SOURCES OF LONG TERM

FINANCE
 Factors determining long term sources of
finance:-

• Nature of business

• Nature of goods produced

• Technology used
EQUITY CAPITAL

TERMS:

 Authorized, Issued, Subscribed & Paid- up Capital.

 Par/ face Value, Issue Price, Book Value, Market

Value.
PREFERENCE CAPITAL

• Hybrid form of Financing

• Equity Features:
-out of distributable profits
-dividends not tax deductible
-Priority over Equity shares in case of bankruptcy

• Debenture features:
-dividend rate is fixed
-capital is redeemable
-normally no right to vote
• TERM LOANS

• Maturities
• Security
• Provided by Foreign Institutes/ Bank
• Repayment schedule
• Restrictive Covenants
• Convertibility
DEBENTURES

• Interest
• Security
• Maturity & Redemption
• Options
• Convertibility
Few types of Debenture

• Non – convertible debentures

• Fully convertible debentures

• Partly – convertible debentures

Raising Long Term Finance

• Initial Public offering

• Right Issue
• Private Placement
• Preferential Allotment
• Obtaining a Term Loan
• Venture Capital
Initial Public Offering

• Decision to go Public
• Benefits
• Cost
• Eligibility
• Book Building process
Right Issue

• Issue of capital to existing shareholders

• Offer made on pro rata basis
• Right shares are tradable, may be sold in open market.
• Comparison with Public issue: familiar investors,
hence likely to be more successful
• Less floatation costs
• Lower pricing to benefit shareholders
Private Placement

• Sale of securities directly to wholesale investors like FIs,

banks, MFs, FIIs, PE funds etc.(QIP’s)
• Called private placement in equity/equity related instruments,
in unlisted companies and in all cases of debt
• Called preferential allotment in case of unlisted companies
for equity/equity related instruments
• Different from reservations made for such QIBs out of a
public issue
• Subject to SEBI regulations on pricing, lock in period, open
offer to be made to public
• QIB placement guidelines recently issued by SEBI for
compliance and disclosures
Venture Capital

• Equity Participation

• Long term investment

• Participation in management
Process of Venture Capital Financing