Soffina
Raising Finance Infoline
Thursday, 30th of December, 1999: Means of Finance-promoter's contribution
To recapitulate, the project cost we had assumed of Rs. 42.50 crores was financed by way
of
| Debt
|
Rs.
|
25.50
|
Crores
|
| Equity
|
Rs.
|
17.00
|
Crores
|
|
|
|
|
| Total
|
Rs.
|
42.50 |
Crores
|
Now, it is possible that the entire equity of Rs. 17 crores is brought in by way of an IPO (Public issue of capital) but the FI (financial institutions) would like the promoter to show some commitment in the project by investing some money. This financial commitment in the project is called the promoter's contribution. This amount will not be carrying any interest, it cannot be repaid till the loans to FIs are repaid in full and will be unsecured.
What can comprise promoter's contribution?
The sources of finance, which can be included in the promoter's contribution, are:
| •
|
Cash profit of the company (in case the project is being set up in a existing profit making company) |
| •
|
Sale of asset of the company (can be land, investments etc etc) |
| •
|
Equity brought in by the promoter |
| •
|
Equity brought in by A venture Capital fund (please read further for core promoters contribution) |
| •
|
Unsecured loans brought in by the promoter |
| •
|
Fully convertible, unsecured debentures subscribed by the promoters of the company |
The sum of total of the above should be at least 25 % of the project cost. So continuing the above example, the means of finance turns out to
be
| Debt
|
Rs.
|
25.50
|
Crores
|
| Equity
|
Rs.
|
17.00
|
Crores
|
|
|
|
|
| Total
|
Rs.
|
42.50 |
Crores
|
We had mentioned above that the promoter's contribution could also include funds brought in by Venture Capital funds. This amount as a limitation as the minimum amount of promoter's contribution should be at least 15% of the project cost. Therefore, the minimum, minimum that the promoters needs to bring is
Rs. 6.38 crores, the balance of Rs. 4.25 crores can be raised from approved VC funds, who, part of their culture, will retain their stake in the company for a longish (3 to 5 years) period of time
|
