Finance ministry warns of high corporate bond rates
The Ministry of Finance on November 19 made recommendations concerning corporate bonds, advising investors to carefully consider purchasing those bonds coming with high coupons.
According to the ministry, a corporate bond is a debt security issued by a corporation, typically backed by the firm’s payment ability. Whether the issuer can repay depends on its financial and business performance, so investors should carefully consider and evaluate possible risks before deciding to buy corporate bonds.
Some typical risks that investors may face could be the firm’s failure to fulfill the terms and conditions of its bond issues. Also, the firm may fail to make full payments when the debt falls due, or the issuer may not fulfill its commitment to investors on the redemption of bonds before the maturity date.
Accordingly, the ministry advised investors not to be lured by the high bond coupons.
If investors plan to purchase corporate bonds, they should seek out all information on the bond issuer, issuing purposes, collateral, issuer’s commitment, maturity date and payment methods. Also, they should check the issuer’s financial health and how it uses proceeds from its bond sales.
It is generally acknowledged that bonds issued in a private placement are only appropriate for institutional or professional investors but not for individual investors who do not have analytical or risk assessment skills.
Retail investors, also known as individual investors, who do not have adequate financial capacity or investment experience should make investments through professional investment funds to ensure an effective and safe process.