This chapter provides a detailed understanding of the mechanics of equity financings. Equity financings are indebtedness transactions collateralized by shares. Typically, corporates, financial institutions and high net worth individuals use equity financings to raise cash off the back of their equity stakes as an alternative funding source outside the traditional debt and equity capital markets. There are multiple ways of implementing an equity financing. In the following sections I will cover the most common equity financing structures.
9.1 CASE STUDY: EQUITY COLLATERALIZED BOND
One common way of implementing an equity financing is to issue a bond collateralized by an equity stake. In order to study the different elements of a structured bond collateralized by shares, let us assume a fictional transaction. In 20X1 the ABC Group, one of the Middle East's largest privately owned financial/industrial conglomerates with interests primarily in oil, gas and banking, as well as other investments, approached Gigabank to raise financing secured by part of its stake in XYZ Petroleum (“XYZ”).
ABC Group operated through a series of fully owned holding companies, each with specific industrial focus. One of these holding companies was Oil Holding, which held the oil and gas investments of the ABC Group. Oil Holding owned 30% of XYZ's share capital. XYZ was a publicly quoted company.
On 1 June 20X1, Gigabank arranged a USD 300 million structured equity financing for Oil ...