succesfully leveraging capital markets to raise funds

SUCCESFULLY LEVERAGING CAPITAL MARKETS TO RAISE FUNDS -J I T E N D R A M E H TA -C F O -K A N A K I A G R O U P

ABOUT KANAKIA GROUP  Kanakia group made its humble beginning way back in 1986 under the

guidance of Mr. Rasesh Kanakia and Mr. Himanshu Kanakia  The group is into following four verticals 

Real Estate Development: The company is into real estate development in Mumbai. With over 10 million sq.ft. developed and more than 15 million sq.ft. under development, Kanakia is one of the biggest group in Real estate.

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Entertainment: The promoters are into the business of Entertainment through Cinemax. The theatre chain has more than 100 screens and is eyeing for 300 screens in next 2 years.

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Hospitality: Kanakia Spaces made its maiden venture into Hospitality through Courtyard Marriot in Mumbai. There are 3 hotels in pipeline i.e. Goa, Ahmedabad and Lucknow in partnership with Hyatt, Novotel and Marriot group respectively.

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Education: The group is into running of educational institutes, i.e. a ICSE school in Mira Road with 5,000 students and IB school in Chembur with more than 300 students. The group is planning to open 10 schools in next 5 years.

FUNDS REQUIREMENT

DEBT v/s EQUITY

DOMESTIC DEBT v/s ECB

PRIVATE EQUITY & MEZANNINE FUNDING  The following are the pecularities of Private Equity and Mezzanine financing

 Private equity (PE) is when a set of investors invest money in a project or a

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company by investing in the shares of the company which are not listed on stock exchange. The basis of investment is valuation of the company using Valuation techniques like Discounted Cash Flow (DCF) or Price Multiple approach. Since it is equity investment, the investors expect high returns, the returns are commensurate to the risk perceived and hence a risk premium is added to the Risk Free rate to arrive at the same. Also these returns are post tax and hence is very expensive money. The returns of the Investors are derived through their exits which can happen in the following ways   

Buyback by promoters (Generally Put option) Initial Public Offering Stake sale to other investor

PRIVATE EQUITY & MEZANNINE FUNDING  In project based Investments the Investor has a preferred return structure

wherein they are assured of Capital + a certain defined rate after which the remaining cash is shared in certain ratio which is called Waterfall arrangement.  The terms of the agreement are recorded in Share holder’s Agreement (SHA) which contains inter alia the following points     

Obligations of the borrower Rights of lenders (Affirmative Vote Transactions) Provisions for Exit Events of Default Legal Recourse

 Since PE is a partner in business they require reporting from the promoters on

a quarterly basis.  Capital brought in by Foreign funds for long term investment is known as Foreign Direct investment (FDI) and is governed by Foreign Investment Promotions Board (FIPB).

INITIAL PUBLIC OFFERING  The process in which the company offers its Shareholding to public at large is       

known as Initial Public Offering (IPO) The IPO is the primary market which is governed by Securities Exchange Board of India (SEBI) Since shares are issued, the co. has to report results on quarterly and on annual basis. The company board has to face the shareholder’s in the Annual General Meeting Company has to follow Corporate Governance rules and appoint independent directors. Foreign investors can trade on these shares. The capital raised in IPO is growth and long term capital since it does not have to repaid by the company. Listing provides valuation to the company which helps further leveraging by pledging shares or borrowing at entity or project level.

INITIAL PUBLIC OFFERING  Opens the gates for further fund raising by using following instruments      

Qualified Institutional Placement (QIP) Follow – on Public Offer (FPO) Rights Issues Foreign Currency Convertible Bonds(FCCB) American Depository Receipt (ADRs) Global Depository Receipt (GDRs)

 Gives visibility to the company and enhances Brand Value.  Attracts attention of long term foreign funds which believe in the growth story

of the company (FDI)

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