Knowing Investment Banking &
the Idea of Engineering the Financial Deal
By Vipoota Trakulhoon
January, 2006
Scope of the Presentation
1
•
What is Investment Banking?
• What is Engineering and Structuring?
Financing Alternative I: Intermediary Concept
2
return
return
Borrower
Intermediary
Depositors
$
$
Implication
Return
Æ Fully take credit risk
Æ Default probability
Æ Sufficient return to cover
- Direct cost
- Indirect cost
- Cost of inefficiency
- ROE
Risk
Financing Alternative II: Disintermediary Concept
3
Issuer
Investors
Intermediary
Secondary
Market
Implication
Return
Risk
Æ Optimal return to justify
risk
Æ No indirect cost
Æ Lower inefficiency cost
ÆAll risk transferred
Understanding Investment Banking Business
4
Investment Banking Business
Derivative
Derivative
Corporate
Finance
Brokerage/Research
Syndication
Issuer
Investors
Engineering & Structuring the Transactions
5
Why Engineering & Structuring…
• Overcome regulatory matters
• Achieve cost saving
• Create tax planning
• Open new market
How to Engineering & Structuring Deal
6
“Deep understand”
Law &
Regulator
Investors
Need
Issuer
Understanding
Deal
Market
Environment
Case Study
Case Study I: Bangchak Petroleum Plc.
Case Study I: Bangchak Petroleum Plc.
9
Background
The currency devaluation and economic crisis in 1997 had significantly deteriorated financial
position of The Bangchak Petroleum PCL. (“BCP”)
Combined with the new domestic supply coming into the market in 1998, BCP’s outlook was
questioned
To finance its debts, BCP borrowed heavily via the issuance of short-dated THB papers
This in turn resulted in higher interest expenses and weakened capital structure
The State Enterprise Steering Committee (“SESC”) appointed a working team in late 2002
The two-month study came to the preliminary conclusion that BCP had economic value,
notwithstanding the social impacts should BCP be ceased to exist
The in-depth study on restructuring commenced in 2003
TURNAROUND was officially appointed as an independent a