Increase in the number of non-government bonds in the capital market testifies to growing recognition of the advantages of this type of financing by a wide circle of issuers representing different branches of the economy. UniCredit Bank provides its clients with services that comprise raising loans in the capital market by way of corporate bond issue.
The success of an issue and of a corporate bonds placement is determined by finding the best balance of the issuer’s and the investor’s interests using the following main criteria:
1. The Issuer’s Reliability
Bonds are a liability formally unsecured by any security requirements. However, investors appraise the overall financial standing of the issuer by paying particular attention to:
- the existence of a credit history and independent ratings
- the existence of a clear-cut investment program
- sufficiency of sources for loan repayment
- the existence of the appropriate solutions in the issuer’s budget
- the existence of a debt management infrastructure to ensure fault-free servicing
- the issuer’s information transparency
In deciding whether to accept a bonds’ credit risk, investors make use of public information sources. To obtain the best cost of borrowing, the issuer needs to be well informed about — and plan his marketing strategy with regard for — his investors.
2. Maturity
The issuer seeks to maximize the period to maturity, whereas investors prefer to minimize the term for which they accept the issuer’s risk.
A compromise may be reached by:
- giving the issuer the option of early bond repayment
- bond distribution among the largest possible number of long-term investors (pension funds and insurance companies)
- ensuring the liquidity of the secondary bond market
3. Secondary Bond Market Liquidity
Secondary bond market liquidity is ensured by the following:
- an initial placement among the maximum number of investors
- the option of concluding repurchase transactions with the bonds
- the option of concluding OTC transactions
- the presence of market makers to ensure bilateral quotations
4. Bond Yield
Bond yield is the decisive factor that determines a bond’s appeal for investors and issuers alike.
Though bond yield derives from the conditions of issue (the issuer’s reliability, the period of the loan, the secondary market liquidity), it also takes into account an array of other factors:
- seasonality (upswings or down trends in investment activity)
- the balance of demand and supply in the money market
- the macroeconomic environment (inflation and ruble rate fluctuation)
- the overall level of interest rates
- the yield on comparable financial instruments
- the mechanism of coupon calculation and the regularity of its payment
Ultimately, it is successful negotiations with investors that determine the minimum yield level required for the placement of the entire bond issue.
Given the decisive influence of a host of factors operating on the financial market, the professional services of an experienced bank that arranges for the issue and represents the issuer’s interests to the investors are essential, if the issuer is to be assured of a successful result. The UniCredit Bank’s experience in loan structure development and in setting up issuing syndicates, its leading position as a market maker, and its broad sales network of investors will be considerably helpful for getting the most advantageous terms and conditions for a bond issue.