What is Private Placement of Bonds?

  What is the Private Placement of bonds?

• A private placement is a sale of bonds to select investors and institutions instead of the open market. 
• Typically, a private placement is defined as an issuance of securities to less than 50 persons.
• Investors in privately placed bonds usually include wealthy individuals and entities, mutual fund providers, insurance companies, and banking and financial institutions.
• Unlike a public offering, private placements are exempt from having to file an offer document with the Securities and Exchange Board of India (SEBI) for comments.
• A private placement may not involve any form of general announcement, solicitation, advertising, seminar, or meeting to publicize such an offering.
• Advantages:
• It is a cost and time-effective method of raising funds.
• It can be structured to meet the needs of entrepreneurs and investors.
• It has easier compliance formalities.
• In India, the majority of corporate fund raises have been through private placement.
• Issue of securities through private placement route is governed by SEBI (Issue and Listing of Debt Securities) Regulations, 2008.

What are non-convertible bonds?

• It is a financial instrument issued by Corporates for specified tenure to raise resources/funds through public issue or private placement.
• They cannot be converted into equity shares or stocks, hence called non-convertible.
• It is a fixed-income instrument same as a bank fixed deposit, and can be traded on stock exchanges.
• Interest can be earned monthly/quarterly / annually / cumulative, and on maturity principal amount is paid to the bondholder.
• They are a popular form of investment tool among investors because of their higher returns, liquidity, low risks, and higher interest rates than convertible debentures.

Q1) What Is an Initial Public Offering (IPO)?

An initial public offering (IPO) refers to the process of offering shares of a private corporation to the public in a new stock issuance for the first time. An IPO allows a company to raise equity capital from public investors.

Source: NHPC raises Rs 996 crore through issuance of non-convertible bonds

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