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Types of Bonds that Public Companies Need to Know


Dec 3, 2020
Types of Bonds that Public Companies Need to Know

Before investing, it’s better to find out in advance about the types of bonds that public companies need to know. capital, one form of investment is known as bonds. In simple terms, this is a letter of granting debt to business owners for business expansion needs. Just like stocks, if the bondholders can sell these receivables to other parties if one day they need funds.

In bonds, there is a term and interest (or what is called a coupon) which is the obligation of the bond issuer as the party owing it. Bonds are issued to raise funds from the public and also to get funds to keep business running smoothly for a company. Delivery of bonds is usually done by conducting an event in collaboration with the event organizer. One of the event organizers who regularly helps companies to organize the event is Hanindo. Hanindo is known to have helped many companies in Indonesia to organize events smoothly and achieve goals.

Types of Bonds Available

In the world of capital markets, there is not only one type of bond. There are various types of bonds depending on the differentiator. Below we will explain several types of bonds in terms of various aspects.

Based on the Issuer

First is oblogation by publisher. For types of bonds based on the issuing party, bonds are divided into two, namely government and corporate bonds.

a. Government Bonds

Bonds issued by the government are divided into two, namely as follows.
Government Bonds / Treasury. These bonds are issued in the form of Sovereign Debt Instruments by the central government. The central government issued bonds for the first time in 2006 and each year the demand for it is increasing. Bonds known as State Retail Bonds (ORI) are only issued once a year. Municipal / Municipal Bonds. The issuer of this bond is of course the local government. The purpose of its issuance is to finance development for the public interest.

b. Corporate Bonds

Unlike before, this type of bond was only issued by the government. Both government and private companies can issue corporate bonds.

Under the Interest Charged Method

We can look at the next types of bonds based on the method of what interest is charged. There are three types, namely:

a. Fixed Rate Bonds (Fixed Rate / Straight Bonds)

These bonds set a fixed coupon rate until maturity or throughout the term of the bonds.

b. Floating Rate Bonds (Floating Coupon Bond)

The coupon or interest rates on floating rate bonds vary widely. The calculation refers to the interest rates of other instruments such as the index belonging to LIBOR or Euribor. Usually, these bonds are used when inflation or when interest rates are difficult to predict.

c. Zero Coupon Bonds (Bonds Without Using Coupons)

As the name implies, there are no coupon or interest payments in this type of bond. These bonds are issued at a discount or discount and will be paid in full upon maturity.

Based on the guarantee

a. Secured Bond

Secured Bond is a bond that is guaranteed by the assets of the issuer or can be guaranteed by a third party. These types of bonds are divided into 3:
Mortgage Bonds: collateral in the form of a building or building.
Collateral Turst Bonds: pledged by shares or bonds owned by the issuer.
Equipment Trust Certificate: used to fund various assets such as planes, railroad cars, or trucks. The proceeds from the bond sale will be used to buy these assets and then lend the assets to the company.

b. Unsecured Bond

Bonds of this type are not pledged as collateral using the property of the issuer. Also divided into three, namely as follows.
Debentures: only issued by trusted companies.
Subordinated Debentures: these bonds will not be paid if the older bonds are paid.
Income Bonds: if the company makes a profit, then the interest will be paid. These bonds are used to reorganize companies that are considered less successful.

Based on the right of exchange

a. Convertible Bond

Bonds of this type are bonds that can be exchanged for shares owned by the issuing company. Bonds that have been traded can be converted into shares by the holder because the holder has the right.

b. Exchangable Bond

Bondholders have the right to exchange bonds for shares belonging to the issuing affiliated company.

c. Callable Bonds

Even though they have been traded, callable bonds can be bought back at a certain price during the bond’s deadline.

d. Putable Bonds

Unlike the Callable bond, in a putable bond there can be a necessity. Issuers have to buy back bonds because of Investors’ orders. This is not a problem because it is included in the investor’s right.

Of course, before starting investing, it’s good to know the types of bonds that exist. After knowing and understanding, the investment decision taken can be correct and not detrimental.