At the end of this year or early next year, Serbian companies will begin issuing a large number of corporate bonds, a move that will provide them with new ways to raise capital beyond traditional bank loans. This announcement was made during a session of the Serbian Parliament, with experts noting that although corporate bonds offer valuable support for businesses, they are not without cost.
Marko Janković, president of the Securities Commission of Serbia, confirmed that the first issuance of corporate bonds is planned either by the end of this year or at the beginning of 2025. The concept of corporate bonds gained attention during the peak of the COVID-19 pandemic, when the Serbian government introduced them as part of its economic support measures for large businesses.
What are corporate bonds?
Corporate bonds are long-term financial instruments issued by a company to raise capital. They are a type of debt security, where investors lend money to the company in exchange for regular interest payments over a set period and the return of the principal amount at the bond’s maturity.
Unlike stocks, which provide returns through dividends and potential capital gains, corporate bonds offer predictable income through interest payments (coupons) over the life of the bond, without being subject to market fluctuations like stocks.
There are different types of bonds, including government bonds (issued by the state), corporate bonds (issued by companies) and municipal bonds (issued by local governments), among others. Each type of bond serves a distinct purpose in the capital market, with clear distinctions between bonds and stocks.
How corporate bonds benefit companies
Corporate bonds are an important financing tool for companies, allowing them to raise capital by issuing bonds and using the proceeds to invest in desired projects or expand their operations. Issuing bonds offers companies the opportunity to diversify their financial sources, reducing their dependence on traditional bank loans.
In addition to reducing dependency on banks, corporate bonds also help companies become more transparent and efficient, as the issuance process requires them to disclose important financial information to a wider pool of investors. This increased scrutiny can lead to greater accountability and better management practices.
Advantages of investing in corporate bonds
For investors, corporate bonds offer a relatively stable and predictable income stream. They provide regular interest payments, and the risk is generally lower compared to stocks, which can fluctuate in value. Additionally, the fixed nature of bond payments means that investors do not need to track stock prices.
Corporate bonds often yield higher returns than traditional bank savings, making them an attractive option for those seeking alternative investment opportunities that offer both security and predictability. Moreover, they provide a way to generate consistent income while diversifying an investment portfolio.
Risks of investing in corporate bonds
Like any investment, corporate bonds come with certain risks. The primary risk associated with corporate bonds is the financial stability of the issuing company. If the company faces financial difficulties, it may struggle to pay interest or, in the worst case, default on the principal, resulting in a loss of the invested capital.
Therefore, it is crucial for investors to carefully evaluate the creditworthiness of the company issuing the bonds before making an investment. Assessing a company’s financial health and stability can help mitigate the risks and ensure a safer investment in the bond market.
This move to issue corporate bonds marks a significant step for the Serbian economy, as it provides businesses with new ways to secure financing and attract investment. However, it also highlights the importance of understanding the risks involved and making informed investment decisions.
