Crude Inventory Product Financing Arrangement
In a product financing arrangement with a crude trader, there is a free 30-day and another extended credit 30-day to match the inventory cycle of 60 days. The first 30-day is free while the last-30 days is not. So the last 30-day is an interest-bearing payable. Economically and legally, the trader s... In a product financing arrangement with a crude trader, there is a free 30-day and another extended credit 30-day to match the inventory cycle of 60 days. The first 30-day is free while the last-30 days is not. So the last 30-day is an interest-bearing payable. Economically and legally, the trader still owns the inventory asset and so in a liquidation scenario, the inventory will be sold and used to pay the 60-days liability.

Will this 30-day interest bearing liability be considered as a "debt" in the normal calculation of Enterprise Value? The general rule is that any interest-bearing payable are included in Enterprise Value, right or wrong? Also, will this payable be included in the Project IRR calculation particularly terminal value? Read More

Re: TEV
I understand the standard formula. But would the modified formula below I mentioned be logical? TEV = Debt + Equity + Minority less an agreed normal net working capital less excess cash and any excess of actual net working capital from normal net working capital is treated as excess cash The... I understand the standard formula. But would the modified formula below I mentioned be logical?

TEV = Debt + Equity + Minority less an agreed normal net working capital less excess cash
and any excess of actual net working capital from normal net working capital is treated as excess cash

The argument is that since TEV is derived from EBITDA using a multiple and we all know that EBITDA is a P&L measure and does not takes into account the net working capital flow needed to generate that EBITDA /cash flow, then a "normal" net working capital should be added on top of this TEV to get the "true" market. What do you think?

Although I can understand that one could argue the other side, and say that TEV include working capital already since it should be the "value" of the business operating on a going concern principle. So only non-operating assets are added on top like excess cash which is the standard concept like you mentioned and I do agree with this view. Read More

Re: Off-balance sheet Inventory Financing
Thanks. I agree with you except that the capital provider of that inventory will still legally own the inventory and can trade with it. So we are just buying it on demand. The structure is that there will be a flash sale and buyback to the capital provider after refining. So we don't need to worry a... Thanks. I agree with you except that the capital provider of that inventory will still legally own the inventory and can trade with it. So we are just buying it on demand. The structure is that there will be a flash sale and buyback to the capital provider after refining. So we don't need to worry about the lock up of this inventory capital. Maybe it is not an interest but rather a premium on the product. with no balance sheet impact. Read More

Acquisition of assets
Would purchase price for the acquisition of assets normally include or exclude "inventory" since these are mostly spare parts of the main assets? or is it really a deal specific and normally a negotiating point whether to separate pay for the spare parts?

Re: equity IRR
Then what kind of "cashflows" do you use to calculate project IRR and equity IRR?

The context here is that we will buy and control 100% of the share. and we do not increase the debt excessively since there is bank financing covenant anyway to make sure that would not happen.