03 October 2012

Bond Runs First, Equities Later?

I noticed that listed companies, especially REITs or mid cap stocks like to perform fund raising over fixed income instruments. It seems that the management prefers to get the capital from the market before they started to bid for more large Capital Consuming projects or to re-finance their existing long term loan.

Last time Ezion announced to raise about more than SGD100M fixed income instruments. After they announced about the overwhelming subscription of the fixed income, the share prices started to move further. I believe this is how the capital market moves.

If insiders know about the capital raising by the listed companies, they have two options:

  1. Be the shareholders
  2. Be the bondholders 
Both have their pros and cons. If I were risk taker, I would rather to be shareholder if the company would able to generate profits more than the loan interest. It seems more reliable to be bondholders, though the loan interest could be as high as 9%. However, I believe only venture capital or those fund managers who have high risk appetite to take in those loan.

 As for me, I would still prefer Cash + Equity Mix in my portfolio. Nonetheless, I would add Fixed income in my portfolio once my portfolio grow even bigger in later stage.

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