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Clover case study chapter 2

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2. Clover Machines Case: Dabbling in International Markets?

1. What are overall benefits of tapping international markets? Does it make sense for Clover given its success in using domestic capital markets?
Global financial markets are often larger than domestic financial markets. This means that financing issue size can be larger, costs can be lower and contract flexibility can be higher. But global markets are typically only available for large firms. Clover appears to be of sufficient size for tapping global markets. Clover is a well-known issuer of capital in domestic markets and a large number of analysts (16) follow the firm. It might be the right time to explore global markets and make its brand known in other countries also:
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Clover faces continuing large setup costs and its free cash flows (surplus of operating cash flows over investments) may not be sufficient to fund these investments.

4. What are the pros and cons of tapping the Eurobond market? Does Clover fit the profile of firms using this market? What are pre-conditions for successful participation?
Clover may face initial hurdles in tapping the Eurobond markets: potential investors may not be familiar with the firm. But Clover does satisfy a key requirement: Eurobond issues are large issues; since Clover needs large amounts of capital, this market is appropriate. Pre-conditions for a successful offering are: (a) well-known firm and (b) large offering.

5. Clover does not have any business in Japan. Given this, does it make any sense to obtain JPY financing? What might be the downside of the attractive rate that is offered?
It is interesting that one of the alternatives is a Samurai issue (JPY issue in Japan). Such an issue might be quite valuable if Clover has business in Japan and can offset JPY operating cash flows against JPY debt related cash flows. But even without this benefit, there are advantages to “diversifying” funding sources (a topic discussed in chapters 10 and 11). One problem that Clover needs to consider is the potential for JPY to strengthen; if this happens, debt service (that is, repayment of interest and principal) will be at disadvantageous
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