Key takeaways
- Capital structure is a trade-off between return, risk and control.
- Loan terms depend on the quality of the information provided and the risk management plan, as much as on negotiating the interest rate.
- The numerical thresholds on this page are general practice; actual terms depend on each individual agreement.
Chapter 7 Capital Structure Strategy
This chapter starts from the trade-off between debt and equity. Debt costs less and carries a tax shield, but it must be repaid on schedule and comes with Covenants. Equity is more flexible but more expensive, and it dilutes ownership. The handbook shows that leverage can genuinely raise Equity IRR, but the balance point for Thai projects is generally around 60–70% debt of total cost, because this leaves headroom in DSCR and LTC to absorb shocks. The lesson from past crises is that developers who failed typically carried high debt and held no cash reserves.
WACC = (E/V × Re) + (D/V × Rd × (1 − T)) where T = CIT 20%
Peak Equity Gap = Peak Funding − maximum loan facility − Presale cash at the peak point
The Modigliani-Miller theorem and the pecking order theory serve as frameworks for explaining why capital structure matters in the real world, through tax, bankruptcy costs and information asymmetry.
The practical core is using Presale as a source of funds during construction. A Presale-first strategy adjusts the sales target before construction starts, the down payment schedule and the contractor payment terms in order to reduce equity. But Presale is an obligation to customers, not free money: cancellations and refunds must be managed, and it comes at the price of a higher marketing budget or a later construction start. If a gap remains, the options are to bring in an equity partner, increase debt, accelerate Presale, reduce the peak by phasing the project, or defer non-essential spending.
Chapter 8 Thai bank project finance
This chapter explains each type of loan by project stage: land loans, construction loans or project loans, post-finance and bridge loans, including multi-facility structures and drawdown schedules tied to construction progress. Each drawdown must satisfy conditions precedent, such as a progress certificate, a compliance certificate and a Presale report.
A term sheet should negotiate margin, tenor, LTC, upfront fee, commitment fee, prepayment fee, DSCR Covenant, grace period and Presale conditions, using a multi-bank RFP both as a negotiating tool and as a way of testing market interest. The handbook gives weight to a complete project information document because it reduces the bank's perception of risk, and advises answering the credit attention points in advance: the market, cost certainty, timing, source of repayment, sponsor strength, permits, currency risk and the cycle.
The chapter closes with how to structure relationships, principal bank versus multi-bank, syndicated loans for large projects, and refinancing, which is worthwhile when the interest saved exceeds the total cost within a reasonable time. A case study shows the negotiation of a facility with Thai banks for a sample mixed-use project, from preparing documents to closing the deal. The main lesson is that preparing information, having a credible co-sponsor and securing booking deposits before applying for the loan significantly affect the terms.
Chapter 9 Debt management and Covenant compliance
Once the loan is secured, the CFO's job is to maintain Covenants throughout the life of the agreement. Common financial Covenants are DSCR, ICR, LTV, LTC and net debt/EBITDA. Non-financial Covenants fall into things that must be done, such as submitting reports and maintaining insurance; things that are prohibited, such as negative pledges, incurring additional debt or paying dividends above the limit; and change conditions, such as change of control and material adverse change.
DSCR = CFADS ÷ Debt Service
Headroom (minimum threshold) = (actual − threshold) ÷ threshold and Headroom (ceiling threshold) = (threshold − actual) ÷ threshold
The CFO should set internal warning thresholds that are stricter than the bank's, monitor monthly and forecast 3–6 months ahead, because DSCR may look high during the grace period and then fall once principal repayments begin. If a breach is expected, the CFO should talk to the bank before it happens, bringing the cause, a remedial plan and a waiver request, which may come at the cost of a fee, a higher margin or additional collateral.
When problems become severe, the matter moves to debt restructuring, for example extending the tenor, reducing interest, extending the grace period or converting debt to equity. Where there are multiple creditors, an inter-creditor agreement is needed to set the order of repayment, a standstill on enforcing security, and voting rights. Hedging uses swaps, caps and collars for interest rates, and forwards, options and FX swaps for currency.
Chapter 10 Fundraising through the Thai capital market
This chapter compares channels other than bank loans: IPOs, REITs, property funds, infrastructure funds, bonds, private placements, crowdfunding and investment tokens. It shows that each channel differs across five dimensions: the amount of money needed, the company's stage, the acceptable cost, urgency, and the level of control and disclosure the company can accept.
An IPO provides a large amount of funds, liquidity and brand, but takes a long time to prepare and brings ongoing governance and reporting obligations, so readiness must be assessed across performance, internal control, related-party transactions and the management team. A REIT suits assets with steady income and lets the sponsor recover capital sooner, in exchange for sharing future income and giving up control. Bonds offer long tenors and fixed interest, but involve issuance costs, disclosure requirements and refinancing risk at maturity, and the credit rating affects the cost.
The sequence the handbook recommends for most developers is to start with bank loans to build a track record, add private placements or private equity as the company grows, use a REIT for assets that already generate income, issue bonds once there is a rating, and consider an IPO when size and governance are ready. Not every company needs to list. For the size thresholds and debt ceilings of each instrument, check the current SEC and Stock Exchange announcements before use.