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Business financing

At the present time, the companies working on the Belarusian market can choose among the main classical types of business development financing. Among the main ones is bank lending and issuance of debt securities.

There are 31 banks, as well as 8 representative offices of foreign banking institutions on the territory of the Republic of Belarus.

About half of the banks of Belarus offer a full range of services on the financing of companies. The main instruments are the classic credit products, trade finance instruments, bank guarantees, foreign credit lines, leasing, factoring, etc. Moreover, Belarusian banks act as the largest issuers of debt securities (bonds), as well as their holders.

Apart from the common local banks and representative offices of foreign banks, Belarusian business has the opportunity to finance its activities and development through the resources of international financial institutions. The International Finance Corporation (part of the World Bank) and the European Bank for Reconstruction and Development are the most active in Belarus. These institutions work out the credit policy of the country on an annual basis. Unfortunately, at the present time, there is a range of limitations to finance projects in the Republic of Belarus. This is primarily due to the political and economic risks.

A small number of large private business and state policy in respect of support of state companies using state-owned banks has led to escalating competition on the rates market. As a result, the currency credit rate for the Belarusian loan borrower is often significantly lower than for the borrower in Russia.

Due to various circumstances, a full set of other financing instruments available for the masses has not been formed in Belarus so far. These include: Funding through IPO; through SPO; Attracting private equity funds (Private equity); syndicated lending, issue of Eurobonds, attracting strategic investors through M&A (mergers and acquisitions).

Nevertheless, in some cases, the most advanced and forward-minded companies are working on these issues. In order to organize the support and efficient completion of such transactions, considerable experience and a team of professionals is required.

Proper attracting of investment to the capital consists in:

Permanent and systematic work with private equity funds. Attracting funds from private investors allocating resources through a non-public management company.

Using the potential of private investment (Private placements). Investments are attracted directly from private independent investors.

Advising on public share placement on the stock exchanges of Europe and Russia (IPO and SPO).

“Private equity” means entering a pool of private shareholders through the management company to the shareholder structure (owners) of companies for future dividend income, as well as based on the rising cost of participation on the horizon of 3-7 years. “Private equity” will be the best option in case if the businessman is interested in creating his own product line or is thinking of expanding an existing one, if he plans to buy the company or part of it, if the procedure of restructuring or modernization is required.

Private investments, as opposed to debt obligations, do not require guarantees and pledges, as well as regular interest payments.

Private investors are interested in acquiring company shares, because in this case they become shareholders. The return on investment depends on the efficiency, turnover and profitability of the company. Therefore, private investors have direct interest in maintaining the company in difficult situations or dumping on the market. If necessary, investors can deposit additional funds in the capital of the company. The attracted private capital allows to greatly increase the credit capacity of the company, as the ratio of debt to fixed capital increases.

IPO (Initial Public Offering) — process of an initial public offering of shares on the market. As a result, shares are freely traded on the stock exchange and are available to a large number of private investors. When carrying out the IPO, a large number of shares become available, and the company receives the opportunity to attract long-term investments and resolve its current financial issues or conduct large-scale modernization. IPO differs from a bank loan by the fact that money can be obtained regardless of the decision of a specific creditor. The appearance of an alternative source of financing makes access to loans easier, and the process of carrying out the IPO allows evaluating the efficiency of the company and makes all internal financial processes “transparent”.

The appearance of securities of a company on the stock exchange and free trading allows increasing the market value of the business and increases its liquidity due to the continuous growth of quotations.

SPO, Secondary Public Offering is mentioned if the company conducts a public offering of shares on the stock market for the second time. This happens for two reasons.

The first reason is the issuance of new shares after carrying out the IPO. In this situation, SPO will reduce the shares of shareholders in the authorized fund of the company. But in some cases, additional “gusher” of shares can be profitable.

The second reason for carrying out the SPO is the sale of shares after the IPO by the existing shareholders. In this case, the proceeds are received not from the company, but from the shareholders who initiated the sales process.

Effective organization of debt financing consists in:

  • attracting investments for mergers and acquisitions (LBO and MBO) supported by foreign and Belarusian banks;
  • advising on the issues of organization of bonds (debt securities) both on the domestic market of the country, as well as on the markets of Russia, Asia and Europe;
  • assistance and attraction of capital from international financial organizations (IFC, EBRD, EDB, FMO, etc.) and Belarusian banks.