Program Brief

In contemporary corporate and project finance the optimisation of entities’ capital structures is a critical process in financial risk management as well as in maximising investor value. Firms’ target capital structure can potentially comprise funding from a number of sources across equity, sukuk, conventional debt including bonds, and in some instances, mezzanine finance in the form of preferred shares and subordinated debt. The capital optimisation process is complex: in addition to its basis in comprehensive capital budgeting assessment of current and expected future availability of appropriate financing in the required form (and acceptable pricing) is required to sustainably support the pursuit of new business opportunities, as well as maintaining existing capital assets, through the cycle. This comprehensive, applied programme covers the key issues and considerations in capital structuring and – via a number of case studies – examines the specific challenges across different sectors and project finance types as well as the dynamic nature of entities’ funding requirements as they evolve.

Program Goals

At the end of the training program, the participant should be able to:

  • Comprehensive understanding of the fundamental tenets of capital structuring.
  • Identify the sources of finance from capital markets and bank credit facilities.
  • Identify capital budgeting to understand its integral role in optimal capital structuring.
  • Correct evaluation of capital projects to select the most appropriate among them.
  • Familiarity with theoretical foundations and practical issues in capital structuring.
  • Modelling firms weighted average cost of capital (WACC).
  • Analysis of the role of leverage in capital structuring.
  • Working capital analysis and pricing dynamics.
  • Real Options analysis in capital budgeting.
  • Capital structuring in Project Finance.
Program Agenda
Module 1: Overview: The Critical Role of Capital Structuring in Corporate Finance
  • 1 Introduction: the dynamics of contemporary capital structuring

    • Role and purpose of entities’ liability

      • What should we expect firms’ capital structures to look like?

      • 2 On-balance sheet financing

        • Capital requirement analysis

          • Working Capital

          • Capital expenditure

          • Determining the optimal Debt/Equity balance: key considerations

      • 3 Off-balance sheet financing options

        • Leasing structures

          • Project finance

          • 4 Case Study: Analysing the capital structures of Retailer businesses

            Module 2: Capital Markets
            • 1 Overview: principal sources of corporate

              • 2 Bank credit

                • Bilateral lending

                  • Loan Syndications

                  • 3 Securities markets

                    • Money markets

                      • Debt Capital Markets

                        • Equity Capital Markets

                        • 4 Analysis: Comparing international and local capital markets

                          Module 3: Capital Budgeting
                          • 1 Introduction: the integral role of capital budgeting in corporate finance

                            • 2 Categories of capital budgeting projects

                              • Replacement projects

                                • Expansion projects

                                  • New product

                                    • Mandatory projects

                                      • Strategic projects

                                      • 3 Key principles of capital budgeting

                                        • Sunk costs

                                          • Conventional and unconventional expected cash flow patterns

                                            • Opportunity cost analysis

                                              • Reflection of financing costs

                                              • 4 The capital budgeting process

                                                • Idea generation

                                                  • Project proposal analysis

                                                    • Enterprise-wide budgeting

                                                      • Monitoring decisions

                                                      • 5 Common pitfalls in capital budgeting

                                                        • Failure to integrate economic responses into analyses

                                                          • Over-standardisation of analysis

                                                            • Optimistic forecasting

                                                              • Decision-making based on increasing RoE/EPS rather than NPV discipline

                                                              • 6 Case Study: Capital budgeting for Agribusinesses

                                                                Module 4: Capital Project Evaluation
                                                                • 1 Individual project quantitative analysis

                                                                  • Net Present Value (NPV) and Internal Rate of Return (IRR)

                                                                    • Payback periods

                                                                      • Profitability Indexation

                                                                      • 2 Qualitative evaluation

                                                                        • Strategic import, including medium- to longer-term risks of NOT undertaking project

                                                                          • Independent versus mutually exclusive projects

                                                                            • Project sequencing

                                                                            • 3 Project selection

                                                                              • Expected profitability vis-à-vis available funding

                                                                                • Capital rationing

                                                                                • 4 Analysis: Selecting among several potential projects and initiatives with a finite capital budget

                                                                                  Module 5: Theory
                                                                                  • 1 Introduction: the Modigliani

                                                                                    • Capital Structure and the cost of equity funding

                                                                                      • Capital Structure and firm valuation

                                                                                  • 2 Key theoretical constructs

                                                                                    • Static trade-off theory

                                                                                      • Pecking order theory

                                                                                        • Modelling risks of financial distress

                                                                                          • Agency problems and capital structure “signalling”

                                                                                          • 3 Target credit rating

                                                                                            • 4 Dividend

                                                                                              • 5 Group structures, including inter-group guarantees

                                                                                                Module 6: Cost of Capital
                                                                                                • 1 Overview: the pivotal role of capital costs and differentials

                                                                                                  • 2 Debt capital costs and underlying drivers

                                                                                                    • Bank lending

                                                                                                      • Debt Capital Markets

                                                                                                        • Money markets and liquidity pricing

                                                                                                        • Longer term bond yield curve dynamics

                                                                                                    • 3 Equity funding

                                                                                                      • Overview: key challenges in determining the cost of equity capital

                                                                                                        • Equity capital cost models

                                                                                                          • Beta factor sensitivity

                                                                                                          • Dividend Discount Model

                                                                                                          • Bond yield plus equity risk premium

                                                                                                        • Sources of Equity funding

                                                                                                          • Founder shareholder capital

                                                                                                          • Internally generated equity: the cost of retained earnings

                                                                                                          • Rights issuance

                                                                                                          • Public equity market flotation

                                                                                                      Module 7: Modeling the Weighted Average Cost of Capital
                                                                                                      • 1 Setting horizon target capital weights

                                                                                                        • 2 Adjusting debt capital costs for the marginal rate of taxation

                                                                                                          • 3 Modelling changing costs of debt and equity capital for different capital structure

                                                                                                            • 4 Quantitative Analysis: Capital Structure optimisation given different assumptions

                                                                                                              Module 8: Leverage
                                                                                                              • 1 Overview: the principal forms of leverage and their impact on expected risk and return

                                                                                                                • 2 Operating Leverage and EBIT sensitivity analysis

                                                                                                                  • 3 Financial Leverage and Earnings sensitivity analysis

                                                                                                                    • 4 Modelling the impact of leverage on entity Return on Equity

                                                                                                                      • 5 Case Study: The Food Processing sector and Nestlé’s operating and financial leverage strategy

                                                                                                                        Module 9: Working Capital
                                                                                                                        • 1 Introduction: Working Capital definitions

                                                                                                                          • 2 Principal components of Working Capital

                                                                                                                            • 3 Working Capital requirements across sectors

                                                                                                                              • 4 Analysing Working Capital requirements

                                                                                                                                • Cash Conversion Cycle

                                                                                                                                  • Other liquidity requirements

                                                                                                                                  • 5 Sources of Working Capital

                                                                                                                                    • Bank lines: Uncommitted, Committed and Revolving Credit Facilities (RCF)

                                                                                                                                      • Money Markets: Commercial Paper (CP), Bankers’ Acceptances (BA)

                                                                                                                                      • 6 Pricing and risk dynamics of Working Capital

                                                                                                                                        • Costs of Funding

                                                                                                                                          • Overall market liquidity conditions

                                                                                                                                          • 7 Case Studies: Capital structuring of Importers and Wholesaling businesses

                                                                                                                                            Module 10: Advanced Capital Budgeting: Real Options Analysis
                                                                                                                                            • 1 Principal types of Real Options and valuation impact

                                                                                                                                              • Timing

                                                                                                                                                • Abandonment

                                                                                                                                                  • Expansion

                                                                                                                                                    • Flexibility

                                                                                                                                                      • Fundamental

                                                                                                                                                      • 2 Modelling Real Option Values

                                                                                                                                                        • NPV approaches

                                                                                                                                                          • Decision Trees

                                                                                                                                                            • Option pricing models

                                                                                                                                                            • 3 Case Studies Capital structuring for Conventional Energy and Natural Resources sectors

                                                                                                                                                              Module 11: Capital Structuring in Project Finance
                                                                                                                                                              • 1 Overview: the nature of Project Finance vis-à-vis Corporate Finance

                                                                                                                                                                • 2 Residual Value modelling for Project Finance valuation

                                                                                                                                                                  • 3 Capital Structure optimisation in the Construction

                                                                                                                                                                    • 4 Refinancing planning after the Construction Phase

                                                                                                                                                                      • 5 Case Studies Capital structuring for Renewable Energy projects

                                                                                                                                                                        Module 13: Optimisation of Entities' Capital Structure
                                                                                                                                                                        • 1 Key inputs from the capital budgeting process

                                                                                                                                                                          • 2 Analysis of expected horizon financing costs

                                                                                                                                                                            • 3 Setting target capital structures in the short-, medium-

                                                                                                                                                                              • 4 Maximising long term shareholder value

                                                                                                                                                                                • 5 Case Study Microsoft’s capital structure strategy

                                                                                                                                                                                  Program Requirements

                                                                                                                                                                                  Not Available

                                                                                                                                                                                  Program Path

                                                                                                                                                                                  Names of the training programs that are integrated (enriched) with the training program:

                                                                                                                                                                                  • Not Available

                                                                                                                                                                                  Names of the training programs that after the training program:

                                                                                                                                                                                  • Not Available
                                                                                                                                                                                  Program Method
                                                                                                                                                                                  • Lecture
                                                                                                                                                                                  • Case Studies
                                                                                                                                                                                  • Practical Implementation
                                                                                                                                                                                  • Dialogue Teams
                                                                                                                                                                                  • Exercises and assignments
                                                                                                                                                                                  Evaluation Method
                                                                                                                                                                                  • Pre Exam
                                                                                                                                                                                  • Post Exam
                                                                                                                                                                                  Training Type
                                                                                                                                                                                  • In Class Training

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