SUSTAINABILITY
OF PRIVATE COMPANIES EQUITY IN MODERN STATES
(Section 3. The sustainable development of enterprises)
Author: Luca Scaini
-Polimoda – International
Insititute for fashion design and marketing – Florence (Italy) via Curtatone 1
(50123) (2005-2012): Full Professor of International Marketing and Economics
-Free
Thinker and Specialist in Behavioral Economics – Studio Scaini, Centro
Direzionale J.Monaco, Via Empoli 33 – Riccione (RN) 47838 Italy (EU): CEO, Consultant
Abstract:
Accordingly with some theory (Krugman, 2006), we consider the possibility to suggest some fundrising method for small companies, that are considered too small for stock exchange processes, throughout the parallel exchange market like private bonds issuing (Dell’Occhio, Dall’Acqua, Etro, Ligresti, Rovetta, 2006). We are examinating pros and vs for such possibility in order to create a sustainable parallel financial market for innovative researching companies and brand investing companies (Beretta Zanoni, 2005). Most of such applications will result useful mostly during financial contraction and crisis periods, where it seems important to find alternative fund’s sources, beyond the bank traditional credit system. There is moreover a strong marketing aspect in placing companies values (both financial and economical) on financial markets (Kotler, Kartajaya, Young, 2004).
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http://it.finance.yahoo.com/notizie/made-in-italy-crisi-fallite-circa-50mila-imprese-135146826.html
Body of Article
1. Background
Examination of Critical Aspects during last 5-years Financial crisis for small
companies in Euro-Area
Due to last 5-years economic and (mostly) financial crisis, striking world-wide
since 2008, the actual main problem for companies in facing the crisis resides
in their low patrimonalization and equity and in the consequential need to find
financial resources to fuel the business process. This problem is widely
present and is striking mostly smaller companies, unable to access the main
financial channels (bank, stock exchange markets) and with a low equity. Data
shows that the number of euro-land small companies unable to survive is
something like dramatic, or even catastrophic (allegendly the third euro-land
economy will have its number of companies disappeared during last 5-years up to
48.800, nearly 1.000 per month (data: Cribis D&B and CIGA[1]).
Now: understood why, it is time to fix some possible solution.
2. Alternative
and Creative access to Fundrising and Value-Making
We can say that the profit of an enterprise comes from its ability to
create value for the market (buyers), so as to generate a volume of revenues
that allow coverage of all costs and provide a reasonable profit margin. It’s
the main role of traditional marketing.
Moreover, for the success of a company buyers, retail and sales are not
enough, and traditional marketing represents only one of the resoursces, or one
of the possible ways and must be applied in some other creative way (Kotler,
Kartajaya, Young, 2004; Kotler, Trias de Bes, 2003), like positioning of
financial value (not only economic value) on the market for any sort of
investor and in people’s perception (from a starting introductory topic by
Ries, Trout, 1981; throughout Trut, Rivkin, 1996; to Zaltaman, 2003; under
behavioural economics spots Ariely, 2008 and connecting with financials Conley,
2009).
Companies must be able to build some “value proposition” for potential
investors, with the same effectiveness as for costumers. If companies have economic
value (such as brand awareness) because they are able to generate economic (commercial,
emotional) values for costumers, they must as well generate some adjunctive “cash
flows” value for investors in the near
future, who must be put in condition to perceive the newly foundable financial
value of companies themselves, even if –and more if!- they are small.
The “set of values” that companies intend to offer to market, or to place
on it (as we refer the exact meaning of word “marketing”) must be built on
something verifiable and contestable, not only on awareness and emotional brand
values (surely important for branded companies, but switchable with other
values for unbranded ones, Dell’Occhio et al., 2006).
We are stating the possibility of issuing some value-warranty to rise
funds.
Mini-Bond (as we’ll see recently stated also in Italy), is an attractive
alternative to bank lending for small and medium-sized enterprises and for
enterprises with low equity or weak ration debt/ turnover (it is actually the
majority of Italian companies and also spanish and widely present in France).
This chance, mostly underexistimated in comparison with stock exchange
issuing, is going to resolve some lack of financial resources.
3. Bonding
Overview for Small Companies
This Mini-Bond issuing chance, stated like the private issuing of bonds for
small and medium-sized enterprises (SMEs), are not publicly traded and must be
guaranteed by the value and business performance (see chapter 4 for “an innovative review on business
performances analysis for warranties release”).
Mini-Bond, such as corporate bonds, may represent nowadays an interesting
alternative investment in the bond market: in fact, corporate bonds have seen,
on average, earnings in excess of any Governmental Bond and offer many
advantages over the stock market and commercial loans. Moreover Mini-Bond issuing
may represent an interesting new opportunity for international investors and
also for investment funds who see the opportunity to expand portfolio
diversification strategy, and can be easily used as mean of trading with direct
partners such as costumers or retailer or supplier of certain companies.
Now, it is seen as main problem the fact of releasing verifiable warranties
for investors: under this point of view we refer now to the possibility,
concrete and surely innovative, to use in a proper way the intangible
immobilization for innovative research or brand and marketing investments, next
to the releasing warranties system adopted now in euro-land.
4. An Innovative Review
on Business Performances Analysis for Warranties Release
It
seems like being an innovating financial marketing tool for all companies
investing in innovative researches and/or in marketing and branding strategies
may adopt, and we strongly recommend it in times of crisis, a lateral system of
equity. Prior example came from Coca Cola Inc., next to some more (Conley,
2009).
4.1 switching accountancy. It is well known that such expenses like marketing, advertising,
branding, researches costs should be accounted as costs under different set of
costs but could be also used, inscribed and accounted as intangiblites
(intangible assets), like for know-how or brand acquisitions.
4.2 balance usability of intangible assets can be for balancing some strong loss (as in times of crisis), and is
rather hard to be used in case of gain due to different taxation rules, at
least for euro-land. It is sort of well know – rarely used formula.
4.3 actual method to compute the
company value is represented by
n
|
Cash Flowst
|
t=1
|
(1+k)t
|
(stating it like formula to
compute the value of a branded company)
4.4 suggestion to increase value
for investing companies is to start from actual
system to get a better and more proper and deeper evaluation of a branded or
research-active company assets. Moving from:
W company = X (Asset) + Y (Growth)
we can pass throughout an
introductive formula computing branding and research investing like intangible
assets:
W company = X (Asset) + Z (Intangible Assets) + Y (Growth)
To get to a value-switch able to increase the importance of investments in growth
more than some expected growth net of its expenses for sustain. So what if we
could substitute the expected and unpredictable growth (in time of crisis, due
to the form itself of market) with real and objective funds invested inside a
company, for sustain some growth itself?
W company = X (Asset) + Z (Intangible Assets)
Armani would have been Armani itself, without Giorgio and its Eagle-Logo?
Apple would have be Apple itself without Steve and Apple-Logo?
Would have been both of them themselves without stylistic, material, trend,
technologic researches that allowed them to become leaders?
Some example of this method, was already adopted seldomly and efficently
worldwide, from David Bowie for fundrising to finance its tour or worldwide
performances, to FIFA World Cup 2008 (Japan and South Korea) committee to
fundrising resources from different private investors for organization, as well
as for Olympic Games (Dell’Occhio et al, 2006; Pellicelli, 20105)
5. ADDENDA: The
Italian Regulation as a possible international model for private bond issuing
and Warranties Release of Mini and Private Bond in Euro-land (with cooperation
of Dr. Teresa Vitartali)
Companies typically start issuing bonds only after listing in stock
exchange markets, but during the last period of financial crisis we reported
interesting news in Italian law that could be offered as a model for other
economies. To make the entire project the Ministry of Economy has made use of a
panel of experts in capital market of several banks including BNP Paribas,
Banca Akros, UniCredit and Banca IMI, but also lawyers business law firms such
as Allen & Overy. The group's objective to simplify the rule by deleting
some posts but guaranteeing investors. On the one hand there is Article 2412 of
the Civil Code, which prohibits only Italian companies, non-listed companies,
the issuance of bonds for amounts in excess of twice the share capital and
reserves. On the other, tax rules prohibit it to unlisted companies (1st, the
interests of their bonds are not deductible; 2nd, their bonds are subject to
withholding). In short: so far for companies that have never been on the Stock
Exchange (virtually all) issue bonds was almost impossible.
Well, now, as defined in Recommendation 2003/361/EC unlisted can thus
increase the possibility of recourse to the debt market through the issuance of
short-term instruments (commercial paper) and medium-and long-term (bonds and
subordinated bonds of participation). It is interesting bonds for small and
medium-sized enterprises (SMEs), or Mini-Bond. SMEs account for the majority of
the Italian economy and will be able to enter, with this measure, in the debt
market. This is a good opportunity to find funding. The Mini Bond are a source
of funding alternative to bank lending, which is available as long as the
company complies with certain requirements: the assistance of a sponsor, the
certification of the last budget and circulation of securities between
investors. In addition, companies can deduct the interest, also enjoying
certain tax exemptions typical of corporate bonds.
Article. 32 of Decree development, in force since June 26, at a time of
difficulty for SMEs to access credit, allows companies not quoted on the stock
exchange to raise capital for investment. The standard provides in detail the
following conditions:
1.
The SMEs
should be assisted by a sponsor, ie a financial intermediary with the task of
assisting the issuance and placement of debt securities, the Mini Bond;
2.
The last
budget of SMEs must be subject to statutory audit;
3.
Debt
securities issued shall be placed with qualified investors, we have nothing to
do with the offeree company;
4.
The movement
of these debt securities may take place only between qualified investors.
Development Decree referes this newly introduced possibility, stating
that companies can issue commercial paper and bonds, if, in the absence of
rating, they may follow the following requirements:
• Sponsor (banks, investment firms, asset management companies, harmonized management companies, SICAV and financial intermediaries entered in accordance with Article 107 of the Consolidated Law on Banking) that will support the issue and placement, and possibly follow the admission a listing of the securities. Sponsoring banks with headquarters outside the EU must be authorized to provide investment services in Italy.
• Latest audited by an auditor or auditing company registered in the register of auditors.
• Bills and bonds must be circulated only among qualified investors (art. 100 of Legislative Decree 24 February 1998, n. 58) as amended.
• Sponsor (banks, investment firms, asset management companies, harmonized management companies, SICAV and financial intermediaries entered in accordance with Article 107 of the Consolidated Law on Banking) that will support the issue and placement, and possibly follow the admission a listing of the securities. Sponsoring banks with headquarters outside the EU must be authorized to provide investment services in Italy.
• Latest audited by an auditor or auditing company registered in the register of auditors.
• Bills and bonds must be circulated only among qualified investors (art. 100 of Legislative Decree 24 February 1998, n. 58) as amended.
Tasks and Duties of the sponsor:
The sponsor has the obligation to maintain in the portfolio until maturity, a portion of the securities issued in the following manner:
• a share of not less than 5% of the value for emissions up to five million euro,
• in addition to the previous installment, a further 3% of the issue value in excess of five million euro, up to ten million euro,
• always more than the previous units, 2% of the issue value in excess of ten million euro.
The sponsor must also facilitate the liquidity of the securities for the duration of the release. In the event that the securities are not listed, the sponsor must make a periodic assessment of their value, at least quarterly. The sponsor must also ensure that they classify the category of issuer risk, taking into account the creditworthiness of the (normative reference: European Commission Communication 2008 / C 14/02 and subsequent amendments).