As UK publicly listed companies seek to raise capital for expansion, acquisitions, or refinancing existing debt, bond issuance emerges as a popular option. By issuing bonds, these companies can tap into the debt markets and attract investors seeking fixed income securities. In this comprehensive guide, we will delve into the intricacies of the bond issuance process for UK publicly listed companies, offering valuable insights for both issuers and investors.
1. Preliminary Considerations:
Before embarking on a bond issuance, companies must carefully evaluate their financial position, borrowing requirements, and market conditions. Key considerations include determining the purpose and size of the bond issue, assessing the company's creditworthiness, and evaluating market appetite for the bonds.
2. Selecting the Bond Type:
UK publicly listed companies have various bond types to choose from, depending on their specific needs and market conditions. Common bond types include senior unsecured bonds, convertible bonds, subordinated bonds, and high-yield bonds. Each type carries unique features and characteristics, such as interest rates, repayment terms, and conversion options, which should be carefully evaluated.
3. Engaging with Investment Banks:
To facilitate the bond issuance process, companies often engage with investment banks acting as underwriters or lead managers. These banks provide valuable guidance, assist in structuring the bond issue, and help establish the appropriate pricing and terms. Engaging experienced banks can enhance credibility and investor confidence in the bond offering.
4. Drafting the Prospectus:
The prospectus serves as a comprehensive document that provides potential investors with key information about the bond offering. It includes details about the company's background, financials, risk factors, and terms of the bond. The prospectus must comply with the regulatory requirements set by the UK Listing Authority (UKLA) and be submitted for approval before the issuance.
5. Regulatory Compliance:
UK publicly listed companies must adhere to the regulatory framework governing bond issuances. The Financial Conduct Authority (FCA) and the UKLA oversee these activities, ensuring transparency and investor protection. Compliance requirements involve timely disclosure of information, adherence to market abuse regulations, and alignment with relevant securities laws.
6. Credit Rating and Credit Enhancement:
To attract investors, companies may obtain credit ratings from independent rating agencies. These ratings provide an objective evaluation of the issuer's creditworthiness, influencing investor perceptions and the pricing of the bonds. Additionally, credit enhancement mechanisms such as collateral, guarantees, or insurance can be employed to mitigate risk and enhance the attractiveness of the bonds.
7. Pricing and Marketing:
Determining the appropriate pricing for the bonds is a crucial step in the issuance process. Investment banks play a pivotal role in conducting market research, gauging investor interest, and setting a price range. Once the bonds are priced, a marketing campaign is launched to generate interest among potential investors through roadshows, presentations, and investor meetings.
8. Allocation and Listing:
Once the bond offering is oversubscribed, the allocation process begins, with bonds allocated to investors based on predetermined criteria. Following the allocation, the bonds are listed on the London Stock Exchange or an alternative exchange. Listing provides liquidity to the bonds, enabling investors to buy or sell them on the secondary market
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About the author
Sabbir Rahman is Managing Director of Langdon Capital. He has held prior roles with Morgan Stanley, Lazard and Barclays Investment Bank. He has executed over £60 billion in notional value of transactions across financing, M&A and derivatives with global corporates, private equity funds and financial sponsor groups.
About Langdon Capital
With a network of 700+ alternative investors, Langdon Capital raises debt and equity capital between £1m and £25m for high-growth and innovative scale-ups with >£1m annual revenue and >30% annual revenue growth in the technology, environmental impact and renewable energy sectors, at Series A or beyond, to help fulfil growth ambitions and paths to profitability.
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