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.

 

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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