 - CH 14 - Intl Debt and Equity Financing

    Uploaded by

    Diana
    piete de capital

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Flag for inappropriate content
    of 35
    398 CHAPTER 14 International Debt and Equity Financing ‘Chuptoe 13 amazed why ginng acest lobule markets should ower a first of pital. ineeate st acces to expt, and inprove the liye shares by overcome. ‘market segmentation. A fren pursuig this oy goa, particulate rom x semen sd for emerging market, mat fret design 4 finance seg) tha wl ata nernatioe] Investors This involves choosing among alternative paths css lob capital markets. “This chapter focuses ot frms resident ines ii, segmented, or emerging makes They are the ones that noe to api vnegmented markets inoue to stn he lob cost and avlabty of capital Firms resident in lnge and highly indutiled ounces sendy have aoe to thle own domes, gid. and unseemented markets ‘Altough thy to sour equity od deb abd unl ave a favorable an inp ‘on toi cand ent of opt In fat, sourcing unde broad soften motivated ely by fe need to fond large foreign asustons eae than exng operations, Thiseheptrbepint wth the dein of nancial stratay to source ath equity and deb lotally I then analyzes the optima nancial structure for an MINE ad i subsidars, fe that minimizes is cont of capital Then we explore the altrative paths which a frm ‘hay olin raising capital i lobl markets. The shaper conlade with very rel wd tent Min-Case, Kores Nanna Product and the Grok Ci, which presente & Grech ‘mutational company exploring tsalternatives of expanding acces capital or growth Sndcompetitvenes in 2012, Designing a Strategy to Source Capital Globally Despring apt sourcing strategy eequires management to agee upon along-in nt ‘bjetive and then choose among the vis alternative pats opt there, Exnbit 14 Vial presentation of aksrmative paths to the inate objertive of ianing a bal ost fdavallabity of capita, ronson Ost and EautyFrancng CHAPTER 14 » CUTTER Aterative Pata ts Gabaize he Gost and Avalobity f Capital na sna ean | egy — a j [Normally the che of paths sod implementation i aided by an early appintment of _an investnent bank ofl agiror to the (em. IevestmentDakers are in foc wih the Pot fregn avsor nd then cuten equemens. They can also Helpnavigae the rious isting requirements snd barr that most be satisfied. Tht sees elude “ivng if when, and where nersolsing shouldbe inated, They usually prepare the Feguied prospect a equity or dbt sues desired, hep to price the ssve, and ain tnalfemarket to prevent the sbare pce rom alin Below ts ital price Attemative Paths "Most fins asthenia capita inher own domest markt sce Exhibit 141) Nex they tre lempled to skipal the intermediate tps and drop tothe bottom Bae, « Eaoequty se in global murkets Ths the time when a good investment bask advisor will oer a "realty heck" Mos im tat have only rased capital in thelr domestic market arent own well Enough to attract fori investors Remember fom Chapter 13 that Novo was bed by is {tvestment bankers w start with a convertible Eerobond ive ad iltanecity eros at {heksharesandteirbonds in London, This ws despite the fact that Novo hi an oustanding teuc record of financial and business performance "Eahibi 41 shows tht net rms soul tae sourcing abroad with niatertasonal ond faut could te pled on es prestigious foreign market. This could be fllowd by a0 Internation! bond tue na tarpl market or the Furobond market. The next te ght CHAPTER 14 lmao ett and Enty French bet crssiist and sve equity i ne ofthe fen prestigious markets to trac iterations investor attention. The next stp could bo com shares ona highly iu prestiions foreign stock exchange sich as London (LSE), NYSE Euronext NASDAQ. The ulna sep woul be o place a directed equity issuein a prestigious tart market or a Eaoeguty isin global equity market. Optimal Financial Structure [After many yeas of debate, finance theorists now agzee that there does exit an optimal financial structre fra rm, and practically how ts dterine. The reat debate tween the socalled traditionalists andthe Modan! and Miler school of tout as ended ‘compromise: When taxes and bank cot are considered fh an optina fina {rure determined by tha parla mi of de and equ tha nics the fm cos of. ‘pal foragiven evel of busines ri I the bosnes isk of en projet ier frm the ak ‘of exiting projects, the optimal lx of debt and equity would cane to resngnize ates botwoun bute and nancial iss. "Exhibit 142 ilistrates how te cost of capital varies wth the amount of debt exploed ‘As the debt ratio, defined as fal debt divided by Lota ets t market vale, iste, the over cot of capital (Eyncc)deceases becase ofthe heavier weight of low-cost dt [kd ~ compared to high cost equity (The low ow of debi ofcourse, dus tothe "ax deducubitya terext shown by the tex (1 9, Pally isang the favorable effect of ore de san increas in the cost of equity () because investors perceive gener financial risk Neverhsen the overal weighed average cost of capital (ace) coatines Lo dectine athe debt ai incest, il nancial sk becomes so serous hat snvestorsandmanagement alike perceive a eal danger of salen. ‘Thisresult causes sharp increase 9 he cost of new debt snd egy nasing the meghted “he Cost of Capt and Fran Svcture ccna) crete Ott an Eau Francng CHAPTER v6 ao average cot of apt The low pont on the resulting U-shaped eos of apt carve, 14% in FSi 12, defines the debt rato range in wich the costo expt minimized Most theorists Bliove tht the low pst satay a ater brood ft re encompassing aide range of debt rato, 30% to 6% ia Exit 142, where ite difference exis in the ‘Santo etal They aso believe tat eat in the Unied Sates, te range of he flat ea “nd the loation of pata ims det ratio within hat ange fe detexmined by such ‘aril at 1) he dusty in which competes 2) the volaty of Hs Sle and operating ‘come; and 3) the colatral ae ofits ase. ‘Optimal Financtal Structure and the MNE “The domestic theory of optimal nancial rectus needs to be modified by four more ‘arabes in order to sesommodate the care of the MNE. These vavabl, in order of {ppearace, at) avllabity of apt 2) diverieaton ofeath ows 3) foregn exchange ‘aks and) expectations of teoatonl portfolio investors! ‘Avaliablty of Capital. Chapter 13 demonscatd that acess o capital in bal markets ‘Sows an MEE to lower te cost of equity and debt compared with most domestic fms. It tbo pers at MNE to mintain ts desred deb rai, even when sgnifiant amounts of ew fund mst berated In other words, a muldnational Ken's marginal tof capital i ‘Constant for consigerabie rages of sap bagel, This statement ot ree for most sal Somes frm Deere they do nt have scat the national equity or debi makes. They ‘must iter ey on ntraly generated funds or borrow forthe short and edu terms fom, ‘commercial banks Malinao firms dmc in counties that ave igi capital makes arin almost these uation smal domestics uns ey Bae pained a plobalcostand avait tot capital They us ely on internally generted funds and bank borrowing they need {o rae silica amount of new fands to nance prosth opportunities, thy may need 19 borrow more thas would be optimal rom he viewpoit of minizng ther eos of capital. This ‘Seulvalnt osayng tht ther mazpinl cos of apts inceasing at higher bet levels. Diversification of Cash Flows, As explained in Chspter 13, the theoretical os exists that mltnatioa fis are in Better postion than Gomes ims to suppor higher debt ios beease ther cash lows are diversified iteraationally. The probublity of a fms Covering fined charpes under varying contin in product, nancial and feeign exchange ‘parkets sould nese the vara of ts ash ows s minimized, By diverying eas lows intertonally, tbe MINE might be able to above the same kindof redaction in cath low variably ab portflio investors receive from diversifying ‘heir securlty holdings internationally. Retaras are not perfectly cordated between ‘oustlesIn cntrnt a domesie German firm would not enjoy the benelt of eas low {tteroationlsiverstfiaton but woud have tory entirely on own net eh allow fom 105 Se “The aca dolla os ofthe lon’ repayment i ot the aonal 0% pad ia Sw feane intrest, bot 375% = sio83750 sanz [2822] 1

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