Skilled Migrant Professionals December 2015 | Page 29

Finance
industry has been damaged by the volatile price environment and perception of poorly managed capital.
Until price momentum swings decisively to the positive, the well-trodden path of IPO (Initial Public Offering) is likely to be unpopular. Ongoing
divestment by portfolio reviews may feed the pipeline, but spin-outs via
IPO are likely to be exceptions rather than the rule, and will be heavily
reliant on timing and market sentiment for success.
As there are so many distressed assets in the junior mining and contracting space, it is only a matter of time before private equity players
enter the markets on a larger scale and interest picks up. An example of
major Private Equity funds restocking up the war chest is Carlyle Group
and KKR & Co, which raised a combined $10 billion last year in order to
invest in the Asia-Pacific region – adding to an estimated $140 billion of
uninvested capital.
Given th e lack of access to traditional sources of funding, many distressed companies are already exploring less traditional alternatives.
These include offtake deals, equipment financing, contract financing,
and drill for equity and high-yield debt. Other options include royalty
and streaming arrangements, where companies forward-sell a percentage of their production at cost price for an up-front injection of capital
today; farm-in deals at the asset level; seeking value and liquidity on alternative stock exchange listings; and/or market-style financings, where
equity capital flows to a company in tranches over time.
Bonds yields are currently at historic lows and we are now seeing a
global hunt for higher yield from long-term pension and high-net wealth
investors. Opportunistic companies, which are exploring this alternative
to traditional debt finance, are taking advantage of this demand for yield
to get development projects away in the short term, with the aim to refinance once the projects are de-risked and become investment grade.

The use of multi-tranche convertible and debt facilities are becoming
increasingly popular as they give companies the ability to raise more
capital than would otherwise be possible through straight equity or
debt. These structured finance products typically allow companies the
flexibility of raising capital by repaying debt obligations in cash and/or
shares at a future time, price and amount that management chooses
within agreed parameters. This gives management the unique ability to
manage and minimise dilution throughout the entire term of the facility.
Some of the key benefits to these products are that they can be used
as a standby facility, timing of all drawdowns are controlled by the issuer, drawdown amounts can be increased as market liquidity increases,
and they are less dilutive and faster to market than traditional secondary
market capital raisings.
Australia has been blessed with a buoyant venture and equity capital
market for most of the last 20 years, so there are some traps for beginners in structured finance to be aware of:
• Choose a structure that is simple and easy to understand
• Beware of structures that can compel you to draw under the facility, especially through a large deeply discounted upfront investment
• Make sure that you can communicate the terms to your board and
shareholders with little difficulty
• Choose a structure with a floor price per drawdown
• Choose an investor with local experience and an established history
In summary, the challenging environment of raising capital for resource projects now sees companies utilising a combination of innovative financing solutions. The only thing surer that a rebound in commodity prices some time in the future, is that until then, the innovative
nature and “resourcefulness” of capital market practitioners will find a
way to get deals done. This is something worth putting your money on.

December 2015 | www.smpmagazine.com.au

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