Financial Strategy

Financial strategy is a plan that spells out the actions that a company

or business will undertake in order to be profitable and successful

Provide specific details about when and how much money is needed Sources of capital
Investors equity Loans - debt

Traditional financial strategy

Focus on one or two financing sources such as Commercial bank loans, ECA loans , Project bond and Islamic finance. The main Problem was that the amount of capital from any single source was limited. ALBA will have to pay a lot more to get large amounts for capital from any one source including the commercial banks, because their

appetite for the region and aluminum industry was limited.

Comparison between Single & Multiple Source of Financing

Single source
Amount of capital Time Loan spreads Complexity (for borrower) Expertise (in case of raising or borrowing company) Negotiating power (for borrowers) Negotiating power on price and terms Decisions of quantum Limited Less time consuming Rises with loan amount Less complex Less expertise needed. Lower, as options are less. Much higher Only one source.

Multiple source
Very huge (Much more than single source) Much time consuming Loan spread do not increase with loan amount More complex Very high end expertise is needed Much higher negotiating power Lower as borrower have other options too. Capacity- pricing tradeoffs for each source is to be determined.

Conflicts of interests & constraints

Interest rates Additional costs

Low
Usually high (less fluctuating) Low

High
Usually lower(more fluctuating) High

Advantage of Multi-Source Financing Strategy

Choice, flexibility and interpool competition: It will create interpool competition among the various lenders. avoids lock-in or depend to a single lender allows a customer to evaluate different type of proposals of finance from the different source of finance provide customer option of the mix and match approach to outsourcing

Safety: Reduce the dependency of customer on any single lenders

reduce the dominance of lenders and

Funds can be collected from more lenders if one fails.

Multi-Sourced benefits related to Alba

Commercial Bank Loans
Borrowers can draw loan down to match their investment needs No public reporting required, so confidentiality

Islamic Financial Instruments

Bahrain is an Islamic country and a regional center for Islamic finance

ECA Financing
Availability

Local bonds

Allow investors to participate in & benefit from the project Hallo effect: help sponsors attract financing Develop the local Capital markets Consistent with the government policy

Metals-Linked Facility
The hedging component allows decreasing cost of debt.

Fixed interest rate

Could be viewed as a competing source of Capital

Long tenors (10 to 20 years)

Disadvantages of Multi-Sourced financing

Complexity: the more parties involved the more difficult the transaction On going management complicated Difficult to manage a deal in the event default

For Islamic tranche: the problem of asset ownership