Mubadala, based in the UAE, recently launched its very first bond in the market, and it saw an overwhelming response with an oversubscription rate of 9.1 times. People across the UAE, USA, Europe, and Asia showed their interest in the investment.
This article explains what the new bond is, how bonds work, and why the bond market is growing so fast.
Mubadala’s Grand Opening in the Bond Market
Mubadala, based in the UAE, recently made a significant move in the financial market by issuing its first-ever Green Bond worth $750 million, with a 10.5-year maturity, offering a yield of 6.03% and a coupon rate of 5.875%.
The issuance garnered substantial interest, with order books reaching over $6 billion and an oversubscription rate of 9.1 times, making it one of the most oversubscribed bonds in 2023.
Notably, this venture attracted new investors, expanding Mubadala’s investor base. The proceeds from this bond will support green initiatives. This initiative underscores Mubadala’s commitment to responsible investing in preparation for COP28, reflecting its long-standing dedication to responsible investment and global problem-solving.
What is a Bond: How it Works?
When you purchase a bond, you lend money to an entity, whether a corporation, government, or other organization. In return, that entity promises to repay you the borrowed amount at a specified future date, along with periodic interest payments.
Key Elements of a Bond
Issuer: The entity that needs funds, whether it’s a government or a corporation, is the issuer of the bond. They decide the terms of the bond, including the principal amount (the initial loan), interest rate (coupon rate), and maturity date (when the loan must be repaid).
Investor: As a bond investor, you’re the lender. You buy the bond and provide the issuer with the capital they need. In return, you’ll receive regular interest payments (usually semi-annually) and get your principal back when the bond matures.
Coupon Payments: The periodic interest payments are known as coupon payments. These are a fixed percentage of the bond’s face value.
Maturity Date: This is the date on which the issuer repays the total face value of the bond, marking the end of your investment and resulting in the return on your initial investment.
Types of Bond
A government bond, or a sovereign bond, is issued by a government to finance public spending. The bond typically involves regular interest payments, known as coupon payments, as well as repayment of the principal amount upon maturity.
Treasury Bonds: These bonds issued by the government to raise funds are considered to be among the safest investments.
Savings Bonds: These are typically non-tradable bonds aimed at individual investors and are often used as a savings tool.
These are a type of debt security that companies issue to raise capital for different purposes, including expansion or debt refinancing. The extent of risk linked with corporate bonds is contingent on the credit rating of the issuer.
State or local governments issue these to finance public projects like schools, highways, or infrastructure. They often offer tax advantages to investors.
These bonds do not make regular interest payments but are issued at a discount to their face value. Investors receive the face value at maturity.
By investing in convertible bonds, investors have the option to convert them into common stock of the issuing company, which can lead to capital appreciation.
Bonds with lower credit ratings are issued by companies to offer higher yields to compensate for the increased risk. However, these bonds can be more volatile due to the higher risk involved.
Under Islamic finance principles, Sukuk bonds are structured to comply with Sharia law, which prohibits interest payments. Instead, they provide a share of profits or a tangible asset.
Companies running environmentally friendly projects issue the Green bonds. They have gained popularity as part of sustainable investing initiatives.
Perpetual bonds have no maturity date, and the issuer pays interest indefinitely. These are relatively rare but offer a steady income stream.
Callable and Non-Callable Bonds
Some bonds are callable, meaning the issuer can redeem them before maturity. You can only redeem the non-callable bonds once they mature.
Bonds allow investors to earn income while providing funds to organizations for various projects. While bonds can be a valuable addition to an investment portfolio, it’s essential to have a good grasp of their intricacies and risks before making any investment decisions.
Find the right liquidity partner on our platform to scale your trading business.