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Why Company Issue Bond or Sukuk?
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Most corporations will need to raise financing for a variety of reasons such as operation, merger & acquisition or business expansion. Prior to the 1997 Asian financial crisis, a lack of a well balance capital market in Malaysia has allow a heavy reliance on the financing from banks which resulted in excessive losses by corporation during the crisis.
Since then, the government has initiated an active role in the utilization of bond as a competitive alternative long-term financing for corporation which also strengthen the Malaysia Capital Market. Below are other reasons why corporation want to issue bond:
- Bond & Sukuk provide an opportunity for corporation to raise financing without diluting the current shareholders equity. The issuance of bond and sukuk has no effect on the ownership of the company nor the control of the corporation. Stock issuance on the other hand will decrease the earning per share which is an important ratio for shareholders.
- Corporation can take advantage of the cost saving from issuing bond by eliminating bank as middleman and raise funding directly from investors. The interest paid to investor is often less than the total effective interest paid to bank. Banks also have a stricter requirement and a higher collateral needed to borrow from them. Issuing bond in the capital market allow companies with less collateral asset but strong future cashflow to raise financing from willing investor with suitable risk appetite.
- The bond capital market is an efficient way to borrow funds. The borrower does not have to go through the numerous separate negotiation with banks to raise the fund it needs and companies that need to continually raise funding can issue new bonds as long as they can find investor to act as lender in the capital market. The capital market also allow issuer to issue convertible bond which give the investor the opportunity to convert their bond to shares when the company share price increase and issuer will be exempted from paying back the loan.
Disclaimer
This report has been prepared and issued by Bond and Sukuk Information Platform Sdn Bhd (“the Company”). The information provided in this report is of a general nature and has been prepared for information purposes only. It is not intended to constitute research or as advice for any investor. The information in this report is not and should not be construed or considered as an offer, recommendation or solicitation for investments. Investors are advised to make their own independent evaluation of the information contained in this report, consider their own individual investment objectives, financial situation and particular needs and should seek appropriate personalised financial advice from a qualified professional to suit individual circumstances and risk profile.
The information contained in this report is prepared from data believed to be correct and reliable at the time of issuance of this report. While every effort is made to ensure the information is up-to-date and correct, the Company does not make any guarantee, representation or warranty, express or implied, as to the adequacy, accuracy, completeness, reliability or fairness of any such information contained in this report and accordingly, neither the Company nor any of its affiliates nor its related persons shall not be liable in any manner whatsoever for any consequences (including but not limited to any direct, indirect or consequential losses, loss of profits and damages) of any reliance thereon or usage thereof.
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