By Philip Ziter – Lawyer, Russin & Vecchi With banks lowering interest rates, retail investors have shown increased appetite for corporate bonds, which offer rates ranging from 10.1 to 11.2 per cent for bonds, with maturities ranging from 12 months to five years. With rates between 1.8 and 4 percentage points higher than deposit interest rates offered by major banks, the appeal to investors is clear. Thus, there is a growing trend of companies moving from taking on bank credit to issuing private placements of bonds – with issuances often amounting to several times the equity of the businesses. However, the rising interest in corporate bonds, particularly in the retail and real estate segments, has troubled authorities. After a number of companies issued bonds worth over 50-100 times their equity last year, the Ministry of Finance (MoF) issued several warnings to private investors, advising caution and pointing out that real risks exist when issuing companies face financial difficulties. Corporate bond holders are creditors, and as such, are only entitled to the interest stipulated in the bond’s coupons (normally a fixed interest rate). Corporate bonds can pose a financial risk to the issuer, due to the recurring obligation to pay interest,… Read full this story
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