There are many SGX listed Catalist Companies looking to expand in the midst of a pandemic. Many private equity investment firms and credit firms are currently flush with cash but looking for good SME Business to fund. This article will highlight three funding strategies that SME Business can use to negotiate with potential investors.
#1: Real Estate Development Firms
Assuming that the existing loan-to-value ratio of the firm’s existing bonds/loans will not be breached by taking on additional debt, a real estate development firm can take on additional investment from a credit fund by way of convertible loans and the extra return can be in the form of warrants with a low strike price (as compared to the current share price of the company).
The credit fund in this situation is probably predicting that the company will book good profits from existing projects in 1-2 years and then the share price will trend up so they can then convert the convertible loan then plus make money from the warrants as well.
Some legal issues to note include, the events of default and the acceleration clause in the debt instrument. Also to consider if you want to allow the warrants to be tradeable which can add liquidity to the trading of the main stock as well.
#2: Defensive firms looking to expand
Some existing listed companies on the stock exchange are always on the look for growth capital. For such companies to raise growth capital from private equity firms, they should be profitable in the last few years with a good growth story on the use of proceeds which should result in additional net profit to the company and a rising share price.
In this situation, an investor would want to do a placement of new shares (at a slight discount to the market price) into the company and work with the company to ensure that all the growth plans as predicted will materialise.
Some legal issues to note include, the amount of the discount (and check with the listing manual what is the maximum threshold allowed) and whitewash wavier application to be made to the Securities Industry Counsel (if necessary).
#3: Asset heavy firms looking to expand with yield generating assets Preference shares
This strategy works well for companies like a property developer that has a mix of greenfield and yieldco assets. While the property developer bulks up on asset acquisitions, he can do a mix of equity, debt and preference share placements so that over time, he gathers a sizable asset base and then finally can spin off his heavy assets into a real estate investment trust or business trust.
Very few listed companies can do such capital markets plays successfully but if they can do that, they will grow well and develop into multinational real estate developers.
Some legal issues that you may want to consider include whether to allow for trading of the preference shares (like some of the bank preference shares).
Fund raising in tough economic conditions is tough, but we hope that some of the fund raising examples can be useful for a Catalist company that is looking for growth capital to grow the business. Such fund raising strategies require good legal counsel to effect so do speak to a good equities capital markets lawyer to effect the roll out strategy for the fund raising.
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