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Debt financing (Debt Capital Market)

Debt financing instruments:

Bond issue. Issue and placement of bonds is an alternative source of financing. Enterprises can attract debt financing by issuing bonds. Large Kazakhstan companies can issue the so-called Eurobonds traded in international financial markets in addition to bonds traded in Kazakhstani securities market. A lot of preparatory work is required for issue of Eurobonds, but it is more than compensated by the ability to attract a very large amount of financing at a very reasonable percentage.

Comparison of bonds with other type s of financial instruments shows that, all other conditions being equal, the bond issue has visible advantages, including:

  • Bond loan is the main alternative to a bank loan in the market of medium-term and long-term borrowing;
  • Bond loans are cheaper than the bank loans by  2 to 4% per annum in average;
  • Opportunity to attract a large amount of cash
  • Convenient payment and repayment schedule (usually coupon is paid 2 times a year; principal debt is repaid at the end of the period)
  • Strengthening of the company’s reputation
  • Improvement of business management quality

Syndicated loan. Without dwelling on the types of bank loans we would like to note that there more complicated form of the loan - a syndicated loan. A syndicated loan is disbursed given when one lending bank is unable to give the required amount, because it exceeds the maximum limit that can be loaned to a single borrower. In this case the total amount of loan is given by several banks at once.

Blended financing. There are lots of opportunities to combine debt and direct financing. An enterprise has the right to issue preferred shares. These shares do not give the investor the right to vote at shareholders' meetings. However, a guaranteed fixed dividend is paid to them. An enterprise may also issue convertible bonds. They differ from ordinary bonds in the fact that they can be converted into shares under certain conditions.

Large enterprises use financial products with fairly complex structures. Among those, a product with the simplest structure is a loan secured by shares held on the enterprise’s balance sheet. If an enterprise is unable to pay back loan, the lender retains shares thus becoming a shareholder.

JSC “BCC Invest” acted as an exclusive financial advisor and underwriter for the following companies' stock issues and projects of debt financing:

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