Thursday,
07th December, 2000: 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
|
