Public vs. Private Bond Issue: What Investors Should Know

4 min read • Updated 23 November 2023
Written by Anuj Agarwal
private-vs-public-issue

There are two major instruments that are used to raise funds. The most popular one is the equity market, and the other is the debt market (also known as the bond market).

For the longest time, the equity market has been more popular, especially amongst retail investors. However, in recent years, the debt market has seen tremendous interest in terms of the number of participants and the amount of investments.

As of 2021, the size of the bond market is estimated to be around $119 trillion worldwide, according to the Securities Industry and Financial Markets Association (SIFMA). 

Major participants in the bond market are generally big institutions and corporates who have massive amounts to invest. In simple words, an institution borrows money from investors and issues them bond units for their investment. These units can later be traded in the market as and when required. 

An institution can issue bonds either through private placement or public issues. 

Confused? Let’s understand each of these individually.

Private Placement V/s Public Issues: What are They

Private PlacementPublic Issue
Let’s say an institution wants to raise money from a particular investor (or a very few investors), then it can directly raise money from that investor by privately issuing bonds.

 

 

In a private issue transaction, the investor will pay the complete amount of money upfront to the issuer. There is no minimum amount of issue size for such private issues.

 

These bonds can be listed or non-listed on the exchange depending on the mutual decision taken by the two parties. The listed bonds can be further exchanged in the secondary market through an off-market transaction.

 

 

Public issue is more like an IPO of the debt market.

 

 

The issuer lists bond units on the exchange, and then the investors can apply to subscribe for these bonds.

 

The major difference here is that investors can directly apply for these bonds in the primary market itself, and these can be further traded easily like an equity share by simply placing a buy-sell order on the exchange.

 

Since the investor base is prominent in a public issue, an issuer is required to provide certain documents related to the business, the transaction details and also, a systematic  diligence is undertaken by one or more merchant bankers.

What has changed now?

In October 2022, SEBI has brought in changes in its regulations. Henceforth, the face value of one unit of privately placed bonds has to be a minimum of ₹1 lakh, which earlier was as high as ₹10 lakh.

This means anyone who wants to invest in privately issued bonds has to invest in multiples of ₹10 lakh, even if they are buying in the secondary market.

Also, for public issues, a minimum floor of ₹100 crores was kept by SEBI on the amount of issue size. But with the recent regulation changes, SEBI has removed this minimum floor, to ensure that even the smallest issue size  of bonds can be issued publicly, increasing participation from retail investors. 

The idea behind bringing these changes in the regulations could be an attempt to keep retail investors in publicly issued bonds only.

Public issues, like we mentioned, require a lot of information related to the issuer as well as the transaction to be released publicly. This information helps retail investors make an informed investing decision.

How is the investment for retail investors in public and private issues going to be different?

Basis of DifferencePublic Issue Private Issue
Minimum Ticket size₹1,000₹1,00,000
Major Participants in the Primary MarketRetail investors & InstitutionsInstitutions
ListingMandatoryOptional
Due Diligence by Merchant BankerMandatoryOptional

Wrapping up

 

The implication of the changes brought by SEBI has proved to be a positive change for retail investors in the mid-to-long term. With the removal of a minimum of 100 cr. limit, the public issue market has opened up, and more NBFCs are getting comfortable in structuring public issues. This has promoted more retail participation in the debt market and less dependency on institutional investors. One of the greatest benefits has been an increase in the liquidity of the market, which was previously very low compared to the equity market.

We at Wint Wealth are working towards the same goal, which is – democratising the debt market, and we are working towards introducing public issues for our investors.

Happy Winting!

Was this helpful?

Anuj Agarwal

Investment Principal
Anuj is an investment professional with a demonstrated history of working in Debt Capital Markets. He has completed his B.Com (Hons) in St. Xavier’s College, Kolkata and holds PGDM (Finance) degree from GIM. He is currently working as Investments Principal at Wint Wealth. He has been working in the debt capital market space for the past 4+ years and is also an NISM certified mutual fund expert.

Popular Articles

Sovereign Gold Bond 2023-24: Series 4; Check Price, Issue Dates, and More.
Sovereign Gold Bond 2023-24: Series 4; Check Price, Issue Dates, and More.
  • 12 min read
  • 15 June 2023
What Are Gold BeES and How Do They Work?
What Are Gold BeES and How Do They Work?
  • 6 min read
  • 12 January 2023
Difference between Visa Classic, Platinum, Signature and Infinite Cards
Difference between Visa Classic, Platinum, Signature and Infinite Cards
  • 6 min read
  • 29 March 2023
How to File a Complaint with the Banking Ombudsman: A Step-by-Step Guide
How to File a Complaint with the Banking Ombudsman: A Step-by-Step Guide
  • 12 min read
  • 28 February 2023
How to Check Mutual Fund Status with Folio Number
How to Check Your Mutual Fund Status with a Folio Number?
  • 6 min read
  • 6 December 2022

Recent Articles

NPS Withdrawal Online: Rules, Process, Taxation & Exceptions
NPS Withdrawal Online: Rules, Process, Taxation & Exceptions
  • 9 min read
  • 31 January 2024
Understand Exempt-Exempt-Exempt (EEE) In Income Tax In India
Understand Exempt-Exempt-Exempt (EEE) In Income Tax In India
  • 4 min read
  • 31 January 2024
Electoral Bonds: Meaning, Price, and Eligibility
Electoral Bonds: Meaning, Price, and Eligibility
  • 8 min read
  • 29 January 2024
Interim Budget: How Is It Different From a Union Budget
Interim Budget: How Is It Different From a Union Budget
  • 4 min read
  • 29 January 2024
What Is Tax Evasion, Tax Avoidance, and Tax Planning?
What Is Tax Evasion, Tax Avoidance, and Tax Planning?
  • 5 min read
  • 25 January 2024