What is a bond? We hear the term bond many places but the actual meaning of the bond is to be made clear. A bond is to be defined as an instrument which is fixed in nature. It is a loan made by an investor to a borrower. It contains a maturity date on the bond and the principal amount mentioned on the same. It is also dependent upon the interest rates that are variable or fixed chosen accordingly.
The bond is a form of indebtedness and is in form of IOU or loan. The holder of the bond is the lender and the issuer of the bond is the lender. Bonds can be defined as securities too. The actual difference that stockholders have is equity stakes in the company but the bond holders have a creditor stake in the company. Bonds can be issued y any public authority, companies, credit institutions and supranational institutions.
The bonds can also be issued by the government on certain securities. But in contrast to other forms of bond transactions, the government bonds are sold in auction where the public and the banks may bid for the cases. The bond term such as the coupons is fixed in advance and the prices of them are already marked.
Among the many types of bonds in the market, we will discuss about two of the bonds, masala bonds and tesla bonds. Masala Bonds are the bonds that are issued outside the sovereign control of the nation. But the interesting point is, these bonds are issued in the denomination of the Indian currency than the local currency. It is very different from the dollar bonds where the borrower takes the currency risk, in masala bonds the investors bears the risks.
The world’s first masala bond was issued by the World Bank in 2014 and was able to raise 1000 crore bond fund for the infrastructural development projects in India. Masala bonds have been widely used since them and they have played a definite key role in raising the value of the funds.
In another part, Tesla is a multinational, multimillion dollar company which is a pioneer in manufacturing electric cars and has been on the top of the lists for many years. Tesla has recorded a liquidation of money through it bonds as the company needed it or mass producing of electric cars. Tesla Bonds are well demanded in the market. Solid demand from the investors has also led to the increase of its bond value tremendously.
The capital raise for the company was however difficult for the company after a long stretch when the company has to face a problem because of the manufacturing and logistics challenges and the scale production and delivering it to their customers. The terms of Tesla’s convertible bonds are debt of equity. The chief of Tesla had also shared his ideas of buying the new bonds of Tesla worth millions.