During these last 30 years, the bond market mushroomed from negligible figures to nearly €2,000 million, which amount is more than what most of the smaller banks hold in depositors’ money. This amount is, at the same time, rapidly approaching half of what each of the two main banks hold by way of customers’ deposits.

This figure is spread over more than 70 bonds. With ample liquidity to go round and with a booming construction industry, the market is expected to keep growing.

One may ask why do many entrepreneurs needing finance prefer to tap the bond market rather than borrow, perhaps cheaper and quicker, from their bank even when the amount they require is within the parameters of the ‘large exposure’ or other directives imposed by the regulator? What may be a determining factor, among others, is, in my opinion, the fact that banks normally stipulate a monthly or periodic repayment programme, whereas in a bond issue, this condition does not apply.

I estimate that at present there are thousands of local bond holders. In this rapidly growing bond market, surely it is time that some form of credit rating of new bonds by an independent body is introduced as a guide and protection to prospective retail investors. The number of bondholders and the capitalisation value of the bonds make the need for such an agency very desirable.

It is time that some form of credit rating of new bonds by an independent body is introduced as a guide and protection to prospective retail investors

Prospectuses include a financial analysis by the sponsoring stockbroker. This basically is an extract from the audited accounts of the previous three years.

While this is useful in completing a due diligence exercise on the issuer, what the prospective retail investor would also like to see in the prospectus is the future prospect of the business of the issuer. Therefore, financial projections that cover a period of at least three years (beyond the present one) subsequent to the issue of the bond should be included in the prospectus. Certain bonds are guaranteed by an inter-group company e.g. by a parent company, by a subsidiary or by an associate company.

I have some doubts about the worth of such guarantees should matters come to the crunch. Some guarantees are supported by hypothecs on property, some are not so supported, while other bonds do not offer this security at all. A rating agency could be able to factor in these considerations, as well as those regarding subordination, when rating a bond.

In practical terms, the best guarantee that a retail investor could have is that he is able to see a fund accumulating in line with the approaching maturity date and value of the bond. Like a bonus pater familias, the bond issuer should at all times keep in mind the solemn covenant in the prospectus that he will repay the bond in full on maturity date; a known and exact commitment.

The prospectus of many of the new bonds states that the proceeds from the new bond will be used to redeem a previous issue by the same issuer. In fact, the need for a fresh bond is usually confirmed by the figures in the balance sheet which show that the issuer does not have the liquidity (cash) to repay the holders of the maturing bond (averaging between €10 to €50 million) in one lump sum. Thus, in these cases, a roll-over exercise is not a question of choice but one of necessity. One is tempted to ask whether some premise or assumption in the original prospectus was too optimistic. We must not develop a market where, in the absence of a sinking fund, the best hope for some bondholders of being repaid their money depends on a successful roll-over measure.

When assessing the feasibility of an application for listing, the foremost task is to verify that the bond can be redeemed as promised in the prospectus. Roll-overs should be the exception not the rule; yet when an effort was made some years ago to insist on a sinking fund, the market dried up. As a result, at present, very few bonds are covered by a sinking fund. We must keep in mind that while bank depositors are covered by a compensation scheme, bond holders have no such comfort.

Perhaps a revisit to the listing policies is now due.