Debt or Destiny?
Exploring the Indian Bond Public Issuance Market
The Indian bond market is at an all-time high! The current economic conditions that involve stabilised inflation, robust economic growth and a fixed RBI repo rate indicate an environment conducive to the bond market. CRISIL also projects the Indian corporate bond market to double in six years. So, what’s valued at Rs. 43 lakh crores in FY24 can reach a staggering Rs. 100-120 lakh crores until FY30. Investments across infrastructure assets would appeal to investors the most within this space.
With that, many organisations will look to enter the bond market with their Bond Public Issues. But precisely what is a Bond Public Issue? And why do Bond Public Issues catch the fancy of investors? Let’s delve into some aspects and explore the Indian Bond Public Issue market.
What is a Bond public issue?
IPO, as you would all
know, is an initial public offering. But what is a Bond Public Issue?
As the name suggests, a Bond Public Issue
refers to raising debt capital from the general public via bonds instead of
equity. Hence, some people also term it a bond offering.
A Bond Public Issue is a company’s first issue of bonds to the public. All the subsequent issues will be called public issues of bonds. Bond issues help organisations, whether government or corporate, access capital. Investors, also called bondholders, can earn periodic interest on their funds and receive back the capital invested at maturity.
How do Bond Public Issues Work in India?
Bond public issuance involves various stages and enormous workarounds before it is made available to the public. However, here’s an overview of how Bond Public Issues work.
A public offering usually targets a broader investor surface area. Hence, the issuer submits a draft offer once the issuer receives all the necessary approvals.
The offer document contains vital insights into the organisation’s financial, legal, regulatory and operational aspects. Issuers also appoint an investment banker registered with the Securities and Exchange Board of India (SEBI) to handle the issue.
Then, the issuer files an offer document with the necessary terms and conditions, a Memorandum of Association and Articles of Association, their financial performance in the last three years, the intended use of the bond proceeds, etc., to the stock exchange.
The issuer provides all the required information to the investment banker to perform due diligence based on SEBI’s guidelines. After issuing the bond, the issuer pays the agreed interest and repays the principal amount upon the bond’s maturity.
Who Can Invest in Bond Public Issues?
Practically, everyone who is an Indian citizen can invest in Bond Public Issues. However, precisely, here’s who can invest in Bond Public Issues.
- Institutional Investors: Banks and financial institutions, mutual funds, Foreign Institutional and Professional Investors (FIIs and FPIs) and insurance companies
- Non-Institutional Investors: Partnership firms, public and private charitable trusts, limited liability partnership firms, and Association of Person.
- Retail Individual Investors: Resident Indian individuals, Hindu Undivided Families (HUFs) and investors with an investment of less than or equal to Rs. 10 lakhs.
- High Net Worth Individuals: Resident Indian individuals, investors who want to invest more than Rs. 10 lakhs across every option and Hindu Undivided Families.
A Promising Destiny in the Debt Market – Why Invest in Bond Public Issues?
Bonds are debt securities. And the word debt may concern many, especially novice investors. But that’s not the case. Bonds are amongst the most coveted investment options worldwide, with India being no exception. Here are ten reasons you should consider investing in bonds to your investment portfolio.
Portfolio Diversification
One of the foremost advantages of investing in Bond Public Issues is the diversification of portfolios you can achieve. Maintaining a diversified portfolio is conventional wisdom. It helps you spread the risk and increases the potential of multiplying wealth. Bond Public Issues can serve that purpose by expanding your investment portfolio and offering diversification beyond traditional stocks and other asset classes.
Higher Returns Potential
Who doesn’t want to earn high yields from their investments? Bond Public Issues offer a chance to invest in options with higher yields than existing bonds in the secondary market. Thus, if you are an investor looking to earn high returns while experimenting with new investment options, Bond Public Issues can prove a potentially lucrative choice.
Fixed Interest Rates
Usually, investors look for predictable, steady and stable cash flows. Many bonds serve that purpose with a fixed interest rate. Hence, they can specifically prove appealing to investors in a low-interest-rate environment.
Early Access Advantage
With a Bond Public Issue, investors can access new issuances at the initial offering price. It can potentially safeguard them against price appreciations that may take place once people start trading the bonds in the secondary market.
Reliable Investment Options
Companies entering the Bond Public Issue market have sound financial health, without which the investment bankers and SEBI wouldn’t approve their IPO. They are large and established organisations that provide access to premium and institutional-grade investments. Hence, usually, Bond Public Issues carry a certain degree of reliability as well.
Capital Gain Opportunity
If the Bond Public Issue’s demand exceeds supply, its price may increase after the IPO. Investors securing bonds at the offering price and selling them at a higher price in the secondary market can realise capital gains from trading the bond.
Risk Mitigation Options
Some Bond Public Issues have embedded options or convertibility that allow investors with extra tools to manage the investment risk or benefit from the changing market situation.
Access to New Projects
New projects have some element of uncertainty. However, they can prove a remunerative investment option as well. Bond Public Issues enable investors to access new projects with enormous growth potential. Investors investing in such projects can benefit from their growth and the returns they generate.
Limited Supply Potential
Some Bond Public Issues may have a limited supply. Hence, they may appeal more to investors. But what makes limited supply as promising? A limited supply of a Bond Public Issue can create scarcity and help potentially drive the bond’s price up in the secondary market.
Strict Regulations
Bond Public Issues are part of the Indian securities market, regulated by SEBI. It has strict guidelines and regulations for bond issuances. These regulations signify trust and transparency that helps protect investor interests. Aspiring companies should provide investors with all the information about their business, including their financial health and associated risks. While helping build investor trust, it protects their rights and helps them make informed decisions.
How to Apply for a Bond Public Issue?
Applying for a Bond Public Issue is pretty straightforward. Here’s how to subscribe to a Bond Public Issue.
- Select the bond that best suits your investment goals. Conduct thorough research about the organisation before investing money.
- Calculate the money you intend to invest per your investment objectives.
- Study the specifics like its coupon rate, face value, bond maturity, security, ratings, etc., of the bond issue comprehensively.
- Apply for the Bond Public Issue via a platform like Altifi and place your order. The bonds are allotted on a first-come first-serve basis after the issuance closes. You will receive the bonds in your demat account after issuance if allocated.
So, that was about Indian Bond Public Issues. Sign up with Altifi and stay tuned with us to get the latest updates about the current Indian Bond Public Issue listings on our website.
Disclaimer: The contents of this article should not be construed as tax or financial advice. Readers should seek advice from their tax or financial advisor before making any investment decision.