Corporate Bonds: Analyzing the availability of the Swedish bond market

In order to grow, a company has to invest in many assets such as personnel, equipment and information. This investment stage is often very costly for the company, and the cash flow from the revenue-generating entities are seldom enough to finance all the new investments . To be able to finance these investments, the company either has to borrow money from its shareholders (through a new share issue) or turn to independent investors. Examples of those types of financing sources can be banks, venture capitalists or simply private investors. A major task for the financing department is therefore to be able to borrow the money at the lowest possible cost…

Abstract

The purpose is to analyze and describe the availability of the present corporate bond market for manufacturing firms. In order to fulfill the purpose, a qualitative method was used and interviews with different operators of the market were conducted. Our respondents were sampled from large issuing companies, the major intermediaries and companies that have not tried bonds as a financing tool.To fulfill our purpose, we analyzed subjects as credit rating, capital market segmentation, regulations and volume. We came to the conclusion that the Swedish corporate bond market is somewhat underdeveloped. This is due to the lack of public information regarding the bonds, such as prices, outstanding bonds and interest rates.The availability for already active companies is good, mainly due to the important role the intermediaries play. The regulations set by authorities do not have great effect on the large companies in general, since they issue large amounts, the cost associated with the regulations do not affect them in a considerable way. One could rather see a positive side with the regulations, for example the increase of foreign issuers that entered the market the last couple of years and hence increasing the liquidity. A credit rating is sometimes beneficial but not always, it is not a necessity to enter the bond market.As a matter of fact, it seems like volume is the most important reason to why medium-sized companies have limited access to the market. Since the minimum recommended volume to issue is 50 million SEK, many companies are excluded due to lack of financing need…

Contents

1 Introduction
1.1 Historical Background
1.2 US Comparison
1.3 Problem Discussion
1.4 Research Questions
1.5 Purpose
1.6 Perspective
1.7 Delimitations
2 Theoretical Framework
2.1 Bonds
2.1.1 Different Bond Structures
2.2 Pricing
2.2.1 Interest Rate
2.3 The Bond and Money Market
2.3.1 The Primary & Secondary Market
2.4 Different Issuers of Bonds
2.4.1 Corporate Bonds
2.5 Weighted Average Cost of Capital (WACC) & Capital structure
2.6 Credit Rating
2.6.1 The Function of Credit Rating
2.7 Regulations in the Process of Issuing Bonds
2.8 Capital Market Segmentation
2.9 The Investors
2.10 The Intermediaries
3 Method
3.1 Qualitative Techniques
3.2 Sample Selection
3.3 Conducting the Interviews
3.4 Determining Method
3.4.1 Validity
3.4.2 Reliability
3.4.3 Criticism of Qualitative Methods
4 Empirical Findings
4.1 Intermediary Interviews
4.1.1 SEB – Fredrik Ektander
4.1.2 SHB – Jan Hernqvist
4.1.3 Swedbank – Fredrik Boklund
4.2 Issuer Interviews
4.2.1 Holmen AB – David Timner
4.2.2 SKF AB – Klas Iloson
4.2.3 Billerud AB – Kerstin Rendahl
4.2.4 Autoliv AB – Robert Belkic
4.3 Interviews with Potential Issuers
4.3.1 Firefly AB – Lennart Janson
4.3.2 ITAB AB – Magnus Olsson
5 Analysis
5.1 The Market
5.1.1 Capital Market Segmentation in the Swedish Bond Market
5.1.2 Effects of the Economic Trend
5.2 The Issuers
5.2.1 Different Types of Bonds
5.2.2 WACC & Debt Flexibility
5.3 Availability
5.3.1 Need for Credit Rating
5.3.2 Volume & Costs
5.3.3 Rejection of Issuers
5.3.4 Knowledge
5.3.5 Regulations and Documentation Requirements
5.3.6 Added Value
6 Conclusions
6.1 Further Research
Appendix

Author: Peterson, Rickard,Höglund, Linn,Jarnegren, Carl

Source: Jonkoping University

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Corporate Bonds: Analyzing the availability of the Swedish bond market