Question

Suppose you are the CFO of a large MNCs, and you need to raise funds.

What factors do you need to consider in raising funds? How is it different from raising funds for a domestic company in terms of risk and opportunity?

What different types of sources can you raise funds for the company? What are the pros and cons of each type? Why is the debt market much larger than the equity market?

What is Eurocurrency market? Are spreads between deposit rates and loan rates in domestic markets greater or smaller than those in the Eurocurrency credit markets? Why?

What is Eurobond market? How is Eurobond different from Eurocurrency loans? How is Eurobond different from foreign bond and global bond?

What is securitization, deregulation, and globalization in the international banking, money and capital market? What is the impact of each on a MNC’s funding sources and costs?

Answer 1

I'll answer the first 4 questions as per the guidline.

Factors to consider while fund raising:

1. Valuation: As a CFO, I need to ensure that valuation of my company is maximized yet fair & this should be done well prior to the fundraising event.

2. Reasoning behind fundraising: Before fundraising, I need to line out the future usage of the fund which are to be raised.

3. Timeline: A timeline would have to be set as in when exactly the fund is required so we don't end up landing the fund sooner or later than required time.

4. Amount: One of the primary things to consider the amount. Company's valuation may be higher & its required amount for fund raising may be very small.

5. Mode: Which mode is feasible for the company i.e debt or equity - needs to be decided.

Difference for fund raising for domestic as well as international company:

Domestic fundraising is easier as compared to an MNC in terms of regulations & compliances. Also, cost of raising fund would be higher in case of an MNC viz a viz the domestic one.

Sources of fundraising:

There can be only 2 broad source for funds. debt & equity - many subparts are there such as govt. loans, private equity, venture capital, IPO, debentures etc.

Pros & cons of fund raising types:

Pros of debt: 1. Less expensive 2. No dilution in iwnership 3. Tax benefits 4. No obligation post repayment

Cons of debt: 1. Interest has to be paid irrespective of the profitablity of a company 2. Debt covenents have to be followed. 3. Debt makes your company riskier to invest

Pros of equity: 1. Don't have to pay dividend if making losses 2. Even when makaing profits, you may reinvest it

Cons of debt: 1. Company must share ownership 2. More expensive 3. more complex procedure