INTRODUCTION

Bond is one of the financial instruments used in financing infrastructure projects. Bond is a financial instrument of indebtedness of the bond issuer to the holders, under which the issuer owes to the holders a debt and, depending on the terms of the bond, is obliged to pay them interest and/or repay the principal at a later date. Both governments and non-governmental organisations issue bonds to borrow money from the public on a long term basis through bonds. In India, various financial and non-financial institutions have used infrastructure bonds as one of the mechanism for raising finance for investment in infrastructure projects. Non-financial institutions like IFCI Limited, PFC, L&T Infrastructure are amongst the institutions which have issued tax-saving infrastructure bonds for investing in infrastructure projects. The decision of the investors to buy the bonds and invest in the project depends on the value of the bond. This section focuses on explaining how the value of the bonds can be determined using discounted cash flow procedure.

BOND FEATURES

Bond is normally an interest-only loan wherein the borrower pays only the interest over the term of the bon while the principal is repaid at the end of the term of the bond. The regular interest payments promised to be paid over the term of the bond is known as bond's coupons . If the coupon is constant then the bond is known as level coupon bond. The amount the borrower agrees to repay at the end of the term of the bond is known as bond's face value or par value . The bonds which are sold at the par value are known as par bond. Most of the investment grade bonds issued by the governments have much larger face or par values. The annual coupon divided by the face value is called the coupon rate on the bond. Finally, the number of years until the par value will be paid is known as the bond' time to maturity .

BONDS – BENEFITS

Bonds offer a number of benefits. One of the key advantages is the availability of an alternative source of capital. Bonds provide an alternative source of funds for businesses other than equity and bank loans. This provides both the government and non-governmental organisations a wider choice and more flexibility in funding. Bonds could be used as an option to maximize the leverage and in turn will maximize the return for sponsors. The coupons are typically paid either every three, six, or twelve months, depending on the term of the bond. This makes the bond more convenient to the issuer of the bond when compared with the bank loan, where the interest payments are required to be paid every month. Finally, compared to a typical bank loan, the bond principal is required to be paid as a lump sum on maturity unlike the requirement to make repayment of principal on a regular interval in case of bank loans.