June 17, 2024

Effective Equity Solutions to Maximize Capital Returns

The objective of an equity solutions team is to assist clients in raising equity funds or selling their equity to a strategic or financial investor. It can be facilitated by hiring a consultant who can examine all available resources and provide an unbiased opinion of what would be best for the business. The core team provides a full range of equity solutions, including guidance on mergers and acquisitions, private equity, and divestitures. 

 Some of the advantages of various equity solutions are: 

With the help of an array of equity solutions, you can safeguard your money while maximizing the potential returns on your holdings and business opportunities.
Enjoy better hedging and financing.

Some popular banks like DBS offer several equity derivatives such as 

1. Equity-linked notes

When investors have a stable or slightly bullish outlook on stocks, they frequently use equity-linked notes to increase returns on cash holdings. Equity-linked notes offer various payoffs, the possibility of a higher return if the fundamental financial product performs well, and the investors can enjoy different entry points into the market at their desired level.

 The function of equity-linked notes is:

 

The investors can select the equities and ELN or equity-linked note yields that are best for them after speaking with a specialist. The yield on the ELN is then represented by an investment of the principal amount at a discount. The “strike” price for ELNs is stated as a portion of the “spot” market price and is lower than the “spot” price.

 When the price of the stock drops below 95% of the initial public price at the time the note matures, for instance, the ELN issuing bank will deliver the stock to the investor. This is known as a 95% strike. In other words, the investor receives the stock at 95% of the original price upon maturity.

 At the note’s maturity, the investor receives his entire principal amount if the stock price ends at or above the “strike” level. The yield on an investment is determined by the distinction between the principal paid to the shareholder and the money paid by the investor initially (principal minus the discount).

Advantages of equity-linked notes or ELNs

If their stock selection, market direction predictions, and structured payoff selection are correct, investors may experience improved returns. In general, the yield is influenced by the investor’s level of risk tolerance. The yields are lower for stocks with lower implied volatility and less aggressive strike levels.

 

Investors can buy shares at their target prices, which are lower than the going rates on the market, and earn a higher yield for the duration of the ELN.

2. Equity Options 

There are primarily 2 categories of equity options:

With a “Call” option, the buyer has the option, but not the obligation to purchase the underlying shares at a predetermined price.

A “Put” option provides the purchaser with the choice of whether to sell the underlying share at a predetermined price, but not the obligation to do so.

Both times, the option buyer reimburses the seller of the option with a fee. Given their high risk, options are not appropriate for every investor. Only investors with a suitable level of risk appetite are advised to purchase them. 

3. Equity Secured Financing Trades

Trades Using Equity as Security for Financing Achieve financial security without liquidating their equity holdings. Some of the advantages of equity-secured financing trades are:

 

Expertise in equity

Take advantage of the team’s expertise in complex equity lending exchange strategy, planning, and execution.

Worldwide Capabilities

Utilize the extensive global network of financing and lending options provided by the bank.

Flexible and individualized

Based on your goals, needs, and available collateral, the experts can craft the ideal equity solutions after consulting with you.

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