Question

Research the financial statements of a company of your choice. Next, discuss the type of bonds it has issued. You will then explain which features make an issue attractive and unattractive to an investor. To conclude this discussion prompt, elaborate on the key features you would suggest on a future bond issue. Provide support for your response.

Answer 1

ANSWER CAN BE GIVEN IN FOUR STEPS

STEP – 1

Suppose we take the example of Housing and Urban Development Corporation . The total amount of issued bonds of the company is approx $ 195 millions

STEP – 2

Bonds types that it has issued listed below

• Taxable special priority bonds
• Taxfree Bonds
• Special infrastructure bonds.

STEP – 3

Features which make an issue attractive to Investors :

• Issuing bonds also give the company freedom as bank loans usually come attached with lots of conditions and clauses.
• For the corporates these bonds are cheaper than the bank loans.
• The interest rates paid by these bonds are usually higher than they would have got in case of a bank investment.
• They are better than stock as they do not give away the equity of the company.

Features which make an issue Unattractive to Investors :

• The bonds have fixed interest so in case in future the market interest rate falls the bonds still needs to be paid at such higher amounts.
• The bonds are subscribed only when the comapnies are highly popular.

STEP – 4

Finally , two major suggessions on a future bond issue :

• The company should issue fresh bonds at the time when rate of interest in market is low
• The bonds which are to be issued should be callable by the issuer so that in case rate of interest is high company can redeem the bonds & issue fresh bonds