Initial Steps For Bonds Issuer
The steps for a bond issue are:
- The bond questionnaire is to be filled and reviewed by international broker's credit committee. The international broker's credit committee will evaluate whether the potential client company's credit risk is acceptable for an un-rated commercial paper/bond issue.
- Assuming international broker's credit committee states the company is good for an un-rated paper issue, we proceed to the next step. Appointing a lawyer to draft loan agreement and compile the bond offer document. (No money from client is collected from client till step 3
Arka Projects will sign separate contracts regarding the transaction.
- Client need only bear S$30,000 upfront for lawyer and other advisory fees to compile offer document, draft loan agreement, due diligence, transaction structuring and distribution by international broker's distribution team. This contrasts well with the half million Singapore dollar exploratory fees for a Singapore IPO and the hundreds of thousands of dollars for an investment agency rating by an international rating agency for commercial paper rating.
- Potential borrowers will have to appoint and negotiate fees with internationally recognized auditors and valuation firm. We can help client source for cost competitive fees from internationally recognized auditors and valuation firm in Singapore. If potential borrowers already use internationally recognised firms, this step is not necessary.
- As consultant for privately owned Chinese companies, we will help with SAFE (State Administration for Foreign Exchange) application at the Provincial level.
- After the lawyer compiles the offer document, the broker does the book running in Asia and Europe on a best effort basis to determine the pricing and the tenure of US$ bond. (Estimated borrowing cost is 9% to 12% per annum, loan tenure can be from 1 to 5 years). The issue costs can be brought down if frequency of repayment period is increased, value of collateral offers adequate buffer for default risk, cash flows and assets are assigned to borrowing SPV, element of ownership is offered to the investor at a point in the future (convertibility of debt to equity at agreed upon terms) and credit enhancement measures are introduced.
- The issuing bank and trustee bank are appointed in Singapore.
- Success fees will drive the large part of fee payment for legal, due diligence, structuring and distribution fees.
- The bond issue can contain an early redemption clauses (example in the third year)
- The issue amount can be for any amount: from US$10 million to US$200 million. The issue size is determined by the client's cash flow generating ability to repay principal and interest.