SECURITIES-BASED FINANCING
USD 5MM to $500M+

Lending Area: Worldwide




USING BONDS TO RAISE CAPITAL (Private & Public) (request quote)

1) financing available using existing bonds as collateral, or
2) lender will create a bond using collateral (e.g. exchange traded common stocks, real estate, vaulted metals, proven metal reserves, trade equipment/machinery, or other insurable assets) and provide the financing. Attorney cost to prepare the bond documents and structure the SPV** is an upfront fee payable by borrower. The fee varies from USD 20,000 and depends on complexity. Initially, lender and borrower sign an Engagement Letter and a Non-Disclosure Agreement (NDA).


** A special purpose vehicle/entity (SPV/SPE) is a subsidiary company with an asset/liability structure and legal status that makes its obligations secure even if the parent company goes bankrupt.


UPDATE: 2018-05-27

INDIA, due to increased capital controls implemented by the Royal Bank of India (RBI), India stock loans are still possible but as bond loans (i.e. bond backed by India common stock). Similar terms as below, and there is a one-time upfront legal fee of USD 25,000 (in the form of cash or securities are sometimes acceptable) to create the bond and setup the SPV.


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Hong Kong Stock Exchange

EXCHANGE-TRADED SECURITIES LOANS (STOCK LOANS)

Is your firm a listed public stock company or are you a common stock or bond investor and need access to inexpensive and secure financing? Securities-based financing is a low cost option to consider for any reason.


Common stock financing are securities-based loans where the terms of the loan are governed by a "Securities Lending Agreement," also know as the Control Agreement, which requires that the borrower provide the lender with collateral, in the form of exchange-traded stocks (common, preferred, or convertible stock), or other securities, of value greater than the loan amount. We also do Block Trades and Repurchase Agreements (REPOs).



RETENTION OF OWNERSHIP

In most countries, borrower retains ownership of the common stock that is held in borrower's own brokerage account and borrower continues to enjoy dividends and capital appreciation of the stock during the term of the stock loan. In countries that implement strict capital controls* against their citizens and businesses, title of the stock may need to be transferred to the lender during the term of the loan; title to the shares is vested back to borrower upon repayment of the loan.


Shenzhen Stock Exchange

IDEAL CRITERIA FOR FUNDING EXCHANGE-TRADED STOCKS

Liquid Assets (loan amount can be repaid within 5 days using daily trading volume on the stock exchange)
- Market capitalization at least USD 110 million.
- Volatility less than 80
- Daily turnover at least USD 520,000


Illiquid Assets (loan amount cannot be repaid within 5 days by means of the daily turnover of the security)
- Market capitalization at least USD 500 million.
- Credit must be repaid within 10 days by means of daily turnover.
- Guarantee from private individual; if the borrower is a company, the BO (beneficial owner) shall be liable.
- An in-depth analysis of the title will be carried out.

We also look at each stock individually. If a company has a solid background and good business, funding is still considered.


Shanghai Stock Exchange

EXCHANGE-TRADED STOCK LOAN OVERVIEW

- Approvals: within 5 business days. Due diligence completed prior to term sheet.

- Arranger Fee: paid at closing and or quarterly/semiannually.

- Collateral: public exchange traded stock, freely traded, and unrestricted.

- Currency: USD, EUR, HKD, others considered

- Interest Rate: range from 0% to 9% (see below for 0% INTEREST RATE, EXAMPLE)

(determined by stock liquidity, volatility, the loan currency, and other risk factors).

- Lenders: investment groups, high net worth individuals, & endowments.

- Loan-to-Value (LTV): 35%-75%.

- Loan Amount: from USD $5 million to $500 million plus (OTC $1MM+)

- Loan Proceeds: available worldwide.

- Lock-In Period: 12 to 120 months.

- Maturity Date / Loan Term: 1 to 10 years

- Payments: interest only.

- Processing Time: stock loan closes in 5-7 trading days depending on the speed borrower processes the paperwork.

- Recourse: recourse & limited recourse (i.e. stock is the only collateral)

- Title Transfer: No title transfer in most cases unless the exchange country has excessively restrictive capital controls.


Financing Available On Most Stock Exchanges

0% INTEREST RATE

EXAMPLE: EXCHANGE-TRADED STOCK LOAN

LTV 55% (maximum)

Gross loan amount: USD 100 million

LESS investment amount: USD 15 million (i.e. fixed income A-rated securities)

Net loan amount: USD 85 million

Loan term: 24 to 36 months

Loan interest: paid by lender (effective interest rate to borrower is 0%), and

borrower participates 50-50 in profits on the investment with the lender.



Benefits to borrower:

- no interest cost for the entire loan term

- lower loan costs

- additional revenue/profits from the investment


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International Securities Financing

LOAN APPROVAL (ALL STOCK LOANS)

Please Provide: (email here) - STOCK LOAN PROCESS

1) Stock company/symbol (i.e. ticker or #)?

2) Country/exchange traded?

3) Loan amount AND # shares available to pledge?*

4) Shareholder name AND address for term sheet?

5) Name of current custodian of shares AND holding bank/broker-dealer?

6) Are the shares held in personal name, corporate, or SPV?

7) Transfer of title or not?

8) Use of the loan proceeds?


* broker account statement confirming shares (this statement can be returned with the signed term sheet but be certain of exact # of shares available to pledge in #3 above)


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* CAPITAL CONTROLS (i.e. especially exchange controls and limits on outflows from portfolio investments)

Gochoco-Bautista, Jongwanich, and Lee (2010, p. 16-17) say "The findings imply that capital outflows actually increase when countries impose restrictions to try and prevent capital outflows" and when "a country restricts capital outflows, it is sending a signal to market participants that it is worried about loss of confidence and the possibility of capital flight and financial instability, and may signal difficulties in repatriating profits, any of which could precipitate capital outflows." When a country implements capital controls, the policies put into place are determined through the analysis of benefits and costs (i.e. benefits to the government not the citizens and businesses, and costs are ultimately paid by the taxpayer) (Country Policies, 2000, p. 41). Countries with capital controls: Argentina, Brazil, Cambodia, China, Chile, Cyprus, Germany, Iceland, India, Indonesia, Ireland, Japan, Malaysia, Romania, Russia, South Korea, Spain, Taiwan, Thailand, Turkey, Venezuela, Vietnam, ...


AFFECT ON CITIZENS/BUSINESSES & SOLUTIONS

Capital controls result in citizens losing control of their wealth in favor of their government, and losing the freedom to enjoy their wealth as they wish. To maintain control of wealth and earnings, citizens and businesses of these countries must move their capital abroad, start earning abroad, and not bring the funds back into the restricting country. Suggested countries to hold assets are Hong Kong, Singapore, and Switzerland. For other solutions, see Freedom.


References:

Gochoco-Bautista, Maria Socorro; Jongwanich, Juthathip; Lee, Jong-Wha (October 2010). How Effective are Capital Controls in Asia? ADB Economics Working Paper Series, No 224. Retrieved from https://www.adb.org/sites/default/files/publication/28426/economics-wp224.pdf


“Country Experiences with Their Use and Liberalization IMF Occasional Paper 190.” International Monetary Fund (IMF), 17 May 2000, Retrieved from

http://www.imf.org/external/pubs/ft/op/op190/pdf/part1.pdf


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