In today’s briefing:
- Is Axis Capital an Investment Bank or a Hedge Fund?
- Investors Expect a Feasible Management Strategy Rather than an Accurate Cost of Capital
Is Axis Capital an Investment Bank or a Hedge Fund?
- Axis Capital is a 100% subsidiary of Axis Bank Ltd (AXSB IN) and one of its businesses is structured finance
- The Sojo Infotel is a high-risk transaction undertaken by Axis Capital which was underwritten by the company with the implicit support of the bank as per the credit rating agency
- When the transaction was done it was 50% of Axis Capital’s equity and default risk is high as the redemption date is on March 25, 2024
Investors Expect a Feasible Management Strategy Rather than an Accurate Cost of Capital
- Although there’s range in the cost of capital, a sense of level is shared among investors, so even if a company estimates lower, it will be found to be incorrect.
- The essential problem isn’t scrutiny of the cost of capital, but rather that many companies produce low returns. Investors are skeptical that companies produce returns above their cost of capital.
- If stock prices do not rise, investors will continue to demand that companies improve their management, attributing this to the negative gap between the cost of capital and return.
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