Tapping the Market Liquidity and Alternative Funding Structures Presented by Norman Wilson, ABIF

Local liquidity pressures leading to increase in foreign currency financing for a number of major transactions $3,000m $99m Combined Bank Loan Trend

-Fiji Govt floated U$150m bond -FNPF offshore investment flowing back in F$100m -GFC impact -Increase in oil price to U$150/barrel – liquidity drain 2 SRD increase totalling 3% Inflow from bond issuance U$100m -Recall of offshore investment -Improvement in Trade deficit - Increase in Foreign loan - IMF SDR Increase Devaluation Redemption of RBF Notes $75m $515 m FCY Loans MNC Profits Bank Capital $1,359m $99m $100m $200m Relationship between Domestic Liquidity and Reserves

Financing sources 1. Equity  Self  Private equity (institutional investors)  Angel investors  Stock exchange (IPO)

Financing sources 2. Debt  Senior debt, i.e. banks.  Commercial paper/ Bonds  Mezzanine finance

Capital structure options 1. Raise own Capital, from savings and borrowing from family members. 2. Own equity + debt financing. 3. Own equity + Private equity + debt (bank) 4. Own equity + Mezzanine Finance + bank finance

Assumptions: Initial Capital – FJ$8m Bank debt – 9% Mezzanine Finance – 12% Private equity – 20% Raise own Capital - 100% 100% equity, carrying 100% risk as well. Low Return on Equity because its all self funding. Pay back period is about 5yrs Own equity + debt financing (40%+60%) Return on Equity is higher as equity is reduced Pay back period is 4.3yrs Sales cost – 60% (Gross Profit margin of 40%) Overhead – 25% (Net Profit margin of 15%) 12

Assumptions: Initial Capital – FJ$8m Bank debt – 9% Mezzanine finance – 12% Private equity – 20% Sales cost – 60% (Gross Profit margin of 40%) Overhead – 25% (Net Profit margin of 15%) Own equity + Private equity + debt (bank) 20% + 20% + 60% Return on Sales again lower than option 1, because of interest portion. ROE is higher as Investment is only 20% of total capital. Pay back period is about 5 yrs. Own equity + Mezzanine Finance + bank finance (20% + 20% + 60%) Return is sales is the lowest because of higher interest from Mezzanine Finance. Pay back period is about 4.6 yrs 34

Summary of return on Shareholders Equity

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