Underwriters, including investment bankers, brokerage firms, online bond platforms and other businesses, play a vital role in helping issuers sell bonds in the primary and secondary markets.
The various possible bond issuers:
Issuing bonds requires observance and compliance with various federal regulations. Therefore, only entities that meet the above conditions are allowed to issue bonds. There are different bond issuers.
Popular bond issuers are four to five types, and they are government entities, corporations, special purpose vehicles, municipalities, etc.
There is a predefined process and channel for selling bonds. Investors are encouraged to invest in bonds and provide relevant information that can help them make investment decisions.
Credit rating by different rating agencies, coupon payment, maturity, face value, yield, etc. are the most commonly used nomenclature in bonds.
Who are the major bond issuers in India?
In India, the major issuers of bonds are the corporations known to issue a wide type of bonds, the central government which issues both dated securities and treasury bills as well as bonds while the state governments issue the State Development Loans (SDLs) which include only bonds or dated securities.
Different types of bond issuers around the world:
Supranational entities refer to global entities. They are not based in any particular country. It has members that exist in different countries.
For example, the World Bank, the European Investment Bank, etc. Bonds issued by supranational entities, unlike government bonds, are highly rated and safe for risk averse investors.
Governments issue the second most common type of bonds in the world. Government bonds are known for their high liquidity, capital protection and risk-free characteristics. It is considered the safest link. Some examples of government bonds in India are central government bonds, treasury bills, treasury bills, treasury bills, zero coupon bonds, and municipal bonds.
Regions and municipalities
They can issue bonds/securities to finance one or more public utility projects in the same way as the government. These bonds will generally be rated in the same way as the enclosing government. For example, road construction, etc.
Companies issue the most common type of bonds at different intervals to raise capital or finance various types of expenses. It offers the issuer many advantages. Compared to stocks, the cost of raising funds through bonds is low.
Also, bondholders do not share profits. Issuers are only required to pay periodic interest and the principal amount at maturity.
The main categories of corporate bond issuers are –
• Industrial companies
• Financial services companies
• Utilities and energy-related businesses
• Real estate companies
• Telecoms and diversified / conglomerates
Special Projects and Special Purpose Vehicles (SPV)
Governments or corporations can issue bonds using special purpose vehicles (SPVs). These links, as their name suggests, are linked to a specific project. For example, infrastructure, mortgage-backed securities and others. The proceeds of these bonds are used to finance the specific project.
This is part 3 of our bond series. Click here for part 1 and part 2
Part 1: What are Bonds – Meaning, Types, Benefits and How to Invest
Part 2: 8 different types of bonds to invest in India
Note: This is an educational series on bonds, types of bonds, benefits, and various other details that will be covered in future articles.
(Disclaimer: The recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)