Fund-Raising for Businesses and Industries

- Traditional and Non-Traditional Methods

Suresh Kumar

suresh@values.ae

Dharmic Perspectives �– Evolved over Multi-Millennia

• Hindu Dharma and Arthshastra (350-283 BCE) economic policy-making as part of statecraft – Kingship then Vs Democracy.

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• Relevant + practical even now – ethically smart / savvy behaviour; good values of trusteeship and dhaanam.

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• Routed in philanthropy / charity – blending the spirited and the material (RigVeda / Kautilya / VishnuGupta / Chanakya).

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Raising Debt and Equity Capital �– Concepts and Context

• Affordable Capital – underpinned by DSCR, DER, cash flow projections and risks-based pricing.

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• Unsolicited credit ratings; supported by commercial, financial, technical due-diligence and appraisals.

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• Well-challenged biz plans, demonstrable history of good financial behaviour and impeccable global debt-services’ track-record.

Traditional Fund-Raising Methods�for Business and Industries

• Bilateral working capital and term loans from Banks, NBFCs, MFIs – evergreen lending; masking inefficiencies and causing complacency.

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• Multilateral sources for project finance, ranging from debt syndications / consortium-lending, global / domestic bonds, FRNs, commercial paper etc., as well as export credit, suppliers’ credit and DFIs.

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Non-Traditional Fund-Raising

• Private Equity / Venture Capital / Growth Capital, Hybrid Debt, Non-Recourse Lending, Securitization.

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• Hiving of Non-Core Assets, SPVs etc.

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• The Non-Traditional Methods witnessed exponential growth in scale, complexity and toxicity in the global financial markets and ‘money-centres, such as London, New York and Hong Kong.

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Financial Engineering – Gone Amok

• Between 2000-2008, Western financial institutions bundled assets’ portfolios that largely comprised sub-prime quality risks; CRAs played ball by giving high credit ratings – luring and lull-ing investors with leverage, easy and cheap credit – ingenuity of Western investment banks.

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• When unravelled, they exposed non-Dharmik, unethical and blatant misbehaviour in global finance terms – ‘breach of trust’, pure and simple.

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Transformation of Fund-Raising in Bharat

• The regulators should re-examine ‘universal banking’ concept, a colonial legacy that, arguably, leads to a vicious cycle of non-performing loans, recapitalisation, restructuring of assets and floating near-bankruptcies.

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• Working Capital in Bharat needs to be a series of trust receipts, with identified cash flows and cash budget approach – not annual reviews and ‘wood for trees’ approach – concoction of ‘all and sundry’ flows in the lending accounts.

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Matching Tenor Appetite �of Term-Lending and Hybrid Equity

• Projects and industry require medium and long-term lending from specialist institutions, insurance companies and pension funds; as well as a series of OTC markets in loans, commercial paper, securitisations etc., where the market-making and underwriting can emanate from commercial banks and other financial institutions.

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• Retail commercial banks should stick to working capital, via trust receipts, and they have a fiduciary role in accepting customer deposits via CASA and short-term FDs.

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Trust, Credibility & �Financial Sector Confidence

• Captioned sine qua nons are best achieved, if regulators are constantly self-regulated – in a parameterised way.

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• Hindu Dharma, implicitly, requires trust, fiduciary roles and ethical ‘best practices’.

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• Ultimately, collective growth and secure future for all the stakeholders is the only comprehensive virtuous cycle – not just aspirationally.

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