Companies are financed in the following main ways:
- Financing through debt instruments
- Financing through capital instruments
- International financing
This type of Islamic bond is suitable for the projects in which the issuance applicant has provided part of the required financing through its internal resources. In this case, interim dividends are paid to the investors periodically and at the end of the project, a definite dividend is calculated and the difference is settled.
Ijarahis a kind of security, tradable on the secondary market, in which the originator transfers an asset to the issuer and, after concluding an Ijarah agreement (similar to leasing contracts) and paying the rent, benefits from the asset during the securities life. At the maturity date, the asset is transferred back to the originator. The assets can include land, facilities, buildings, machinery, equipment, and means of transportation.
This type of Sukuk is based on the sale of Murabaha, in which the seller informs the buyer of the cost of the goods and demands an amount as a profit. In this method, the issuer of the Sukuk, on behalf of investors, buys the materials or goods required by the originator and sells them at a higher price based on the sale of Murabaha. It is common to use this method of financing to supply goods and materials.
In Istisna Sukuk or the construction order, the issuer pays a sum to a builder (contractor) for the construction of something and sells the completed thing to the originator. In Istisna securities, the goods subject to Istisna are usually not available at the issuance time and the manufacturer builds and delivers them in the future.
Mudaraba Sukuk is issued for commercial activities, and in this type of Sukuk, the issuer enters into a Mudaraba contract with the originator to carry out a business plan.
Wakala Sukuk is a contract in which one of the parties appoints the other to perform his or her duty and is issued to carry out economic activities, based on transactions subject to Islamic contracts,for profit through measures such as buying, selling, renting, building or creating assets.
Bai al Dayn Sukuk
In this type of Sukuk, originator can sell their receivables and long-term securities to investors at a discount and provide financing. The long-time claims of the applicant company must be created based on a certain contract in the form of one of the exchange contracts such as installment sale, hire purchase, and Juala (excluding Salam). The company applying for this type of financing can finance up to 50% of its eligible claims through the capital market.
Manafaat Sukuk is the token of the holder's ownership of the future profits of an asset;this capital market’s instrument is suitable to finance service providing companies.
Through Rahn Sukuk, originator can sell their receivables and long-term securities to investors at a discount. This type of financing, like Bai al Dayn Sukuk, is suitable for companies operating in the leasing, pharmaceutical, banking and contracting industries that have long-term receivables. Financing through this method can be more than 50% of the receivables value, due to the existence of collateral.
Standard Parallel Salam Contract
This type of security is a contract under which the supplier sells a certain amount of underlying assets in cash based on the specifications of the underlying contract to be delivered to the buyer during the delivery period. In this type of contract, the underlying asset must initially be offered on the primary market and traded by buyers; buyers can then offer the purchased asset on the secondary market as a standard parallel Salam after settling the contract with the seller.
Investment Certificate of Deposit
Investment CD is a security issued by organizations, institutions and financial institutions to cover part of their financial expenses with the permission of the Central Bank. At present, this debt instrument is mostly used for short-term financing of banks, to provide the clearinghouse deficit, liquidity and the source of payment of facilities, and to collect the hot money from the public.
In this method, companies finance through cross-border instruments such as finance, refinance, and obtaining various types of international loans. This financing instrument for companies with high quality credit rating and good foreign currency incomes is attractive to foreign investors.
Attracting foreign investors
In stable economic and political conditions, foreign investors take risks investing in plans and projects by buying shares of companies. This method of financing is mostly done through mergers & acquisitions.
Venture capital fund
Venture capital funds invest in small and medium-sized start-ups with the potential for rapid growth. The purpose of establishing this type of fund is to raise capital from investors and invest in growing technology companies having high growth potential with the aim of obtaining the highest possible economic return against high-risk tolerance.
Commercialization of intellectual property
A set of services includes conducting economic studies on the commercialization of intellectual property, preparing a business plan, and intellectual property valuation. The provision of the mentioned services is mainly done with the approach of offering intellectual property on the Intellectual Property Market of Iran Farabourse (OTC).
In crowd-funding, retail investors are directly involved in financing corporate projects through OTC-controlled platforms. This method of financing is more suitable for small and medium companies and short-term projects.
Capital raising is one of the methods companies utilize to develop activities, new projects, and provide the necessary liquidity to implement projects. The types of capital raising methods are as follows:
- Capitalization of retained earnings
- Current shareholders’ paid-in capital and matured claims
- New shareholders’ paid-in capital with depriving previous shareholders of their preemptive rights
- Assets revaluation
Public underwriting of public joint-stock companies on the verge of formation:
This method of financing is suitable for using the capacities of IPO of “public joint-stock companies on the verge of formation” as well as the implementation of plans and projects in the form of creating a "company-project".
Listing of companies
By listing on the stock market, companies can enjoy the diverse benefits such as tax exemptions, share liquidity increase, the possibility of using the shares as collateral, facilitating the financing process, etc.
Establishment of an investment fund
At present, there are following investment funds to finance projects:
Real-estate Investment Fund (REIT)
The purpose of this type of fund is to collect capital from investors to build a construction project. At the end of the fund's life,the project’s building units are sold and the proceeds are distributed among the investors.
Project Investment Fund
In this type of financing, by forming a project company, capital is pooled and allocated for the implementation of the project. One of the advantages of establishing this fund is that at the end of the establishment and implementation period of the project subject to financing, it is possible for the project company to become a public joint-stock company and the unit-holders of the fund to become shareholders of the company. In this case, the units are converted into shares of a company with an indefinite life, and the shares can be traded on the stock or OTC markets.
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