High bank interest rates could steer companies to utilise bonds.

Dionisia Tabureguci
Bond trading is almost unheard of in Fiji's capital markets because it is still an underdeveloped concept.

It doesn't enjoy the same level of investor awareness that unit trusts or the share market have.

But it is no doubt there for the taking.

At this time when bank rates look likely to go up after the Reserve Bank of Fiji tightened its monetary policy last year, it would perhaps be worth the while for companies to explore bond as a means of raising funds at a lower cost.

The Capital Markets Development Authority (CMDA) has also made use of this cycle of the financial market to re-energise its bond awareness drive.

Last month, it released a “guide to issuing bonds”, a pamphlet especially designed for companies which would look at it as a means of raising capital for their business.

“Issuing bonds provides local companies with an alternative source of raising additional capital to fund their growth or finance their day-to-day operations,” says CMDA chief executive officer and former banker Suren Kumar.

The need to raise funds from the public, he adds, mostly arises because current shareholders may not be in a position to provide the additional capital needed by the company. Or drawing additional bank loans may not be suitable to the company's business plans and financial commitments.

Kumar explains some benefits of using bonds to raise funds: “For example, issuers can fix the interest rates by offering a fixed rate bond. In this way, if interest rates increased, the issuer has locked it in its interest rate. Bonds can also be structured in many ways to suit the needs of the issuer. Unlike typical bank loan which requires the principal sum borrowed to be repaid in installments, the bond principal sum is paid at maturity.”