Reducing long term debt, how does it affect to company performance

senish

senish

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We saw lot of companies go for right issues and IPOs to reduce their long term debt. Recent examples PCH , HVA foods and CSEC.
How does this affect to company performance?
What is the major impact in the balance sheet?

Lets have a good discussion

Slstock

Slstock

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senish wrote:We saw lot of companies go for right issues and IPOs to reduce their long term debt. Recent examples PCH , HVA foods and CSEC.
How does this affect to company performance?
What is the major impact in the balance sheet?

Lets have a good discussion

Senish,
It would be good if you also contribute to share your experiences. It okay if you are new to share market but whatever experience you have counts. I saw your recent post are mainly asking questions only. Only asking questions and not sharing your input/ideas is not good. As I said nopt having experience is okay but state what you feel so other can benefit ( agree or disagree). We should give and take in a community forum like this. We will help you when we can but you do the same all right? I am not giving you negative reps as you maybe doing this un-intentionally. But hope you take what I said to mind.

BTW, as a start in answer to you question

a) Rights issues are to sometime reduce long term debt. So when loan term interest reduces , in the next quarters profits can increase
b) Too much debt at high rates in not good for any company. We like to pick companies with less debt.
c) RIght issues also help to gather funds for newer investments. MEans growth for th company

However badly executed right issues will effect share price negatively for over a period of time. It is important for the management to make a right issues attractive to the investors while protecting their share price in the medium run. Good Right issues example LCEY. Bad example LITE. After they announced LITE rights share price came down from Rs 11 to Rs 8 for a over period of 3 months. Recently it picked up thanks to the bull market and whole group going up.

KDS

KDS

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Settlement of long term debt will increase working capital. If the excess working capital can be properly used in long run the profits can be increased.
Also, due to not paying interest rates or reducing the paid interest rates finance cost can be reduced which is an added advantage which will immediately increase profit.

econ

econ

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it will increase profit for sure.
interest cost is one of a main obstacle for many companies to show good bottom line.

Fresher

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this may seem irrelevant, but correct me if I am wrong.
reducing long term debt would also mean, that there would be a hit in the lending bank's profitability (if it was financed by a bank). wouldn't it?

Rocky

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slstock wrote:

senish wrote:

a) Rights issues are to sometime reduce long term debt. So when loan term interest reduces , in the next quarters profits can increase
b) Too much debt at high rates in not good for any company. We like to pick companies with less debt.
c) RIght issues also help to gather funds for newer investments. MEans growth for th company

However badly executed right issues will effect share price negatively for over a period of time. It is important for the management to make a right issues attractive to the investors while protecting their share price in the medium run. Good Right issues example LCEY. Bad example LITE. After they announced LITE rights share price came down from Rs 11 to Rs 8 for a over period of 3 months. Recently it picked up thanks to the bull market and whole group going up.

Agree with SLStock, If the company does not have a good strategy and ROI for the borrowed capital, then they are in real trouble. That's why most companies go for rights issues etc. Capital is free and exposure spread. As long as they are not worried about takeovers.

chandika91

chandika91

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slstock wrote:

senish wrote:We saw lot of companies go for right issues and IPOs to reduce their long term debt. Recent examples PCH , HVA foods and CSEC.
How does this affect to company performance?
What is the major impact in the balance sheet?

Lets have a good discussion

Senish,
It would be good if you also contribute to share your experiences. It okay if you are new to share market but whatever experience you have counts. I saw your recent post are mainly asking questions only. Only asking questions and not sharing your input/ideas is not good. As I said nopt having experience is okay but state what you feel so other can benefit ( agree or disagree). We should give and take in a community forum like this. We will help you when we can but you do the same all right? I am not giving you negative reps as you maybe doing this un-intentionally. But hope you take what I said to mind.

BTW, as a start in answer to you question

a) Rights issues are to sometime reduce long term debt. So when loan term interest reduces , in the next quarters profits can increase
b) Too much debt at high rates in not good for any company. We like to pick companies with less debt.
c) RIght issues also help to gather funds for newer investments. MEans growth for th company

However badly executed right issues will effect share price negatively for over a period of time. It is important for the management to make a right issues attractive to the investors while protecting their share price in the medium run. Good Right issues example LCEY. Bad example LITE. After they announced LITE rights share price came down from Rs 11 to Rs 8 for a over period of 3 months. Recently it picked up thanks to the bull market and whole group going up.

did you mean can effects change by issues quantity and ratio ????? are there any other things which effects to share price ???

Gaja

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even though it will bring reduction to the finance cost, which in turn increase the profitability, but if the company is manage the debt to equity ( gearing ) in a acceptable way and and if the long term borrowing finance at the right rate then this also will bring benefits to the shareholders.

But in my opinion my most of the companies decided to go for IPO, Right Issue in order to bring down the long term debt because their LTL obtained sometimes back when the lending rate was around 20%.

So if the management is confidence enough to face the public and raise the fund and settle the LTL, and if they want now they can borrow below the half of their previous borrowing rates

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Reducing long term debt, how does it affect to company performance

1 Reducing long term debt, how does it affect to company performance Sat Feb 05, 2011 11:17 am

senish

2 Re: Reducing long term debt, how does it affect to company performance Sat Feb 05, 2011 11:34 am

Slstock

3 Re: Reducing long term debt, how does it affect to company performance Sat Feb 05, 2011 4:28 pm

KDS

4 Re: Reducing long term debt, how does it affect to company performance Sat Feb 05, 2011 4:32 pm

econ

5 Re: Reducing long term debt, how does it affect to company performance Sat Feb 05, 2011 5:23 pm

Fresher

6 Re: Reducing long term debt, how does it affect to company performance Sat Feb 05, 2011 8:16 pm

Rocky

7 Re: Reducing long term debt, how does it affect to company performance Sun Feb 06, 2011 7:56 pm

chandika91

8 Re: Reducing long term debt, how does it affect to company performance Sun Feb 06, 2011 8:07 pm

Gaja

9 Re: Reducing long term debt, how does it affect to company performance

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