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How to Raise Capital - Essay Example

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This essay "How to Raise Capital" discusses how the capital increase varies between companies, as some companies raise capital by issuing new shares and do not like bonds. Other companies believe that the best way to invest is to buy their own shares back…
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How to Raise Capital
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Download file to see previous pages Bonds are the best way to raise the capital of large companies. Roughly about 25% of the capital comes through bonds. Companies get to benefit greatly from the issuance of bonds because investors pay a lower interest rate than the rates of other types of borrowing. Also, because the interest paid on bonds is exempted from business taxes. Therefore, companies must make interest payments even if profits do not appear. If there is doubt from investors that the company does not have the capability to meet the obligations of interest, or it could refuse to buy bonds or that the demand for interest rate will be higher to compensate them for their increased risk. (U.S.Department, 2009). One of the most common methods of raising capital is through bonds, where we define bonds are loans made to governments and institutions by investors as the investor gets a specific interest rate because he invests his money in a good investment idea. In return, the borrower gets the money it needed, also the investor gets the original amount invested (the principal amount or value of the bond issue) and can issue bonds for a long period of up to 20 and 30 years. Bonds are classified according to their quality bonds or prospects for reimbursement. Bonds do not usually find the same attention, such as equity from investors and the media. Since the bonds offer many advantages better than stock. In addition, the safety of bonds is overstocks and more confident. (Mohammed, 2005). There are many companies planning to raise their capital. For example, Lloyds Bank announced that it will raise the bank's capital to 7.5 billion pounds, through the exchange of bonds. (Glover, 2009). The bond market can be divided into three parts:
Domestic bonds:
Shall be handled through the local currency and it is issued by domestic borrowers.
Foreign bonds:
Shall be handled by the local currency and is also trading in the domestic market but issued from the foreign borrower and always common on the comprehensive follow-up of power.
Eurobonds:
Eurobonds is underwriting by multinational banks and these bonds are not taken by the trading in all markets and specific national or local markets, these bonds are currently has a role in the production of some of the major currencies and some small currencies.
There are many types of bonds are offered in the market. These bonds can be dividing it as follows:
Straight bonds:
It can be called fixed-income securities as they have a fixed price and are paid on time.
Bonds paid in part:
These bonds the same straight bonds, but there is a difference that the investor must pay a certain portion of the capital from 0 to 33 on the closing date and paid the remaining of the capital after 6 months.
Zero-coupon bond: ...Download file to see next pagesRead More
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