Consequences of non-bank refinancing

With one of our projects, we are currently in the challenging question of a financial restructuring. Situation is given as that the company itself has with several production units in Iran and sells this to a global client base. So roughly half of our production goes into domestic and half goes into abroad markets. Over the years, a stable and trustful relationship could be established. Moreover, with the products we have today in our range, the interesting aspect is, that we have more demand than we can produce. And the limiting factor is not the capacity of our plants, but simple the fact that we do not get moved the financial resources.

Nightmares of financing

One may say, this can easily be solved by using different other sources of liquidity, which would be the usual way as of today. But we do not want to participate in this refinancing, because three important aspects are completely neglected:

  • First, the obvious problem is, that you get charged for this kind of financial behavior. This means losing a lot of money that cant be added to the price at which goods are sold. This is nice in areas of high margin like the luxury segments or in case, products are brought to Iran. But this is really endangering the whole cooperation if you try to succeed on the world market.
  • Second, if you are in the comfortable situation to have enough funds to act as financing platform, one has to act as a bank. A fact often – mostly none is aware of. That means, in a nut shell, to price the costs of money like a real bank. This leads to a differentiated approach of calculating for each case the transformation costs, such as liquidity, market (FX) risk, credit risk etc. That binds a lot of resources, which should be available for the real business.
  • Third, in doing this, the appearance of this kind of business leads to a substantial shift of the accounting. That means balance sheet, profit & loss as well as cash flow statement show evidence. This is for itself neither bad nor prohibited, but it makes it unexplainable to a German bank.  

So taking this three aspects into consideration, we are currently working on dedicated refinancing strategies for the different subsidiaries. And we are looking forward, that in a few months we can act as real financial management and optimize the working capital.


Stay tuned
Your K-Street6 Team