IF… Company-driven, top-down methodology that adds transparency
Focuses on borrowing in the context of the whole company utilising time value (the Allan Key)
IF… Works.
Mining example 6 year funding: Australian miner constructing $ 1 billion facilities prior to exporting minerals globally
Offshore parent Funded at 9%
Australian borrowing rates Around 5% p.a. adjusted for risk
Interactive Finance methodology: Average rate 1% over life of borrowing
Which one to choose? …
From a cash flow basis – IF
From a tax-effective basis - probably still IF (consult a tax expert)
Focuses on borrowing in the context of the whole company utilising time value (the Allan Key)
IF… Works.
Mining example 6 year funding: Australian miner constructing $ 1 billion facilities prior to exporting minerals globally
Offshore parent Funded at 9%
Australian borrowing rates Around 5% p.a. adjusted for risk
Interactive Finance methodology: Average rate 1% over life of borrowing
- without foreign exchange risk
- without forecasting or speculation
Which one to choose? …
From a cash flow basis – IF
From a tax-effective basis - probably still IF (consult a tax expert)
If you have future income in foreign currency;
You can reduce debt servicing costs by
You can reduce debt servicing costs by
- 2% in any year – for example, from 5.5% to 3.5% p.a.
- An average of 4% over 3 years (A$ 40,000 per million p.a.) & even greater amounts over longer periods
FAQ
How are these benefits possible?
IF takes advantage of Australia’s relatively high interest rates (= cash value to exporters).
You also benefit because IF removes exposure to Australian Dollar volatility
Who wins?
You do. You can choose to gain 100% of these benefits or share the benefits with your counterparty.
Do the banks lose?
Actually, they gain too – from extra margins.
When do I get this extra money?
If relating to funding, debt servicing costs are reduced over the life of the borrowing.
IF takes advantage of Australia’s relatively high interest rates (= cash value to exporters).
You also benefit because IF removes exposure to Australian Dollar volatility
Who wins?
You do. You can choose to gain 100% of these benefits or share the benefits with your counterparty.
Do the banks lose?
Actually, they gain too – from extra margins.
When do I get this extra money?
If relating to funding, debt servicing costs are reduced over the life of the borrowing.