A bond is a type of debt security, which stipulates the obligation of the issuer (borrower) to pay the bond holder (lender) a specified amount of interest at a specified time in the future. futures and must repay the original loan when the bond matures.
Purpose of issuing bonds:
According to Article 3 of Decree 90/2011/ND-CP on corporate bond issuance, issuers may only issue bonds for one of the following purposes:
- Implementation of investment programs and projects of enterprises.
- Increase the size of the working capital of the enterprise.
- Restructuring the debts of the enterprise.
In fact, there are businesses that issue bonds to raise new capital to pay for old debts, write off bad debts, and there are even businesses that use bonds to evade taxes.
Before borrowing debt with bonds, every business has at least one loan from a bank. However, in order to minimize bad debts, the ratio of short-term capital and medium- and long-term loans for enterprises decreased from 45% to 40%, forcing banks to rigorously evaluate corporate finance, balance Consider lending to high-risk projects. In addition, the banks lending is also facing many obstacles because of the ceiling limit on credit growth.
Therefore, when banks increase investment in bonds, it will increase the number of bad debts because businesses are unable to pay the principal and interest of bonds due, leading to the need to issue more bonds to restructure debts. . The never-ending loan-repayment process forces banks to not be able to lend money to businesses to repay their debts and must process the loans security assets.
Therefore, in order to limit debt default, when planning to borrow capital by bonds, enterprises need to:
- Detailed assessment of the current financial situation of the enterprise;
- Develop specific business development plans;
- Make a plan to use capital raised from bonds;
- Select an experienced and highly appreciated bond issuance consultant and distributor in the market;
- Publicize the use of capital and make timely payments to investors;
- Improve the image and reputation of the business in the market.
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