Welcome to the jungle82
My phone started to ring. Anisa’s name came up. I decided not to
answer it. That was a mistake.
‘Donna, give me a minute.’
I could see the hungry lawyers waiting for me. The temptation
in this situation is to condense everything you know and speak
really really quickly. But no one ever learns from a trainer who’s
ipping through slides saying, ‘Oh, you can read that later’ or
‘We haven’t got time to do this.’ It’s far better to strip everything
down to a single page of essentials.
I made a list of bullet points, straightened my tie and strolled in.
‘Listen,’ I began. ‘I’m going to tell you the minimum you need to
know about bonds to get through your rst client meeting. And
not a single word more.’
Income and safety
‘Steady income and capital preservation are the two factors
which distinguish bonds from any other forms of investments.
Most pension funds are big bond investors.
They want lump sums to make payments to
pensioners when they retire and then they
want steady income to provide the regular
monthly payments for the pensioners. And
they want safety as well.
‘Let’s look at the bond from the point of view
of the issuing company. A bond is a contract
which guarantees certain cash ows to the investor.’ At the mention
of the word ‘contract’ the lawyers, happy to be on familiar ground,
relaxed their tense shoulders. ‘The issuing company has to pay the
agreed contractual amount, no matter how well or how badly the
business is doing. It doesn’t matter if sales are going through the
roof, or the company’s products have fallen out of favour, they
have to pay the coupon.’
‘‘
Steady income
and capital
preservation are
the two factors
which distinguish
bonds
’’
83Promises, promises
Bonds issues need an underwriter and a syndicate
‘Corporate bonds are issued with the help of an underwriter,
normally an investment bank. The underwriter advises the
company on how much money it can raise in the market and the
interest it will have to pay on its borrowings. A gifted underwriter
will also know how investors want the bond to be structured.
For instance, some investors will be focused on short maturity
bonds so they do not have a lengthy exposure to the risks of the
company. Other investors – the pension fund comes to mind –
might have a thirty- or even a forty-year time frame.
‘The underwriter also takes responsibility for organising a
syndicate. This is a group of middlemen which take the bonds
from the issuing company and get them to the ultimate investors.
Successful syndicates have strong market contacts and, of course,
a commission-hungry sales force. Any syndicate member that
can’t get its bonds to investors assumes market risk, and the
possible losses which that entails.’
I looked at my watch. There were two, maybe three minutes to
go. It was a bad time for the rst question of the session.
‘Why would the shareholders of a company prefer to raise capital
via bonds rather than shares? Surely, once the cash is in their
bank account it doesn’t matter.’
Bonds allow a company to keep control
‘One huge advantage for shareholders is that they can issue many
bonds without giving away any control of the company. And
issuing bonds is much, much quicker than issuing equity. For
example, if a company has done an issue in the past, it may only
take them forty-eight hours to get more money. What domestic
investors don’t realise is that the bond market is absolutely
massive and there’s a huge investor base around the world.
‘Having xed interest and principal repayment dates in the
calendar helps companies plan their cash ow. It doesn’t
guarantee the company will have the money but it does focus
Welcome to the jungle84
people on running their business pro tably. The bond market is
very low pro le in comparison to the equity market and rarely
hits the headlines. It’s a market for seasoned professionals not for
beginners, so the regulators apply the lightest of light touches.’
The head partner nodded in agreement. He’d drawn a simple
diagram on a single sheet of paper. It was a very effective
summary of my talk.
Income steady
Capital safeObjectives —
Investors —
BONDS
Pension fund —
Advice
Underwriter —
Syndicate —
Lump sums
Regular income
Safety
Middlemen
Avoid market risk
Keep control
Quick
Light regulation
Big market
Have to pay
— Company
Day 2, 5.45pm – Broadgate, London
I thought back to Anisa’s threats at St Pancras. In the coming
weeks I had work trips planned to the US, Mexico and Hong
Kong and was looking forward to diving in Thailand. At least two
of those places needed visas. Since my clients in the US, Middle
East and Asia arranged transport for me, they would need to see
my passport upfront. It was slowly dawning on me that Anisa
was in a strong position.
My mind buzzed with everything that had happened since I
boarded that train to Paris. The permutations were endless. Why
– and how – had Guy Abercrombie disappeared? Was Conrad a
harmless old show-off or someone with more sinister aims? What
were the chances that Anisa Chabbra would sit opposite me?
85Promises, promises
And what, exactly, was the nature of the government agency she
worked for?
The more I thought about what was happening to me, the more
crucial the Cal-Pan report became. I’d read it from cover to cover
three times that morning. But I still couldn’t work out what the
company was planning.
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