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
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
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
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
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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