While traditional funding avenues like Venture Capital, Private Equity and Bank loans are popular choices, another attractive option is a bond issuance program.
Bonds offer an opportunity to tap into the debt market and raise funds from a diverse pool of investors.
However, navigating the complexities of a bond issuance program requires the involvement of various parties, and it can be a long arduous process getting the necessary parties to the agreement table, more particularly the investors.
There are several reasons why investors may choose not to invest in a bond program. Here are some common factors that can influence investor decisions:
- Poor Creditworthiness: Investors assess the creditworthiness of the issuer before investing in a bond program. If the issuer has a low credit rating or a history of financial instability, investors may be reluctant to invest due to concerns about a default, and the issuer’s ability to fulfill its bond payment obligations.
- Unattractive Terms: If the terms of the bond program, such as the coupon rate, maturity date, or redemption provisions, are not favourable or competitive, compared to other investment options available in the market, investors may opt for alternative investments with better risk-reward profiles than yours.
- Lack of Transparency: Investors value transparency and accurate disclosure of information. If the issuer fails to provide comprehensive and timely information about their bond program, financial performance, or other relevant factors, especially about its board and members, it can raise doubts and deter investors from participating.
- Market Conditions: Investor sentiment and prevailing market conditions play a significant role in investment decisions. If the bond market is experiencing volatility, uncertainty, or a lack of liquidity, investors may be cautious and choose to allocate their funds elsewhere until market conditions become more favourable. Therefore working with a Business Advisor to ascertain the best entry time for a bond issuance is very important.
- Limited Investor Demand: The success of a bond program depends on investor demand. If there is a lack of demand for particular bond offerings, especially, or particularly when the issuer’s business is in a sector of the economy considered under threat or dwindling, due to government policy, global economic shifts, unstable political environment, etc., investors may view a bond issuance from an issuer in that economy as risky.
- Regulatory and Legal Concerns: Investors carefully consider the regulatory and legal aspects of a bond program before investing in one. If there are concerns about the issuer’s compliance with relevant regulations or bodies, potential legal risks, or uncertainties regarding the enforceability of the bond terms, investors may be hesitant to invest.
- Lack of Trust or Reputation Issues: Investor confidence and trust in the issuer are vital. If the issuer is relatively unknown, has a poor reputation, a history of misconduct, or a track record of failing to honor financial obligations as at when due, investors may be reluctant to invest in their bond programs, as they may perceive it as a higher-risk investment than most.
- Inadequate Risk-Reward Profile: Investors assess the risk-reward profile of several bond programs carefully before taking the step towards risking their funds in one or all of them. If the perceived risks in one outweigh the potential returns of another, or if the expected return in one bond does not commensurate with the level of risk it holds, investors may opt for alternative investment opportunities that offer a more favourable risk-reward balance.
- Insufficient Market Demand or Poor Timing: The success of a bond program can be influenced by market demand and timing. If there is a limited appetite within any given window from investors for bonds or if the timing of the bond issuance coincides with unfavourable market conditions, investors may choose to wait for more favourable opportunities before considering investing, by which time, your offer might have closed and proclaimed unsuccessful.
- Lack of a Clear Use of Funds: Investors seek clarity on how the proceeds from the bond issuance will be used and whether they will be utilized in a manner that generates returns and enhances the issuer’s financial position. If the issuer fails to provide a clear and compelling business plan, pitch deck or financial projection for, or from, the use of funds, it may deter investors from participating.
It is therefore important for issuers to address these concerns well beforehand and offer attractive terms, transparent communication, and a strong value proposition to increase investor confidence and interest in their bond programs.
Working with experienced professionals, or business advisors can help navigate potential hurdles and increase the attractiveness of the bond offering to ensure an appreciable level of subscription.
Brain Essien is a certified 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.
mcbrainandcompany@gmail.com. +234703-444-6041
