Long term External Finance for a Multinational Comapny

Long term External Finance for a Multinational Comapny (MNCs)

A multinational company can raise operating funds through a medley of sources, mostly by leveraging the expansive scope of its activities and its connection with global financial centers. These sources run the gamut from equity issuance and sales of debt products to government subsidies and financing agreements through private channels.

1.      Equity Issuance

A cash-strapped global organization works in tandem with investment bankers to analyze conditions on global equity markets, determine the best time for stock issuance and figure out better ways to prevent money problems in the future. Given its global presence, the business effectively can cope with a dearth of affordable financing on the domestic front, drawing up strategies to raise money overseas. The major equity markets where a multinational company can raise money range from the New York Stock Exchange and the Tokyo Stock Exchange to the London Stock Exchange and the Hong Kong Stock Exchange.

2.      Selling Debt Products

In discussing external financing options, the top leadership of a multinational company may get wistful at the mention of bond issuance. This is because the practice involves a thorough understanding of international credit markets and investor risk appetite, along with a keen awareness of the regulatory procedures the organization must follow to register its bonds before selling them. Bonds -- also known as debentures -- are debt products a multinational firm issues on global markets, most of which also serve as platforms for stock issuance. Simply put, the organization can sell bonds and stocks on the same exchange. Besides bonds, a global business can fund its operations by selling commercial paper, which is a debt instrument that becomes due within 270 days.

3.      Private Sources

A multinational organization often relies on private sources to cope with commercial tedium, understand the operational magnitude of a temporary cash crunch, and figure out the best ways to master the competitive currents in a sector or country. When in need of fresh money, the business can reach out to private lenders, such as banks and insurance companies. Given its international footprint, the company may negotiate a loan or line of credit arrangement with a bank's home-country management and direct segment chiefs to follow up with the financial institution's local branches. A global company also can raise cash through hedge funds, private equity funds and asset management companies.

4.      Government Subsidies

To foster economic prosperity and expand industrial activities in a sector, public officials grant subsidies to multinational companies that meet certain requirements. For example, the government provides grants to domestic businesses engaging in oil and gas exploration overseas or those with significant export businesses.