Week 4: The fundamental of raising finance in the company

Why company should raise their capital?

 

Every company needs to raise their finance in order to make some new project to make the company growth. There are lots of ways to raising finance in a company like lend from bank and etc. I think bank is the first place that every company will approach to get some extra money, but the finance department from the company should carefully select the bank since every bank have different interest rate. Besides that, company can also issuing bond in order to increasing their capital. The more parties buy the bond, the more company can make a new project in their company. Increasing the capital in the company should be start from today, because the faster company has more capital, the faster company can grows.

In my opinion this discussion can be refers to the case of Blackstone Group, currently this company borrowed $2 billion from banks to invest in single-family homes it intends to rent out. Blackstone’s group has the agreement for increasing debt with Deutsche bank, Bank of America, and Credit Suisse Group AG. The previous debt is tripled from the previous loans to $2.08 billion from $600 million. From the increasing debt, Blackstone’s group could get more capital to invest in the single-family homes property. Based on my observation, recently, Blackstone group already has 20,000 homes. Blackstone intends to end its buying binge by the end of this year. With housing prices on the rebound, particularly in Western markets like Phoenix and southern California; the firm predicts homes could soon turn expensive. Blackstone has been relying on its $13.3 billion real-estate fund, based on my observation, this is the largest fund ever raised by Blackstone’s group. This company takes this decision to dominate the single-family home market.

 

As we can see here that Blackstone’s group dare to take the risk, they chose to raise their finance by borrowing from Deutsche bank, Bank of America, and Credit Suisse Group AG with tripled amount of money that they have lend before, because they aim to dominate the single-family home. Since this company is the investor, they must be believe that from the investment from single-family homes will bring high rate of return since the property price kept increasing every year. I observed that Blackstone group already dominate the single-family home by having the highest single-family home ownership with the amount of 20.000 homes, whereas the majority competitor of this company only having 8.000 houses. This thing happened because Blackstone group dares to take high amount of debt from the bank. In conclusion, it is very important to increase the capital in the company to take the start.