Capital Raising

The prime aim of Commercial Banks is to raise money.  Read below to learn what are the best ways to do it, including information that the Investment Banks will normally not tell you as they often have risk to you.

Vision Finance has been advising banks for many years, identifying various attractive capital raising methods, providing brokerage services between the borrowers and lenders.

1.  Deposits

Banks are in business of collecting deposits.   We have the documentation generally acceptable by most of our investors to lend banks financing.

Together with our borrowers and investors, we have also developed a structured form of deposits, which solve various of the issues that investors often worry about.  Please contact for more information.

2.  Senior Debt:  Bonds

Bonds have been for a long time popular with financial borrowers as it enabled them to reach a wide and diversify group of investors.

Bonds also have one more feature that is to the benefit of the issuers, albeit it is rarely spoken about.  In the events of dire straits, the bonds being mostly mark-to-market securities, trade at a significant discount to par values, in a way almost behaving like a "senior equity" element of the capital structure.  Part of the reason for survival of the banking system in Kazakhstan in 2008 crisis, was the ability of the banks to buy back their issued bonds at a significant discounts, hence when it became apparent that only the 50% of the assets were being repaid, the banks benefited by being able to buy back their debt at also approximately 50 cents on the dollar.

Bonds tend to have maturities of 3 - 5 years, with some blue chip issuers being able to issue longer dated paper. 

The issuing costs of the bonds vary between 300,000 - 500,000 usd, depending on complexity and jurisdiction, and not including the arrangers fees. 

For a fixed fee, Vision Finance will monitor the arranger selection process, work, costs, and fees discussion, ensuring that your bank pays the minimum fees, while enjoying highest quality of service and low legal fees (if they are not needed).

3. Senior Debt:  Loans

Loans are often very attractive to the issuers as they offer low spreads and relatively easy arrangement process with the presence of the syndicate of banks. Loans tend to have short 1 year maturities, with few clients being able to obtain 3 year transactions.

While it is difficult to remark the loans, as they are normally booked on balance sheet of the lending banks at nominal values (accrual accounting and use of reserves to cover for potential loses), loans can offer an opportunity to be extended in the events of the dire straits. 

Lenders will not normally tell you this directly, but with the skillful negotiations you might be able to extend the loan maturity, as default is very costly primarily to the bank (and the bankers who signed off on the transaction).

Vision Finance has extensive experience in negotiating loan extensions by Emerging Market clients.

4. Subordinated Debt: Upper Tier 2 and Lower Tier 2 bonds and loans

While the financial crisis has significantly reduced the use of Subordinated Debt, its attractive cost/benefit ratios cannot be totally neglected, especially as there are still number of outstanding transactions in the market that at some point will mature.

The standard idea behind the Subordinate Debt, is that with the support of the Central Bank, part of the debt forms Tier 2 capital threshold, hence reducing the need to raise usually much more expensive capital.  The logic behind this is as instruments being subordinated debt, will be repaid after all the deposit holders and senior bondholders are repaid.

There are various types of Subordinated Bonds and Loans, usually 10y NC 5y, where after 5years there was a significant step up intended to motivate the issuers to redeem the securities earlier (in practice however, as most these spreads were referenced to Libor, and with the coming of the credit crunch it is likely that number of these securities will not be as planned called early).

Vision Finance has not only extensive experience in brokerage activities of the secondary market on the Subordinated Debt, but also has had number of discussions with various Central Banks (Russia, Poland, Kazakhstan, etc) about the possibility of issusing this type of debt, and conditions that would need to be matched in order to obtain a positive capital treatment of the securities.

5. Hybrid Capital: Tier 1 capital 

At the peak of the financial engineering of 2006 - 2007 number of Hybrid Bonds were issued.  The attractiveness of these instruments have somewhat significantly deteriorated, as following the credit crunch investors did learn that being so low down the repayment order means that Hybrid Bonds are very unlikely to be ever repaid.  In addition the pricing of the bonds have significantly changed, meaning that it is currently very tempting for number of issuers not to redeem their tier 1 capital bonds, despite the fact that when the bonds were issued, it was perceived that the banks will always redeem the bonds - unless they fall into dire straits.

Tier 1 bonds tend to be perpetual with some call date (usually 10 years).  The pricing of the bond is such, that it highly motivates the issuer to redeem the bond.  The coupon on the bonds tend to be optional, yet there are number of "push factors" that make the issuers pay the coupons, as if they do not - they are for instance not allowed to pay dividends to the shareholders.

Tier 1 bonds are not available in all jurisdictions, despite being officially approved under Basel.  Various national bodies have decided that the use of Hybrid instruments significantly overleverages the financial sector.  As time showed, they were right.

Please contact Vision Finance should you hold some Tier 1 bonds, or be interested in buying them back for your banks at a significant discount.

6.  Securitisations

Securitisations formed a peak of ingenuity, offering Banks ability to sell of parts of their assets at an attractive prices.  It is important to differentiate early between:

a) structured products (CDOs, CLOs, RMBS, CMBS, etc) 

b) single asset cash flow securitisation 

Securitisations were pool of assets, which were then pledged in return for various loans (equity, mezzanine portion and senior debt).  While the Equity and Mezzanine tranches were often retained by the banks, the senior debt was sold off to investors, often with very high ratings.  "Ratings arbitrage" was paramount to the success of the securitisation as the concept.  

While we see that some transactions are returning to the market, Vision Finance believes that the driving force for these transactions is the ability to repo the senior tranches with the central banks.  Fundamentally however it seems that it is very unlikely that the Structuring products will ever return to their former glory, as it is now known that 100 x 1 is not equal to 110.  In addition the correlation of the assets of the same type is so significant, that pooling of these assets together indeed offers little protection for the senior bond holders.

Please contact Vision Finance should you hold some CDOs, CMBS and RMBS products.  You will need a skillful  and non-conflicted broker in order to sell the stake that you have to another financial institution, ideally bypassing the risk of being outplayed by the market makers of the investment banks.

By joining efforts with some of the worlds best CDO / CMBS and RMBS brokerage companies, Vision Finance is uniqually placed to either sell or source for you the instruments that you require, without moving the price of them first.

7. Equity

Though the valuations of banking stocks are far off the ones observed in 2005 -2010, if you are interested in selling your bank, or part of it, either via direct equity sale, or convertible loan, please do not hesitate to contact us.  

Vision Finance has very strong relations with various large international banks who are keen to expand in various parts of Emerging Markets, and if the price and quality of the bank is right.

More information on the selling possibilities are under Mergers & Acquisitions section.