26 Jan

Financial system is wide range of new alternative instrument for developing countries and Turkey heads toward new financial system in this regard. Particularly, the private equity potential has been thriving over the recent years and it purveys different kinds of opportunities for new initiatives since it gains popularity in Turkey and majority of companies commence to utilize private equity. There are distinctive investment strategies in private equity which are leveraged buyouts, venture capital, growth capital, distressed investments and mezzanine capital. Nevertheless, mezzanine capital is the most preferred for corporations since it is a long term and flexible instrument for investors.

Mezzanine Capital in Financial Structure Mezzanine involves in sources of finance during bank debt is unavailable or unsuitable because mezzanine is less restrictive according to bank debt and it enables the funders to support the company’s growth. This system generally used as a way for companies in order to finance their expansion costs. In this context, mezzanine capital shall deemed as a different form of capital available to enlarge stage companies, especially pre-IPO and there is relationship between bank loan which is related to repayment in the financial difficulty and equity capital. Mezzanine capital comprises abroad array of financing methods. It indicates the significance in practice that are subordinate loans, dormant partner and also profit sharing rights as mezzanine financing methods. Moreover, in terms of risk, mezzanine capital holds an intermediate position between senior debt and equity, so this is generally used in conjunction with both so as to enhance the total loan without importantly diluting ownership.   Benefiting from the Opportunities of Mezzanine Capital There is medium risk and appropriate for private and also public companies. In particular, mezzanine capital has different kinds of advantages in terms of longer term, fixed rate capital, flexible transaction structures and subordinated debt. Mezzanine capital plays a crucial role for the investors since it reduces the equity requirement and its interest is generally tax deductible. It provides equity investors to fund a higher number of transactions from a given set of resources.

There is a great vantage of mezzanine which is flexibility because this circumstance can be structured as a secured subordinated loan with equity warrants yet it can take the form of preference shares or a convertible loan. It is clear that this financing method contributes to risk management and make an investment can be confidential through risk management. Mezzanine is charming option when bank financing is limited since the deal exceeds the credit the banks would expand by reason of a lack of tangible assets. This financial system has no risk for small companies and risk management assists the funders to develop a business. Thus, mezzanine is lower than unquoted equity and permits the existing shareholders to sustain a higher percentage of the ownership.   Legal Framework Since Turkey attracts investment in high volume industries such of energy throughout worldwide corporate financing models the mezzanine funds do not have any legal framework setting the rules of implementation. Besides,  still in Turkey the legal framework of alternative corporate financing models of private equities and venture capital are regulated in same legislation that harms to construe the provisions in effective way in case of any dispute.

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