Securitization Only Way Forward For Growth Companies
Topics: securitization, debt, risk pricing, spreads, credit crunch
The turmoil in the global economy has serious implications for growth corporations in the emerging markets. Rather than assessing corporate capital raising exercises from within the rational prism of the credibility (or otherwise) of business models, the markets are simply assigning sharply widened, and unreasonable, risk spreads on an across-the-board basis.
The challenge for strategically placed companies is obvious. Managements requiring equity or debt capital need to prove that the quality of underlying assets (hard assets or receivables) overrides negatives attributed to country rating downgrades, currency forecasts, domestic interest rate fluctuations and sharp falls in stock markets.
This process of highlighting (and capturing) the current and future behaviour of assets supporting business models can only achieve success via asset securitizations. Given that a huge number of professional and retail investors have exited traditional investments in recent weeks, there is a record amount of money sitting on the sidelines, globally. Attracting that money demands a combination of (1) a fair reflection of asset values and (2) an acceptance of the revised pricing environment.
In terms of equity, this means higher dilution, and equity may be the only route open for venture-type companies with no assets in place at this juncture. In terms of debt, this implies relatively higher interest rates; for example, a departure from the Libor+150 basis points to Libor+300 basis points, or a fixed dollar-denominated 5-year loan at 10% rather than 7.5%.
It is critical to recognize that spreads (on the benchmark US Treasury rates of Libor) for corporations located in the emerging markets are being influenced by prices in the credit default swap market, by foreign exchange rate forecasts and by the perspective that the global recession will have far-reaching implications for the developing world. These rather generalized perceptions fail to apply selectivity, and it is this failure to apply selective criterion which now challenges growth company managements. While there is no doubt that fundamental valuations need to be revised in many instance, these valuations should, in technical terms, only impact upon spreads and yields.
According to recent feedbacks from significant private equity pools in Asia and the Middle East, the acceptable yield must follow close asset scrutiny, and the determination of the debt service capability of the asset itself. But there is no doubt that dynamic business models will be funded, as long as debt buyers do not have to concern themselves with the actions of governments, central banks and other policy makers.
Furthermore, debt buyers now desire that their risk-reward profiles are determined exclusively by the assets incorporated in the business models, not by the corporations controlling the assets prior to securitization. On this note, it is important to recognize that international investors have no appetite to chase down managements with respect to their expansion plans and their discretion to adjust business models at any time, both of which have the real potential to dilute the asset offered as security.
Rakesh Saxena is a pricing and risk analysis specialist in insurance and derivative products and has extensive deal making in the emerging economies. He can be reached at derivatives@shaw.ca. Home URL: www.quoteplatform.com
Previous Articles Highlighter:
How To Start Making Money On The Internet For Newbies - A Self-Help Guide (1)
I did not give up. If not, I will never be able to taste my first victory. If you are really serious about making money on the Internet, ask yourself this question, "Do you have the winner mindset?" If your answer is yes, "WELCOME".
Kids GPS Phones Work For Families (2)
They can provide an incredible benefit to users as they enable a person to be in constant contact with the world around them. As cell phones have evolved and grown over the past decade they have become more and more feature rich, with camera phones, kids phones, and mp3 phones making serious inroads into the market.
Try Before You Buy: A Hardware Review Of Three Gadgets On The Market (3)
Ultimately price, because like most things, children grow out of things fast. However practically it also needs to be light and easy to carry around, easy to use and practical.
How To Attract And Care For Native Wildlife (4)
Put the different feeders in the area and put food in it too. Attracting native wildlife will take time, not very fast. Learn to be patient and soon, all your efforts will be rewarded.
Manchester Airport's Plans For Passenger Focussed Development (5)
However, recently Manchester Airport has announced that they are planning a revamp of Terminal 1, this revamp is set to cost around thirty five million pounds and subsequently will be a major investment.
Free Online Property Valuation Tools And You (6)
As a result of entering this information the online tool will give the user a value of their property that falls into line with current market conditions. These free online valuation services however are not perfect, due to the fact that they use market data that is usually a couple of months old, if major shifts in market conditions occur, the valuations they produce will be somewhat inaccurate.
Even In Bad Times The Oil Companies Are Making Insane Amounts Of Money! (7)
In theory it's somewhat selfish and there is nothing wrong with that. Here is the major problem in my eyes, it's going to take some time before we can really make an impact on our oil usage.
Singapore Shopping Destination - Places To Shop In Singapore (8)
Bugis Street is the place whereby you can hone your bargaining skills. In major shopping mall like Takashimaya, the price for goods is usually fixed. However, at Bugis Street, it really depends how you bargain to get the best value for your goods.
Shopping Centres - 5 Major Shopping Centres In Singapore That You Must Visit (9)
3. Paragon. Paragon is also located along Orchard Road. It is well-known as the place for branded goods. Almost all major brands such as Ralph Lauren, Guess and Dunhill can be found over there.
A Fun Way To Renovate Your Home (10)
I called a friend who has been rehabbing houses for years and he said let me in on a contractors secret. He said "are you handy and ready to have some fun?" I of course, replied yes and was eagerly waiting for an answer when he showed me the trick was right there on my laptop.
Newer Articles Highlighter:
Can A Steel Building Be Used As A Dog Kennel? (1)
Also important to dog safety is the cleanliness of the steel building. The ease of cleaning these structures is also a fantastic feature that really makes them sell. It doesn't matter if the cleaning has to be completed on the inside or the outside.
Three Reasons Why Oscars, Tiaras And Audrey Hepburn Go Well Together (2)
Jewels gave them added glamour and style. Leading jewelers from around the world made rings, necklaces and tiaras for them to wear. One of the most popular of these actresses was Audrey Hepburn.
Commercial Restaurant Equipment - The Very Basics (3)
Commercial ovens, such as those provided by American Range, are used in many different functions in a restaurant kitchen. You simply cannot run a successful food business without one.
Stainless Work Table - The Basics (4)
Stainless steel work tables may cost more, but they are better in the long run. Stainless steel is considered a high quality material. Yes, it is possible to dent but that does not usually happen often as it is difficult to do as stainless steel is a strong material.
Putting Training Aids That You Can Use (5)
Mirrors are also highly important in terms of putting training aids. This is a classic tool, and a simple one, but it is long trusted for a reason: it really helps.
How To Use A Pump Out Station (6)
If they do offer to do this, however, dont walk away and let them do it without you; the best way for you to learn is to be active and take part in the pump out, too.
Taking A Look At Bedding Collections For 2008/2009 (7)
Her "Ready To Bed" collection offers 100% silk at a reasonable price. These bedding accessories are fit for royalty! Orange is "in" for this year's bedding collections and no luxury bedding proves that more than Mystic Valley Traders' "Turtle Bay Mandarin Collection." The exuberant, bold, burnt orange accent pillows complement a gray bedspread trimmed in orange and gold.
What You Need To Know About Forex Trading (8)
Is the market going to go up or down? If you don't know that answer within the first 2 minutes of looking at your charts, then you are guessing and that means you will probably trade wrong and you will probably loose.
Gas To Electric Car Conversion (9)
I was a little bit scared at first because I didn't really understand how easy it really is. It really is as simple as taking the engine and transmission out and dropping the electric motor and batteries in.
Adjusting The Picture On Customer Focus (10)
Regularly measuring market share ranked third in the doing-it-now category, but eighth in the should-do category, strongly suggesting that respondents believe this particular metric is of little value when it comes to gauging customer satisfaction.
Permalink to Securitization Only Way Forward For Growth Companies