Financing Projects through Bond Issues
In the context of project financing, financing a project in the form of a bond programme or an independent bond issue with a prospectus is a suitable instrument that can be combined with a bank loan and allows businesses to work more efficiently with capital. An undeniable advantage of project financing with bonds over bank project financing is the possible absence of collateral (security/guarantee) for individual bond issues.
Bonds with Prospectus
EUR 150 m
The total amount of the bond programme is EUR 150 m with a bond programme duration of 15 years. The first bond issue was in the amount of EUR 17 m and was subscribed through securities dealers in six weeks.
PROJECT FINANCING
A development company that has long been involved in the construction of residential units did not have sufficient capital to build a complex of apartment buildings. The bank required the developer to pay 30% of project financing itself from its own funds, but the developer did not have the money, given the concurrent financing of several other projects. The developer was looking for a solution that would allow it to finance projects (both existing and future ones) independently of bank financing.
ANALYSIS
After analysing the developer’s project, business activities and plan, it was found that this situation repeated itself irregularly. Financing only this one project solved the developer’s situation, but only in the short term.
SOLUTION
We proposed a solution to the developer in the form of a securities issue, a bond/debenture issue with a prospectus. In view of the developer’s planned projects, a bond programme totalling EUR 150 m was proposed with a duration of 15 years. The bond programme’s total volume will be drawn in individual bond issues, which will be adjusted in volume to the requirements of the developer’s individual projects. Single bond issues with a prospectus will be unsecured bond issues with a maximum maturity of 5 years.
IMPLEMENTATION
Agreeing to the above securities financing strategy was the developer’s first step towards obtaining financing through investment securities. After signing a contract, we prepared a prospectus for the bond programme, which was subsequently approved by the central bank, including a request for notification of the bond programme in selected EU countries and the first bond issue with a prospectus for 17 m. The bond issue was subsequently subscribed through securities dealers.
A FEW WORDS IN CONCLUSION
The above business case is a typical example of long-term financing in the form of securities (bonds/debentures with a prospectus), which is suitable for entities that have regular problems financing their projects.