--- In [email protected], Rick Archer <[EMAIL PROTECTED]> wrote: > on 8/11/05 5:35 PM, Peter at [EMAIL PROTECTED] wrote: > > > Vedic bonds? I don't think so! No reputable or > > disreputable financial institution is going to touch > > anything in the movement. They'll do their due > > diligence and very quickly conclude that the TMO and > > MMY are profoundly unstable and an exceedingly high > > financial risk. > > Reminds me of something I heard Benny Feldman say on the KHOE radio station here. He was pitching some sort of world peace bonds, and saying that they were a safe investment because they were backed by the Raam.
I am not sure why the discussion is on bonds. Potter said "stock and bond underwriters." -- speaking a bit loosely I am sure. Bonds are not usually appropriate for a start-up venture. They require regular payments. Assuming 10% bonds were issued for 600 billion, this would require 15 billion dollars of bond payments every quarter, 5 billion a month. Greenhouses in poor countries are not going to yield that, certainly not in the early stages. The valuation of a bond, both at issue, and in the aftermarket, is based on current interest rates, and the perceived ability of the issuer to pay its debt service (based on performance history, current earnings, etc,) When a bond issuer is deemed to have a lower probability of being able to meet its long term payment obligations, the value of the bonds fall. This in turn, increases the yield of the bond in the after market -- that is investors demand a higher yield for more risky -- less secure future cash flows. Since the TMO has little track record in producing regular earnings from its proposed 3rd world greenhouse venture, even if it issued its 600 billion bonds at a 10% face value, no one would buy them at that price. The price on the day of the bond offering would be some small fraction of that. Lets say, generously, bond buyers would buy them at 10% of face value. This then implies an effective yield of 100% on the bonds. However, no investors, for other than sentimental reasons, would buy such bonds at even 10% of face value. However, given the lack of perceived ability of the TMO to make regular bond payments, no bond firm would even underwrite the issue -- that is take the bonds to market. What is more appropriate, though still far from realistic, is for a public offering of stock for the venture. Assuming no dividends were offered, then the TMO would not have any obligation for regualar payments to stock holders -- in contrast to bonds. Investors would value the initial public offering (IPO) and the aftermarket securities based on the expecations of future earnings (discounted to present value). Since the earnings are so uncertain, investors would be willing to pay little for such an offering. Given the shakeyness and minimal track record of the business plan, and the odddness of the TMO, investors, optimistcially, might pay a price earnings (PE) ratio of 5-10 based on forward (next years earnings). Thus, for example, the current greenhouse has revenues of $200,000. At net margin of 10%, thats 20,000 earnings. Lets assume the TMO wants to keep 60% of the stock. Thus, earnings to investors would be 12,000. Investors might, might, but probably not, pay 5 times those future earnings -- or $60,000. Not a huge amount of capital. To the extent the TMO can demonstrate realistic scalability of this one greenhouse, thye might be able to scale up their stock offering. Maybe by 100 fold? That is the market might believe they could scale up to 100 greenhouses in several years. But due to the uncertainty of this, they would scale back the PE ratio. thus, quite optimistically, at the outside, they might raise $600,000 or so. A factor of 1 million from their goal. However, a public stock offering at this stage of the venture be out of character and impractical. Most companies do not initially start with an IPO, they aquire start up fumds, often from a venture capitalist, or even before that from self, friends and family, to get the company going -- to produce a track record of earnings so then the company can be taken then later be taken public. Now if the TMO had decided to not be "non-profit" and went public with an IPO in the Merv heydays, and was able to sustain that rate of earnings over several years, it might have had a screaming IPO. But those days are long gone. As is often the case, the TMO is off on a pie in the sky venture without much worldly experience, waving their arms and talking in grand terms, but not in terms or with any substance that serious investors would take seriously. If on the other hand, they took some internal assets, created these 3rd world country greenhouses, produced several years of real earnings, demonstrated that the venture was highly scalable, then they could realistically talk to stock underwriters about a public offering. ------------------------ Yahoo! Groups Sponsor --------------------~--> Get fast access to your favorite Yahoo! Groups. Make Yahoo! your home page http://us.click.yahoo.com/dpRU5A/wUILAA/yQLSAA/JjtolB/TM --------------------------------------------------------------------~-> To subscribe, send a message to: [EMAIL PROTECTED] Or go to: http://groups.yahoo.com/group/FairfieldLife/ and click 'Join This Group!' Yahoo! Groups Links <*> To visit your group on the web, go to: http://groups.yahoo.com/group/FairfieldLife/ <*> To unsubscribe from this group, send an email to: [EMAIL PROTECTED] <*> Your use of Yahoo! Groups is subject to: http://docs.yahoo.com/info/terms/
