INTRODUCTION

Bonds are one of the sources used for financing of infrastructure projects. The project company issues bonds to raise debt financing from the capital market, particularly the non-banking market. The project company (or issuer) agrees to pay the bond holders the amount of the bond plus interest on fixed future dates. The buyers of the bonds (or the bond holders) are investors who require a long-term fixed rate return without taking equity risk. Bonds are considered to be the preferred option for financing infrastructure projects as bonds have longer feasible maturities than loans and the maturity profile of the bonds closely matches the tenure of the infrastructure projects.

This section first discusses the key differences between loan and bond financing. This is followed by the explanation on typical process of issuing bonds for raising funds, followed by the introduction to the typical bond issuance process for infrastructure projects. The section concludes with the role of rating agencies in bond financing.

BONDS VERSUS LOANS

From the perspective of project company, bonds issued by the company is similar to the loan. In case of bond, similar to the loan, the project company agrees to repay to the bond holder the amount of the bond plus interest on fixed future dates. The buyers of bonds issued by the project company are the investors who require a good long-term return on their investment without taking the risk exposure of that of the equity investors. The investors in bonds for PPP projects are mostly insurance companies and pension funds.