Introduction

The topic covers a very broad spectrum of financing even though the title relates to Specialized Methods. Ever changing requirements by the petroleum industry combined with changes in the marketplace, in terms of investment psychology and regulations – tax, securities regulations. etc. collectively and individually bring about ever changing methods of financing which, as closely as possible, optimize the conditions of tile time for all parties. This paper will briefly outline the reason for the specialization, the conditions under which financings can take place, examples of the types of financing taking place and the general characterization of the types of investors.

Demand for Resource Financing

There is a 1arge demand both from the petroleum industry and from the investing sector for financing. One party being the user of capital and the other party being the provider of capital. One only has to briefly review the state of economics, domestically and internationally, to understand the obvious reasons for the attractiveness of the resource industry as investment.

Long Term Borrowing constitutes the largest form of financing and in 1978 total fixed income financing by Canadian governments and corporations totalled 519.58 billion down from 519.83 billion in 1977. After 513.28 billion was raised in Canadian dollars, 54.48 billion in u.s. dollars, 5397 million in Euro dollars and 51.43 billion in other currencies principally West German marks and Japanese yen. The lower amount of financing occurred despite the fact that corporation term preferred share financing nearly doubled and federal borrowing rose by one third. There has been a sharp decline in debt financing by corporations as Nell as provinces and municipalities. This government trend could be expected but of prime interest is the fact that corporate debt financing declined, which was due to high interest rates but also a flattening demand for funds. Unlike the level position of the overall economy investors are actively pursuing the resource sector which is quite evident from the trading patterns of the stock exchanges. The growth prospects and the inherent inflation hedge of the commodity itself has brought about a high degree of investment interest.

The housing sector is a leading indicator in the economy and it is an interesting example of the slower growth being experienced across, the country. The number of housing starts and general construction has an enormous multiplier effect on the economy. The mortgage business accounts quite often for a minimum of 50 of the portfolios of the major institutions. Consequently, with construction fairly level the financial institutions have Very large pools of funds available for alternative investments. One prime area is production loan financing with the major chartered banks. This type of investment is very appealing for the large financial institutions such as 1ife insurance companies and trust companies, since the investment is in many, ways similar to real estate financing and in both cases there is a first mortgage on certain leases and property rights.

This content is only available via PDF.
You can access this article if you purchase or spend a download.