Author: Szabo Ivan
Source: Hospodarske noviny, 11 August 2008, nr. 155, pg. 1

Bonds. Finance for company expansion does not have to come from the bank. If the company is looking to develop, it is normally enough to apply for an investment loan. However, in some cases, there may be grounds for considering a bond issue. As this is a longer and more expensive process, it is advisable to first answer some questions, if the bond issue is to prove profitable. “It is important to have given consideration to what use the resources obtained will be put, which investors the company wants to target, how to determine the validity and the asset properly in accordance with the commercial conditions and either to consult about these matters or to cooperate directly with professionals in preparing the issue” calculates Rastislav Velič, Financial Manager of Arca Capital Slovakia. Expenses for the bond issue, according to him, can range from hundreds of thousands to a million crowns.
“If the company is going to obtain the money, it has to offer an attractive return to the investors. As company bonds are generally considered to be more risky than government or bank bonds, their interest rate is also higher. Arca Capital’s three-year bond has an annual profit of 8.5 percent. Bonds may also have a floating interest rate, expressed as the bank-to-bank Bribor rate plus something in addition.”
“The differences between loans and bonds lie mainly in the use of the money obtained. The resources from the bond issue can be used for an introductory launch for financing projects while a bank loan is normally linked to specific financing of an actual project or a plan with an appropriate surety and so the bank resources are in most cases approximately 2.3 – 3.5 percent cheaper,” warns Velič.
What to consider prior to the bond issue
– resources operation
– costs for the issue
– interest and maturity estimate
– address to investors
– acquiring a rating