Loan Capital Formation Strategy of Companies I.D. Anikina*

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1 Abstract Loan Capital Formation Strategy of Companies I.D. Anikina* Defines of principles, goals, objectives, stages and factors of loan capital companies. Analyzed the main methods of forming loan capital companies, their advantages and disadvantages, the technique analyzes the effectiveness of recruitment and use of capital. Keywords Financial strategy, borrowing, credit, debt capital market related loan, the price of capital. Introduction Financial strategy has a significant impact on the efficiency of the companies it acquires special importance subject to the implementation of long-term and costly investment. Under the financial strategy of the company is understood as a system of principles and methods for the formation of long-term management structure of equity and debt. Principles of formation of the financial strategy of the company are as follows. 1. The principle of financial stability and financial flexibility. Developing a financial strategy, the company must analyze its implications for financial stability. Important is to develop a system of evaluation and management of financial stability depending on changes in the amount and sources of funding. Ensuring financial stability involves the development of a system for assessing financial stability of the company, its gradation (strong, medium, weak financial stability) and specification of the financial strategy, depending on the degree of financial stability. 2. The correspondence principle of formation of financial overall corporate strategy and investment strategy. Implies agreement with them (consistency in decision-making), taking into account their interrelationship and interdependence. For example, one of the financial strategies is a strategy of mergers and acquisitions. But this strategy must meet the general and investment strategies of the company, as has an effect on the change in most functional areas of the company. 7

2 *Volgograd University, department "Corporate Finance and Banking", Russia 3. The principle of inclusivity stay Holder companies - natural and legal persons interested in the activities of the company. These include: consumer products and the company's suppliers, employees, competitors, creditors, government (through its representatives). Companies need to consider how the decision on sources of financing and capital structure will affect the presentation stay holders its sustainability and risks, determining their investment and financial decisions regarding the company (decision to invest in the securities of the company, decisions on partnerships, buying the company's products et al.). 4. The principle of the stages of the economic cycle, the life cycle of the industry and the company. At various stages of the life cycle of the company there are various issues that affect the choice of volumes Examples attracts financial resources and their structure. For example, during the birth of the company is difficult to attract significant long-term debt financing or to rise funds to open financial markets, so important in these conditions may be looking for a strategic investor. At the stage of growth of the financial markets in general, the company is more profitable to raise funds from the financial markets in periods of economic downturn become critical internal sources of financing. 5. The principle of the dynamics of a financial strategy that is changing under the influence of appearance of new companies investment objectives and risk (the principle of a risk and profitability of the company). Thus, companies with unsustainable cash flows will experience difficulty in attracting debt financing on "optimal" interest rates, at the same time, companies with stable cash flows can attract a larger volume of loan funding. Companies with large amounts of specific assets will use less leverage than firms with universal asset. Investments in specific assets mean higher risk (illiquidity of these assets, a sharp change in their value in a highly turbulent environment), in order to reduce the company which will reduce financial risks by using as much as possible their own funding sources. Achieving an acceptable risk when choosing a financial strategy makes it necessary to develop a system of financial risk management and investment strategies. 6. The principle of adjustment, according to which the financial strategy of the investor requires constant adjustments according to changes in the external and internal environment of the company. The purpose of the formation of the company's debt capital - improving the performance of the company on the basis of maximizing its value, which is achieved by minimizing the cost of debt financing, the implementation of tax savings. 8

3 Borrowed capital management objectives of the company are: - Providing the necessary financial resources at certain times on the right time to implement the investment strategy of the company; - Increase the company's value based on the optimal ratio of debt to equity, minimizing the costs of attracting financial resources, achieving an acceptable balance between the growth of the financial risk (in terms of growth of debt capital in the structure of liabilities) and the growth of return on equity; - Ensuring the optimum ratio of financial stability and financial flexibility of the company by building a portfolio of leveraged funds (raising funds from alternative sources, in different currencies). Formation of the company's financial strategy is determined by the following factors (see Table). Stages of formation of debt capital: 1. Determination of the capital requirements for the implementation of the investment strategy. 2. Analysis of the potential sources of the borrowed capital specific to the company, the industry, the project; comparison of their benefits and risks. 3. Determination of the volume, timing, terms of attracting financial resources, limited in their use. 4. Optimization of ways to raise funds. 5. Establishment of the partners to attract financial resources. 6. Minimizing the risks of the financial strategy of the company. Financial strategy formation borrowed capital companies implemented various methods to attract debt instruments from which to finance investment strategies are the most important methods of attracting long-term borrowed funds (long-term borrowings, long-term bonds) and leasing. 9

4 Table Formation factors of financial strategy External (macro-economic and sector) factors The development of financial institutions and markets; stage of the economic cycle; specifics and stage in the life cycle of the industry in which the company operates Internal (corporate) factors Specificity and stage in the life cycle of the company; the size of the company and its assets (the value of assets, their liquidity, asset structure, their specificity, the presence and the goodwill of the company); equity capital; the existing capital structure (ratio of debt to equity); equity structure; current and forecasted financial stability and financial flexibility of the company; the company's reputation; accessibility for those companies or other sources FUNDING Factors investment project The required financial resources; the period for which financial resources are involved; the return and risk of the investment project; innovative projects; social and political significance of the project The advantages of using borrowed capital are: increasing return on equity, accelerated development of the company, the use of tax shields, which reduces the cost of capital, lower risk of loss of control over the company; increasing the motivation of managers to work effectively; a simple registration procedure, low cost and short time to attract debt capital compared with its own. At the same time borrowing funds has several disadvantages: the company increased financial risk, so the amount of leverage resources at affordable rates for the company is limited; targeted the majority of extra financial resources limits of available resources and may lead to loss of profits; fundraising takes place at a certain time (the need for capital return). The role of bank lending to finance investment strategies companies in the real sector of the economy is very significant. The active participation of banking companies in the investment processes creates prerequisites Key for accelerated economic growth. Banking companies operate in the investment process 10

5 function of financial and investment intermediary through the transformation of financial capital in the investment resources. For Russian companies, the importance of the participation of companies of credit and banking sector in the implementation of investment strategies is extremely high, due to the underdevelopment of alternative sources of finance (financial markets, financial services companies). The importance of bank lending to the economy indicate forecasts Economic Development of Russia, it is estimated that the level of bank lending to the domestic economy may reach in 2020, 80-85% of GDP (in %), the financing of investments % of GDP (2007 of - 9.4%) [6, p. 22]. However, despite the growth of bank lending to businesses, the value of bank loans in the Russian economy (as a percentage of GDP) does not correspond to global trends (in 2008, 36.3% and %, respectively) [ibid, p. 23]. A significant source of financing for Russian companies are currental own financial resources (41.5% according to 2007, of which 19.9% of the company's profits) and the budget (21.2% in 2007) [9], which indicates a high proportion of non-market financing investment. Loans to enterprises occupy 45% of the banks' assets [5, p. 23], but in the structure of investment financing these sources account for only 9.4%. This is not enough for large-scale development of investment processes in the Russian economy. Estimated A.G. Aganbegyan, for 6% GDP growth needs to double the current rate of investment from 170 to 340 billion USD. And the calculations of the Institute of Economy in Transition indicate the need for investment in fixed assets in the industry just over 1 trillion rubles. [6, p. 26; 4, p. 8]. The share of medium- and long-term loans in their total volume increased (50.9% - by 1 January 2008, 30.3% -on 1 January 2001). However, of these, only 23.6% are loans with a maturity of more than three years, while in the EU 52% of loans are granted for a period of more than five years [6, p. 24]. It should be noted that the US share of bank loans in the structure of financing sources of investment is 40%, in the EU - an average of 42%, in Japan - 65% [5, p. 23]. With limited equity and participation by Russian banking companies in financing investment projects in the real sector of the economy enterprises are resorting to additional sources of credit, such as an increase in imports of capital from abroad. Net inflow of capital and enterprises, and banks grew at a significant pace and in 2007 was US $ 48.5 billion. [6, p. 26], which increases the attractiveness of investments. The crisis of led to the growth requirements of foreign banks to their Russian counterparts on early redemption of debt and tightening the issuance of new loans. This led to a sharp (in the first half of more than twice per annum) [ibid, p. 27] reduce borrowing by Russian banks. Such thus and this source of funding is currently companies to use difficult. One of the important benefits of bank lending, in addition to the above, is the confidential nature of the transaction, the main parameters of which are known to a limited number of persons; the use of a personal relationship with the creditors for concessional lending, which is impossible for market financing investment. 11

6 At the same time, attracting long-term bank loans, companies face a number of constraints: the purpose of the loan; the need to provide support; restrictions on certain types of transactions, regulatory compliance of financial ratios, limitations on the level of indebtedness, profitability and guarantees to third parties; limited use of tax shields under Russian law. Another important source of investment financing - debt instruments of the capital market, the main of which are corporate bonds. In developed countries, a large proportion of the investment is financed through the mechanisms of the financial market. Thus, the issue of securities (stocks and bonds) of the total funding of investments are in the US - 60%, in Germany - 35%, France - 40%, in Russia - 9% [8, p. 45]. Studies show that the share of corporate bond issues in total investment was 27.6% in 2006, but a substantial portion of borrowed funds diverted from the renewal of fixed assets, so the final contribution of corporate emissions for these purposes - 3-4% [2, p. 93]. In developed countries, namely debt market occupies a considerable share in the capital market - up to 6065% of the total market capitalization, while the Russian market of corporate bonds is less than 4% of GDP [ibid]. During the Russian corporate bond market has grown significantly, and by the beginning of 2007, the volume of corporate bonds issued amounted to 47 billion rubles. However, compared with the banks -bank loans, the share of corporate bonds (including Eurobonds) of the total investment in fixed assets the company has negligible (1.25% in 2006) [2, p. 95]. The global financial crisis has had a negative impact on the Russian bond market, other than the collapse of the market cannot be called the events in September 2008, when the MICEX Stock Exchange suspended trading simultaneously on several issuers. Despite the high yield market - 25% or more [11, p. 13], market volumes are negligible, investors fear the borrower defaults, so any extra high yield evidence about the risk of default now, not talking about the attractiveness of investments. Most analysts believe that as long as the bond market is closed for companies III- IV levels [11, p. 13]. In the near future restoration of the bond market will largely be determined by the Company's ability to fulfill current obligations to repay and put options. With mass default and increase investor confidence in the market as a mechanism for raising funds may be closed for many borrowers. According to estimates of the Civil Code "Region", the total amount due in October - December 2008 was 38.9 billion rubles., As part of early redemption, investors may submit commitments worth more than 207 billion rubles., Which is about 13% of the corporate bonds [ibid, p. 13]. In this case, in September 2008, the company has defaulted: Siberian company Alpi during the offer and presented for redemption of bonds in the amount of 1.44 billion rubles able to repay only 495,140,000 rubles. [12. 10]; "Saturn" could not in time to pay the coupon income in the amount of million rubles. Company "Radionet" not fulfilled its obligations under the repayment of the bond loan of 1 billion rubles. [3. 12]. According to the statistics of the analytical department of the investment group "VIC", about 20% of issuers have defaulted or are in a state of bankruptcy [4, p. 57]. Reducing the volume and 12

7 liquidity of the bond market and has a negative impact on the ability of all companies, is prodepending on their financial condition, the use of this source for the growth of financial resources. The disadvantages of attracting bonds are: the inability to use them to cover the losses of the company that makes the attraction of such financial instruments limited to the financial crisis; need to comply with standards FFMS on mandatory disclosure of information; the presence of an emission tax; a significant amount of documentation (prospectus, contract underwriting agreements with the Paying Agency, the depositary); significant risks for the lenders and the complexity of their adequate assessment; limited use of tax shields. At the same time, the possibility of a significant raising fund at low interest rates, market prices, the lack of strict purpose make this a very attractive source of financing for companies. Method of attracting associated loan is a type of attraction of trade credit issued for a specific supply contract. Such a tool can be used to finance the supply of imported equipment; the cost of credit is from 6 to 12%, the term of the loan funds - up to 10 years, does not require collateral. This type of lending is used [7, p. 46]: - For delivery of any production equipment to upgrade facilities and transport (loan term - up to five years); - When importing any goods for resale, raw materials for production needs (loan term - one to two years); - To create the industrial infrastructure of the enterprise, for example, the construction of warehouse and office space, of commercial operation (financing term - up to ten years); - To create the transport infrastructure: roads, infrastructure (railway stations, airports, etc.) (Term funding - up to 20 years). Using a linked credit, the company involves long and cheap financial resources sy without providing collateral (a pledge can be imported merchandise or equipment), minimizes the risks of trading. The main disadvantage of this method is the limited types of investment resources that can be purchased under the terms of the associated credit, and a narrow circle of their suppliers. In underdeveloped banking system and capital markets an important method of financing investment strategies is leasing companies. The basic form of leasing in the implementation of investment strategies -Financial leasing, which is a rent fixed assets for a period not exceeding the period of their depreciation and subsequent transfer of ownership of fixed assets leased to the tenant. The main advantages of leasing related to the possibility of tax shields on the total payments; using the method of accelerated depreciation in calculating income for tax purposes; rapid adoption of the financing decision. The main drawbacks - high down payments; limitations of the assets for which it is possible to use leasing. During the financial crisis, this source of financing for companies increases their attractiveness, some leasing companies are increasing business volumes. For example, "Eigor1ap" in the first half of 2008 showed a growth of 64.4% 13

8 activity. The number of contracts concluded during this period was 9,500, compared with 6,700 in the first half of "SAYASABE Leasing" in the first half of 2008 increased profit by 1.58 times compared to the same period in 2007, which amounted to 96 million rubles. In this case, the company's portfolio has doubled and reached 6.5 billion rubles. [10. 22]. An important indicator of the effectiveness of the use of the company's capital is the return on equity. Katori income (s) and choose the most effective strategies for raising capital, aimed, on the one hand, to reduce the costs of its attraction, and the other - to increase the profit from the use of capital. Thus, the analysis of the main methods of forming loan capital companies showed that the financial crisis has been a sharp increase in the price to attract a variety of extra financial resources. At the same time, the formation of the extra capital the company must take into account not only the price to attract resources, but also parameters such as the amount of available resources; term of the resources; the level of rates to attract resources; time implementation of the method of attracting resources; view rates to attract resources (fixed, floating); currency attracted resources; the need for collateral and its conditions; restrictions lender when providing extra financial resources; repayment terms of attracting financial resources and the possibility of early repayment. The choice of the method of forming the extra capital will be determined by a combination of these parameters, as well as their priority for the company. 14

9 References 1. Aganbegyan, A.G. The role of investment in economic growth / A.G. Aganbegyan // Finance and business N 3. - S Butler A. Resources of the capital market as a source of financing the real economy / A. Dvoretskaya // Problems of Economics S Defaults September // Vanderbilt S Interview with the president of the investment group "VIC" V. Lukyanov // Finance S The concept of development of the financial market in Russia up to 2020 // A joint project of the rating agency "Expert RA" and the Association of Regional Banks of Russia. - Access http: // www. raexpert. ru / strategy / conception /. 6. Krolivetskaya, V.E. Banks in the investment financing of the real sector of the Russian economy / VE Krolivetskaya, EV Tikhomirov // Money and Credit S Prishedko, I. Imports / I. Prishedko // Vanderbilt C Rossokhin, V.V. Problems of efficient use of the Russian stock market to raise funds in the real economy / VV Rossokhin // Finances and Credit S Rosstat. - Mode of access: Growth in the crisis // Vanderbilt S Tereshkova, N. Bond debt: who is waiting for the calendar defaults? / N. Tereshkova // Vanderbilt S Tereshkova, N. Where leading long Siberian retailer / N. Tereshkova // Vanderbilt p

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