Equity and Debt Financing

Description

What is an IPO?
An IPO (Initial Public Offering) is the first sale of a bloc of shares of your company on a public stock exchange. A successful IPO includes the registration of your company’s shares on the stock exchange for public trading, otherwise known as a “listing.” We are often approached by the shareholders and managers of corporations, eyes wide, repeating an almost mythical foreign word, “Ai-Pee-Oh.” While an IPO is a powerful instrument, it is one of many available to companies on the international capital markets. It is not right for all companies, and not at all times. Only after reviewing the realities of the IPO process with your banker can a proper strategic decision be made.

How large should an IPO be?
The size of the bloc of shares sold in an IPO varies depending upon a number of factors, including the strategy of your company, the market environment at the time of the IPO and requirements of the exchange where the shares are listed. Generally speaking the bloc should fit the requirements of multiple entities:

For existing shareholders:

• It should be large enough to raise the desired amount of capital for your company
• It should be small enough to maintain the desired level of control over your company
• It should be small enough to allow for future equity financing plans of the company

For new shareholders:

• It should be large enough to allow sufficient share liquidity
• It should be large enough to comfortably allow the company to execute its strategic plan

For regulators:

• Depending upon the exchange and jurisdiction of the company, there may be minimum requirements in terms of the total size and percentage of total shares

Where should an IPO be listed?
The exchange where the IPO is listed is dependent upon the goals of the company, the size of the IPO, the liquidity requirements of the company and investors and the current market conditions on the various exchanges. Together with our global partners, Eavex Capital has the capacity to execute and support listings on all major global exchanges.

What are the requirements to complete an IPO?
Specific requirements for companies looking to complete an IPO vary from exchange to exchange, but generally, a company will need to be able to provide the following before listing on an exchange:

• One to three years of IFRS audits 1-3 years, including most recent year unqualified
• Multiple years of positive EBIT
• Appropriate offer size ratio and a market value of a company
• Clear and transparent corporate structure
• Clear and transparent financial structure
• Appropriate size of owners' equity
• Acceptable norms of corporate governance

General Guidelines

Advantages:

• Maximizes the amount of investment available without incurring additional debt
• Provides liquidity to existing investors through the listing (subject to possible restrictions)
• Creates investment value and appeal for the finance community, often lowering costs of future financing in both equity and debt classes
• Enhances company image beyond the capital markets, raising status as a leader of industry, business and country

Requirements:

• Notable requirements for financial, management and legal transparency before the IPO and continuing regulatory requirements to maintain the listing
• Increased management time spent dealing with new investors
• Initial and ongoing listing fees

The IPO Process

Once you and your Eavex Capital Investment Banking partner have come to an agreement that an IPO is right for your company, Eavex Capital will be able to provide the full spectrum of necessary services. This process should begin with a complete review by Eavex Capital to assess the company’s current preparedness for an IPO, potential investment appeal and steps required to maximize market capitalization and minimize IPO costs.

While each transaction is unique, below is an overview of services Eavex Capital typically provides during the IPO process:

• Creation of your IPO team
• Completion of Due Diligence analysis
• Preparation of IFRS/US GAAP accounting
• Development of your IPO strategy
• Selection of the IPO exchange and preparation of listing structure and documentation
• Preparation of the Teaser
• Formation of Underwriters
• Preparation of the IPO Prospectus
• Preparation of the Investment Memorandum
• Preparation of Analytical and Presentation materials
• Preparation of management for meetings with potential investors
• Pre-marketing and placement marketing
• Preparation and organization of the Road Show
• Execution of the placement
• Market making
• Support of communications with investors (IR)
• Press coverage

Description

A Secondary Public Offering is the public sale of shares of a company on an exchange in addition to shares which have been sold in an IPO. While the transaction does not increase the total number of outstanding shares of the company, it does increase the liquidity of the shares of the company available to the public.

Such a transaction may be undertaken upon the recognition that following a successful IPO and expiration of any “lock” period, that the equity market offers the company the most the increased demand for shares of a company. of by the shareholders of the company in order to raise additional funds as their company strategy evolves to increase organic growth or undertake acquisitions of additional assets. Alternatively, shareholders may chose such a transaction to realize profits from a stock price which has increased from the time of the IPO up to the SPO, following expiration of their “lock-up” period when additional shares cannot be brought to the market.

The SPO Process

The majority of SPOs build upon the legal, corporate and financial ‘infrastructure’ built by the company and its partner bank during the IPO, thereby requiring notably less time and cost as compared to the IPO.

Description

A Private Placement is the raising of financing through sale of shares of the company to single investor or limited group of investors. In contrast to a public sale (IPO or SPO), the company is not required to list its shares on an exchange. In such a transaction, the investment banker supports the company in the location of and negotiations with investor(s) on terms agreed in private.

Often, companies seek a specific type of investor when undertaking a Private Placement. Private investor often have specific expertise that makes their presence as a shareholder more valuable than the sum of the funds invested. Private investors may have more focused risk profiles which allow investment into companies that the public markets may not fully appreciate. Furthermore, private investors may represent a professional “stamp of approval” that can elevate the company’s status within its sector.

Since private investors do not generally require a share price determined by a public market, management is able to focus on the long-term development of the business as per the strategy agreed with the private investors. At the same time, private investors often enter investments early, seeking to propel the company to substantial growth before undertaking an IPO together with the original shareholders.

While consultation with a qualified investment banker is an obligatory step in the decision making process, owners and managers should consider the following General Guidelines from Eavex Capital in regards to Private Placements:

General Guidelines

Advantages:

• Allows substantial investment into the company without incurring additional debt.
• Often provides highly valuable expertise in addition to funding
• Allows more flexibility on terms of the equity financing than public markets (IPO, SPO)
• Increases investment appeal, decreases the cost of future equity/debt financing
• Enhances the reputation of the company in specific industries, investment circles
• Establishes a solid foundation necessary for a future IPO

Requirements:

• Notable management time for completion of due diligence
• Risk of investor pull-out during the process
• Necessity for smooth coordination of the interests of current and new shareholders

The PP Process

Once you and your Eavex Capital Investment Banking Partner have come to an agreement that an PP is right for your company, Eavex Capital will be able to provide the full spectrum of necessary services. This process should begin with a complete review by Eavex Capital to assess the company’s current preparedness for a Private Placement, potential investment appeal and steps required to maximize company valuation and terms of the deal and minimize placement costs.

While each transaction is unique, below is a brief list of services Eavex Capital typically provdes during the Private Placement process:

• Creation of your Placement Team
• Completion of Due Diligence
• Development of your Placement Strategy
• Determination of a long-list, then short-list of potential investors
• Preparation of the Teaser
• Pre-marketing
• Preparation of the Investment Memorandum
• Preparation of Analytical and Presentation materials
• Preparation of management for meetings with potential investors
• Marketing of the Placement
• Integrated support of negotiations with potential investors
• Execution of the Placement
• Support of communications with new investors, the market and the press (PR)

The financing of your business through the public debt markets can be a highly effective alternative to equity financing or commercial bank credit. Corporate bonds are debt financial instruments that are listed on an exchange and can be traded among investors in the market.

The issuance of public debt shares many of the advantages punblic equity, especially in the depth of market liquidity and the improvement of your company’s reputation within and beyond the capital markets. At the same time, the issuance of debt, generally speaking, requires less action on the part of shareholders and management and less public airing of confidential information about the company.

Debt instruments are especially interesting in the environment of lower global interest rates, resulting in a lower cost of financing for your company over a longer period of time. Of course, windows of opportunity can both open and close. Key to the process is the early establishment of the financing needs of the company over a particular time duration.

Exchange-listed bonds most often do not require specific collateral from the company. But, the public markets and the deep liquidity they provide require that a company successfully complete a number of complex actions in order to give comfort to a wide range of investors that the company is credit worthy.

Eavex Capital’s successful history in the issuance of corporate debt allows the team to confidently act in various roles in the issuance process, including Leading Organizer, Underwriter and/or Adviser. Furthermore, our extensive presence on the bond markets as a broker dealer, gives us substantial advantage before, during and following a bond emission, giving our clients comfort that their bonds will be well received by the market for their duration.

Broadly speaking, these debt instruments can be broken down into two categories: Domestic UAH-denominated bonds and international foreign-currency denominated Eurobonds.

Ukrainian Domestic Bonds

Description

The Ukrainian debt markets offer Ukrainian companies with substantial opportunities. Ukrainian investors, including banks, investment funds, pension funds, insurance companies and individuals have a clear understanding of Ukrainian companies, allowing many issuers to access funds at competitive rates. As the Ukrainian capital markets continue to develop, more and more opportunities arise for domestic funding.

Currently, Eavex Capital is able to execute the entire process of bond issuance for Ukrainian corporate entities, from early preparation of the company for the issuance to ongoing support of the company following execution of sale on the exchange.

The Domestic Bond Process

• Creation of your Debt Placement Team
• Completion of Due Diligence analysis
• Market analysis of potential buyers, volumes and terms
• Development of your Debt Placement Strategy
• Development of a long list of potential investors
• Assignment of a Credit Rating (as necessary)
• Preparation of financial reports
• Preparation of the structure
• Formation of Underwriters
• Preparation of Analytical and Presentation materials
• Preparation of management for meetings with potential investors (as necessary)
• Pre-marketing and placement marketing
• Determination of total volume and placement structure
• Execution of the placement
• Market making (as necessary)
• Support of communications with investors (IR)
• Press coverage

International Bonds (Eurobonds)

Description

A Eurobond is any international bond issued by in a currency different from the currency of its issuer. The term Eurobond was developed well before the creation of the Euro, and has no connection with the European common currency. In Ukraine, the term commonly refers to bonds issued by Ukrainian companies in USD or Euros which is listed and traded on a foreign exchange.

The key feature of the Eurobond markets, which for our purposes includes Europe, the US, Asia and Russia, is the tremendous depth of liquidity available to both issuers and investors. Global daily turnover is measured in hundreds of billions of US dollars. While gaining access to these markets may seem unrealistic to many Ukrainian companies, the reality is that international debt markets offer properly prepared Ukrainian companies the cheapest and most abundant financing in existence. It is the responsibility of your investment banking partner to guide your company to the complexity of the markets in order to match this liquidity to your needs.

Eurobond Process

The process of issuing a Eurobond, while complex, is completely manageable with Eavex Capital Investment Banking. The process begins with a review of your company’s requirements and capabilities, and evolves into a strategic plan that manages all factors affecting a successful Eurobond placement. Eavex Capital Investment Banking will fully address concerns commonly associated with such placements, including the hedging of cross currency risk and the minimization of legal, corporate and setup costs, especially for first time issuers.

One option is the creation of Loan Participation Notes (LPNs). Under mandate from your company, Eavex Capital will work with your company to determine the size and cost range of the debt facility needed, taking into account projected market rates and investor risk appetite at the time of issue. On this basis, a platform and structure shall be chosen. A short-list of investors will be determined and pre-marketing may begin.

Eavex Capital will be able to work closely with your company and counsel in order to complete all legal and corporate structures required by international regulators and investors, complete the due diligence process, fix underwriting commitments, produce all analytical and investment documentation. Book running then moves into its final phase, registering and placing the bonds on the market. Further support continues following the primary sale using the extensive capacity of Eavex Capital and its partners in the secondary markets.

The Eurobond process includes the following steps:

• Creation of your Debt Placement Team
• Completion of Due Diligence analysis
• Market analysis of potential buyers, volumes and terms
• Development of your Debt Placement Strategy
• Development of a long list of potential investors
• Assignment of a Credit Rating
• Preparation of financial reports
• Preparation of the structure
• Formation of Underwriters
• Preparation of Analytical and Presentation materials
• Preparation of management for meetings with potential investors
• Pre-marketing and placement marketing
• Preparation and organization of the Road Show
• Determination of total volume and placement structure
• Execution of the placement
• Market making (as necessary)
• Support of communications with investors (IR)
• Press coverage

Description

The public markets are not the only source of debt financing available to Ukrainian companies. Private or OTC (Over the Counter) debt facilities, i.e. those not listed and traded on an exchange, comprise a massive portion of the world debt market, and are often attractive to Ukrainian corporations which have not yet built intergrated international legal structures with internationally recognized audits and credit ratings.

The key advantage of debt facilities which are not traded on exchanges are the reduced requirements placed upon issuers. As the breadth of potential investors in a particular security decreases, so does the necessity for regulatory disclosure on the part of the issuer. At the same time, these debt instruments can come a higher cost to the issuer, as creditors demand higher return for their increased risk.

The role of Eavex Investment Banking is to work with your company to manage this delicate balance in order to find the optimal financing for your company at the optimal time.

One form of this type of debt facility is a Credit Linked Note (CLN). In many ways, a CLN is similar to an LPN (described above), both in form and in process. But, a CLN requires notably lower levels of disclosure from the issuer, less stringent financial reporting and often occurs without the assignment of a credit rating.

Syndicated debt is the issuance of a loan by major international commercial banks acting in small groups known as syndicates. Commercial banks acting in syndicate achieve two major goals. First, no single bank in the syndicate is required to accept the full risk of the loan. Second, banks without expertise in a particular market or sector gain the opportunity to co-invest with their peers, gaining exposure to risk outside of their core markets. One bank, usually with particular interest or competitive advantage in the business, takes the role of leading the group.

Syndicated loans can provide your company with the deep liquidity of several committed commercial banks, lowering the risk of a failed or partially filled debt facility. But, shareholders and managers should clearly understand that none of the highly experienced and savvy banks in a syndicate work FOR your company. The syndicate seeks to minimize risk and maximize profit in the transaction when negotiating the terms of the debt facility.

It is the role of your investment bank to protect your company’s interests during this complex process. Your investment bank may act as an Arranger or an Advisor, using its knowledge, skill and expertise to secure your company the most advantageous terms available on the market. Even the largest of global corporations recognize the importance of a qualified investment banking partner, exclusively serving the needs of their company.

Process for Private Debt financing

• Creation of your Debt Placement Team
• Completion of Due Diligence analysis
• Market analysis of potential buyers, volumes and terms
• Development of your Debt Placement Strategy
• Development of a long list of potential investors
• Preparation of financial reports
• Preparation of the structure
• Formation of Underwriters
• Preparation of analytical and presentation materials
• Preparation of management for meetings with potential investors
• Pre-marketing and placement marketing
• Preparation and organization of the Road Show
• Determination of total volume and placement structure
• Execution of the placement
• Support of communications with investors (IR)
• Press coverage