- Bond issuance is the process of raising capital by offering and selling bonds to investors in the financial markets, allowing governments, corporations, and entities to borrow money.
- On the bond issue day, key activities take place, including bond pricing, where the issuer and underwriters determine the bond’s price.
- Bond allocation occurs on the issue day, with underwriters distributing bonds to interested investors based on factors such as demand, investment size, and existing relationships.
A bond issuance refers to the process of offering and selling bonds to investors in the financial markets. It is a way for governments, corporations, and other entities to raise capital by borrowing money from investors.
When an issuer decides to raise funds through bonds, it initiates a program geared towards its issuance. On the ‘issue day’ of a bond, however, several key activities and transactions take place within the window allowed for this. Highlighted below is an overview of what typically happens on a Bond Issue Date.
Bond Pricing
Prior to the issue day, the issuer, along with underwriters or investment banks, determines the pricing of the bonds. This involves lengthy prior discussions with potential investors, days ahead of the ‘Issue Date’. Price is considered by prevailing market conditions and existing interest rates, and issuer credit rating by a Rating Agency. The pricing decision establishes the bond’s face value, coupon rate, and other relevant bond terms.
Bond Allocation
On the issue day, the underwriters allocate the bonds to interested investors. These, in most cases, have been previously approached with the offer and extensive discussions have been had. The allocation process may vary depending on the type of bond issuance, but it generally involves distributing the bonds among institutional investors, retail investors, or other interested groups.
The allocation is often based on factors such as demand, investment size, and existing relationships with all parties involved, even the government in the case of a corporate raise, or vis-versa.
Subscription and Purchase
Investors who have been allocated bonds are given the opportunity to subscribe to and purchase the allocated bonds. This typically involves submitting the necessary documentation, including subscription forms, signed investment agreements, and payment proofs. Investors provide funds to complete the purchase, either through cash or by settling the payment through designated channels.
Settlement and Delivery
After the subscription and purchase process, the settlement and delivery of the bonds occur, typically through a Depository, like the FDMQ Exchange. This involves the transfer of ownership and the actual delivery of the bonds to the investors. Settlement processes may vary on the market, laws of the land and the type of bond, but they generally involve the exchange of funds and the issuance of electronic or physical bond certificates to investors.
Listing (if applicable)
If the bonds are intended to be listed on an exchange or trading platform like the FMDQ, the issuer and underwriters may facilitate the listing process on the issue day or shortly after. This includes meeting listing requirements, submitting necessary documentation, and coordinating with the exchange or platform to ensure that the bonds are legally eligible for trading as appropriate.
Investor Notifications
On the issue day or shortly after, the issuer or underwriters typically provide official notifications and confirmations to the investors. These notifications may include details about the final terms of the bond issuance, settlement instructions, and any other relevant information or documents required by the investors.
Post-Issue Activities
Following the issue day, the issuer continues to manage the bonds and fulfil its obligations to bondholders. This includes making periodic interest payments, providing timely financial reporting to the Trustees, Business advisors and Investment bankers, who inform the investors of the same, and also adhering to any covenants or conditions specified in the bond documentation.
The issuer may also engage in investor relations activities to maintain communication and build relationships with bondholders should it feel the need to approach the market again, only after it has, or is about to, fulfil its obligations to its ongoing bond.
It’s important to note that the specific procedures and timelines may vary greatly depending on prevailing conditions, the jurisdiction in which the bond is being issued, the type of bond, and the terms of the issuance. It’s recommended to consult with professionals who understand how bond issuances work to ensure compliance with applicable regulations and to navigate the specific requirements of the issuing market.
Brain Essien is a financial analyst and business process consultant, with expertise in business plan formulation and pitch deck design, brand management, digital marketing, crowd/private equity and seed fund brokerage.
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