Written by: 04 - Useful Resources 09 - Use of Proceeds

Is that a Zero, a Donut or Rounding up? Valuations for Use of Proceeds

Valuation of Assets & Expenditures for Use of Proceeds Instruments is what we’ll cover here.


A question that arises for use of proceeds loans and bonds is:

What valuation method is generally used and expected by the market for the assets and expenses connected to these instruments?

We seek to highlight a few key concepts to help demystify the relevant issues here.  There are a number of interconnected items such as:

  • Intangibles
  • Opex vs Capex, and the concept of
  • Net Proceeds.

Balance Sheet Value or Market Valuation

The key issue is to ensure that the valuation used for what use of proceeds are allocated to or expensed against can be found and seen in the balance sheet/financial accounts.

As an example, the carrying value in a balance sheet is usually referenced or the capitalized costs of R&D, alternatively the expenses put through a P+L account.

If a property has a market value more than balance sheet value, this could be used as long as there is back up audits and reports which can be explained.  However, its easiest and most robust to match this directly to carrying value in the balance sheet.

Capex and Opex

We should remember that there is a connected concept to this for Capex and Opex.

For Capex: Where there is a value on a balance sheet, if the asset ceases to be eligible (i.e. a building losses its green building status) then monies can be re-allocated to another eligible asset.

For Opex: Once the items are expensed (i.e. maintenance costs not capitalized  or dedicated installation expenses such as training ,etc) then these payments can only be counted once in Use of Proceeds reporting.  They cannot be re-allocated at a later stage.

Whilst not a direct valuation issue this is a connected concept.


It is generally accepted in the market that monies raised under a bond or loan can be used/allocated to equity investments in private companies which are pure plays.

The original investment cost can be used, but obviously goodwill would generally be incorporated into this, so best to remove if possible.

Another way to look at things, is to ensure that these investments possibly represent a relatively small part of the overall use of proceeds for a bond or loan.

Intangible assets in a sense are already accepted by the market for items such as R&D.

However, we should note generally (although not always) more advanced R&D is included under use of proceeds approaches as it is more certain.

Net Proceeds

When a bond or loan is raised the total amount is referred to as gross use of proceeds.

The market expects that net proceeds (i.e. gross proceeds net of acceptable expenses) are then allocated and expensed in accordance with the respective framework covering the transaction.

However, we should note that it’s accepted that hedging costs, banks fees, legal fees, etc. can be taken from gross proceeds which leaves net proceeds to be allocated to eligible assets and expenditures.

Final Thoughts

This is an issue generally covered by the arranging / underwriting bank and advisers.

External reviewers who provide second party opinions and reviews are generally more focused on eligibility of assets rather that their specific valuations.

The most important factor for sustainable finance is transparency and credibility.

Therefore, as long as there is sufficient back up for different approaches to valuations then this should meet market expectations.

For annual reviews and reporting of Use of Proceeds, any valuation issues should be covered in a transparent way, however should in the main be straight forward.


Tags: Last modified: May 13, 2022