How to Issue Bonds?

Issuing bonds can be a somewhat complex process, so if we explain it step by step, it goes like this:

• Planning and preparation: The company or government issuing the bonds develops a strategic plan for the bond issuance. This plan includes important details such as the amount of bonds to be issued, maturity duration, interest rates, and repayment terms.
• Financial advisory services: In certain situations, companies or governments may work with a financial advisory firm. Advisors help determine the characteristics of the bonds to be issued, analyze market conditions, set interest rates, and identify the market where the issuance will take place.
• Determining the bond to be issued: Next, the type and characteristics of the bond are determined. For example, different options such as fixed-rate bonds, variable-rate bonds, or index-linked bonds are evaluated, and the type of bond is determined.
• Rating of the bond to be issued: In this step, the creditworthiness of the issuing company or government is assessed by rating agencies. Later on, the credit rating allows for a risk analysis for investors.
• Public offering or private placement: Bond issuance can be carried out in two different ways: public offering or private placement. In the case of a public offering, the bonds are generally offered to the public or institutional investors, while in a private placement, the bonds are distributed among specific investors or institutions.
• Preparation of the issuance document: The company or government first prepares an issuance document for the bonds to be issued. This document contains important information such as the characteristics of the bond, repayment terms, and interest rates.
• Notification and registration procedures: Finally, the issuing company or government notifies the relevant regulatory authorities, such as the Securities and Exchange Commission, about their issuance plans.

How Does Bond Issuance Affect Shares?

The process we call bond issuance is essentially a way of borrowing. Companies or governments issue bonds to meet working capital needs, finance their investments, or restructure existing debts. Typically, bond issuance does not directly affect shareholders, as bonds are, as mentioned, a form of borrowing and do not cause a change in the company's capital structure.

However, even if bond issuance does not directly affect shareholders, it can indirectly impact them. Speaking of its indirect influence:
• Changes in financial structure: Bond issuance may lead to changes in the company's financial structure. The company may have to manage cash flow for the repayment of bonds, which can be risky for shareholders because bondholders are the company's primary creditors, and shareholders receive their returns after bondholders. Therefore, bond issuance can increase the company's financial risk.
• Interest payments: Bond issuance may increase the company's interest payments. The company is obligated to make regular interest payments to bondholders. This can reduce the company's profits and lead to lower distributions of profits to shareholders.
• Competitive advantage: Furthermore, bond issuance can provide the company with a competitive advantage. By obtaining cash through bond issuance, the company can make new investments or expand its existing business. This, of course, can contribute to the company's growth and provide long-term benefits to shareholders.
• Impact on share prices: A well-received bond issuance can increase investors' confidence in the company and positively affect share prices. However, if the bond issuance indicates the company's financial difficulties or restricts shareholders' rights, this time share prices may be negatively affected.

What Are the Necessary Conditions for Bond Issuance?

Although the necessary conditions for bond issuance can vary depending on the type and maturity of the bond, we can generally mention the following conditions:
• The company's creditworthiness: Credit rating agencies assess the company's ability to make bond payments and assign a credit score. A high credit score allows for bond issuance at lower interest rates. This is quite important for companies.
• Interest rates: Companies consider interest rates when planning to issue bonds. Issuing bonds at low interest rates can be more attractive, as low interest rates reduce the company's borrowing cost.
• Maturity duration: Companies should also determine the maturity duration for bond issuance. The maturity duration determines how long the bond will be issued and when repayments will be made to bondholders. The maturity duration is usually defined based on the company's financial needs and market conditions.
• Amount of bonds to be issued: The amount of bonds to be issued must be determined. This amount can vary depending on the company's financial needs, projects, or the restructuring of debts.
• Conditions of the bonds to be issued: Among the defined conditions are the bond's interest rate, repayment date, repayment method (fixed-rate, variable-rate, premium repayment, etc.), and payment frequency. Of course, these conditions can affect the bond's attractiveness and investors' interest.
• Investor demand: The company should assess investor demand before issuing bonds. The interest of investors in the bonds will effectively influence the amount and conditions the company wants to issue.

What Are the Types of Bond Issuance?

There are many different types of bond issuance. These types are as follows:
• Fixed-rate Bonds: Bonds of this type make interest payments at a fixed interest rate throughout the issuance period. The interest payments remain fixed during the bond's maturity and are made at regular intervals to bondholders.
• Variable-rate Bonds: In this type, the interest rate changes based on a certain reference interest rate. Also, in these types of bonds, interest payments are adjusted at certain intervals.
• Discount Bonds: Discount bonds are issued at a lower price than their nominal value. Bondholders receive the nominal value upon maturity while paying a lower price at issuance. No interest payments are made on these types of bonds, but investors can profit by receiving the nominal value at maturity.
• Coupon Bonds: Coupon bonds make interest payments and include coupons that provide interest payments at regular intervals. Bondholders receive the nominal value at maturity while benefiting from interest payments.
• Convertible Bonds: Convertible bonds can be converted into shares within a certain period. Bondholders can exchange their bonds for the company's shares during a specified time.
• Foreign Currency Bonds: Bonds may be issued in a currency other than the local currency. These types of bonds provide investors with the opportunity to invest in different currencies and can be significantly affected by exchange rate changes.

Which Companies Issue Bonds?

Examples of companies that issue bonds include:
• Apple
• Microsoft
• Exxon Mobil
• JPMorgan Chase
• Bank of America
• Citigroup
• Chevron
• AT&T
• Verizon