Source of financing for loan companies

December 15, 2017, USD 200 million – the highest one-time issue of corporate bonds of a loan company. For comparison, the bonds of the largest Polish bank on the Catalyst market are worth USD 1 billion 700 million. The difference is large, but the corporate bond market should be gaining popularity among loan companies. Unfortunately, they have limited access to other sources of financing. Borrowers can also benefit from this. for a critique

What is the difference between government and corporate bonds?

What is the difference between government and corporate bonds?

The main difference between treasury bonds and corporate bonds is the issuer. In the case of the former, as the name suggests, we are dealing with state debt securities. The issue of corporate bonds is on the side of private companies and companies. Treasury bonds are one of the safer ways to invest savings. However, not too high interest rate, or profit, goes hand in hand with security.

Currently, 5 types of Treasury bonds are available in Poland:

  1. 3-month (with a fixed interest rate – 1.5% per annum),
  2. 2-year (with a fixed interest rate of 2.1%),
  3. 3-year (with variable interest rate – 2.2% in the first 6-month interest period, in the next depending on the WIBOR 6M rate),
  4. 4-year (2.4% in the first interest year, and in subsequent years: 1.25% margin + inflation value),
  5. 10-year (2.7% in the first one-year period, and later: 1.5% margin + inflation rate).

The corporate bond market is associated with much more attractive interest rates. By purchasing company debt securities, you can count on higher returns, but you are also exposed to higher investment risk. Before making a decision to buy bonds, carefully examine the financial situation of the issuer. Such actions will, at least in part, protect you from depositing money in the bonds of a company that is facing bankruptcy. Insolvency of corporate bond issuers is much more likely than government insolvency.

New debt securities, which previously did not have another owner besides the issuer, are acquired during the issue of corporate bonds on the primary market.

The issuing company may issue its bonds in two ways, by

The issuing company may issue its bonds in two ways, by

  1. public issue – any investor with appropriate capital can participate, it is often associated with promotion in mass media.
  2. private issue – not more than 149 investors participate in it, who are invited to buy by delivering them by the issuer or brokerage house purchase proposal.

Corporate bonds, which are a source of financing for companies, are more often issued privately. This is a less expensive way, which is not subject to verification by the Polish Financial Supervision Authority.

How to invest in the corporate bond market in Poland

How to invest in the corporate bond market in Poland

Buying a loan from a loan company is a situation where there is a paradoxical reversal of roles. If you decide to take such a step, your debtor will be the loan institution that is the issuer of the bonds. She will be required to repay her debt with interest.

There are 3 ways to buy corporate bonds:

  1. Purchase on the primary market during the issue of bonds by the company – most often it is done through a brokerage house at a price set by the issuer, the direct buyer of capital from the sale of bonds is the company that released debt securities.
  2. Purchase on the secondary market – Catalyst is the largest in Poland – the corporate bond market operating on the Warsaw Stock Exchange. Transactions on Catalyst take place between investors without the issuer, and the price of the bond is dictated by demand and supply.
  3. Cooperation with an investment fund – entrusting money to specialists who decide and buy bonds for you – in this situation, the purchase of debt securities is carried out on the same principles, however, if you have little experience in the investment market, using the fund’s agency will be less risky than independent investment. However, you also have to take into account a smaller profit, because it will be reduced by a commission.

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