Financing Through Corporate Bonds

Why Corporate Bonds?

You have a company. You issue bonds. In other words, you take out a loan while avoiding a trip to the bank or that phone call to your best friend where you spend five minutes asking how they’ve been, whether they’ve been fishing lately, and only then ask if they’d like to enjoy the opportunity of becoming the most important — and sole — investor in your business. Bonds spare you those five awkward minutes of silence because the funds come from a group of investors. This means individual risk is lower and your company can raise more capital than a single lender would typically be willing to provide.

Moreover, you do not have to give up control over your equity. In addition, many bonds are unsecured, can be redeemed early at the issuer’s initiative, may be used for any lawful purpose stated in the issuance documents, and tend to have maturities of five years or more. In short, compared to a bank loan, you enjoy significantly greater flexibility. The downside? Interest rates tend to be higher.

Do you want to issue bonds? This can be done through primary public offerings or private placements, both of which are intermediated by an authorized broker or bank. Public offerings require approval of a prospectus by the FSA (Financial Supervisory Authority) and may be open to the general investing public, both domestically and internationally, under certain conditions.

This means that a timeframe of 5–8 months from contract signing to receipt of funds is reasonable, although it largely depends on the complexity of the issuer’s business and the internal resources allocated to the transaction.

Wondering what private bond placements are? Probably not — but you should know that they are still primary offerings, just not open to the general public. So no, your favorite uncle is unlikely to be involved unless he qualifies to be invited.

Offer details are not public and are accessible by invitation only, limited to 149 retail investors or an unlimited number of qualified investors. You and your broker jointly define the criteria for distributing invitations, but you may not advertise the transaction — although we suspect you might already have a choreography prepared for the occasion. You can, however, use it to announce the results after the placement closes.

If the company’s operations and organizational structure are not overly complex and sufficient internal resources are allocated, the period from contract signing to receipt of funds can be around 3–4 months.

How Long Does Listing Take?

Whether you choose a public offering or a private placement, investors accessible through Investimental expect the issuer to make a firm listing commitment through the relevant offering documentation. For public offerings, listing usually takes place very quickly — typically within two weeks of the offering’s completion — while for placements the process is longer, usually around three months from completion.

Main Listing Requirements

So, what does your company need in order to be admitted to trading? Depending on the market on which the bonds are listed, it must meet certain requirements. Without diving into excessive detail, this includes a financial reporting history of at least three years, with the most recent one to three annual financial statements audited.

You will also need a Board of Directors consisting of at least three members — or five in certain cases — and your articles of association must include provisions required by the legislation of the market on which the bonds will be listed.