Module 7 : Bonds

Lecture 39 : Bonds Financing for Infrastructure Projects - Introduction

BOND ISSUANCE – TYPICAL PROCESS

The process of raising funds through bond issue involves the following four stages:

In the pre-launch stage, the issuer after identifying the need to borrow decide the type and structure of the bond, and select the relevant parties which are required for the transaction. There are various key factors that need to be considered by the issuer while structuring the bonds. Bonds can be issued either as a bearer bond or as a registered bond. An issuer may decide to list and trade the bonds on a stock exchange. The issuer may decide to seek a rating for its bonds, which indicates the relevant agency's views of the likelihood of the issuer defaulting on repayment, and is therefore an indicator of the risk of investing in its bonds.

The issuer appoints various parties for the transaction of the bond. The key parties include lead manager, paying agent, and trustee. The issuer appoints an investment bank as the lead manager who usually arranges the entire transaction, including the sale of the bonds, legal documentation, and settlement procedures. The lead manager then contacts other investment banks to form a syndicated that agrees to buy the bonds and to sell it to investors. Paying agent is another bank that acts as the agents of the issuer in making payments of interest and principal to the bondholders throughout the life of the bonds. The trustee holds the security on behalf of the investors and calls meetings of bond holders to vote on waivers or amendments of the bond terms. In addition, the other parties for the bond issue include, rating agent to assess the financial position and creditworthiness of the issuer and assigns a rating to the bond issue; lawyers to draft the documents and prepare the legal opinions; and registrar to maintain a register of the names and addresses of registered bondholders and any change in ownership when bonds are sold.