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This post is a crash course on promoter funding, which serves as a bedrock for my next post.

Promoter funding/ financing, is the colloquial term used for raising of debt funds by Promoters of companies usually against the security/ comfort of shares. Thread 1/13
A promoter, many a times, needs money for (a) equity infusion in a new/ growing business, (b) personal use (c) enhancing stake in established business (d) family settlement etc.

If he doesn't have enough cash at his disposal, he borrows from finance firms. 2/13
The most liquid and widely accepted collateral/ security for these borrowings are shares of established (usually listed) companies.

These shares are pledged to the financing firm (or a trustee) to avail of the debt facility. 3/13
Read 18 tweets
(1/n) Among many things addressed today in Finance Minister's Meet with Press, she addressed there will be development of Credit Default Swap (CDS) Markets in consultation with @SEBI and @RBI RBI. This step was taken following the credit events of IL&FS, DHFL etc in past yr
@sebi @RBI (2/n) Now what is Credit Default Swap (CDS)/ Markets?
CDS is kind of an insurance against a risk of default on a loan by a company. Company – reference entity, default – credit event.
@sebi @RBI (3/n)Why will a seller do that? Coz under such contract buyer will pay a regular amt to seller 4 protection he has bought for his bond, incase of a credit event. Seller will gain incase there is no credit event since he has got regular payment from buyer for his ‘protection’.
Read 17 tweets

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