The specifics of the issue of bonds

The bond is a security with a preliminarily fixed maturity, certified in accordance with the terms of the issue, the right to get interest on it from the company issuing the bond, while upon the maturity of the bond the bond-holder may also get the principal value of the bond in cash or other equivalent.

By maturity, the bonds are classified into short-term (up to 1 year), medium-term and long-term bonds.

Depending on the group of existing issuers, one can distinguish state (governmental), global (issued by international organizations) and corporate bonds.

Corporate bonds are instruments, issued by companies with the purpose of raising funds.

The major types of the bonds are:

1) Bonds the with a fixed interest rate, when the preliminarily stated fixed yield does not change during the life of this bond
2) Bonds with a floating interest rate – the interest rate depends on the variable of the floating interest rate and can be adjusted to the inflation rate
3) Bonds with zero coupon do not assume the payment of interest, but are issued with a discount, i.e. discount from the principal value
4) Secured bonds – are securities, backed up by a certain type of asset (equipment, building, erections, securities and other).

The advantages of bonds issue are the following:

1) The possibility to raise financing without provision of collateral
2) The extra loan capital, allowing to run diversification of the liabilities portfolio
3) Balanced costs/expenses in comparison with the loan.

When issuing bonds, the company’s management retains total control over the company, and the lender is not involved in the distribution of corporate profit.

The following may be the disadvantages of bonded loans:

1) The necessity to meet a number of strict requirements in the issue of bonds
2) There are certain expenses on running the securities issue.

Under Resolution #77 of the Board of the Agency of the Republic of Kazakhstan for Regulation and Control of Financial Markets and Financial Organizations (FCA), dated May 26, 2008, on Requirements to the Issuers and their Securities, Allowed for Listing on the Stock Exchange, since January 1, 2010 the official list of the exchange includes only debt securities with the ratings, awarded by the rating agency during the last 12 months.

Gaining of the credit rating gives a number of advantages to both the issuer and creditors, investors and other financially concerned parties.

Based on the awarded rating, the market players can make sound financial decisions. For instance, during the negotiation process many companies prefer not to disclose their financial information; in this case, the awarded credit rating can serve as a reliable indicator of the company’s solvency. The awarded credit rating can help launch new bonded loans as well as enhance information certainty about the creditworthiness of the loan.

A positive credit rating adds to broaden access to finance sources; this, in turn, helps the issuer be more flexible financially. For investment companies that manage the pension assets, for unit investment trusts and other companies, involved in the investment operations, the independent rating is a convenient monitoring instrument. Monitoring the changes in the ratings, investment companies can make adjustment to their investment portfolios.

The corporate governance rating influences the growth of company’s value and supports the trust of investors in the long term prospect, evaluating the system of effective cooperation between the board of directors, executive authority and shareholders of the company.