An insight into the notebook of an experienced bond issuer
Maris Kreics, CFO of Eleving Group
Raising finance through capital markets has become an increasingly common component of companies’ long-term business development strategies in recent years. In addition, the changing investment environment has, over time, contributed to the popularity of bonds, which allow companies to raise a certain amount of investment with fixed and predictable liabilities.
Eleving Group has been successfully operating in the global capital markets since 2014. In almost a decade, we have completed nine bond issuances worth more than EUR 300 million, of which EUR 205 million came from three currently active issuances on the Riga and Frankfurt stock exchanges. The lessons we have learned now make each subsequent campaign much more predictable, easier to execute, and more successful.
Work on the reputation of your company and its top managers
It is a well-known fact that reputation is one of the most essential assets for financial companies, and it can influence the success of the business, attract investment, and build relationships with clients, business partners, regulators, and investors. Our advice to any company is to start thinking about reputation from day one because building and strengthening it is a long-term process. Reputation must also be maintained regularly because it can be lost instantly, and there are countless examples worldwide where companies have never been able to recover from reputational crises. It will also be much easier for investors to understand and build their willingness to do business with a company if it has a good reputation.
A company’s story is at least as important as its financial results
When talking to investors, a company’s story is as important as the latest quarterly or annual financial figures. While sophisticated investors are very comfortable with long spreadsheets full of complex financial data, it is the story that puts a face on a business, captures its essence, and explains where it has come from and where it is going. Investors are not just looking for profits but also for a connection to the company’s vision, its goals, its people, and its impact on those around it. By combining financial data with a compelling corporate story, we encourage investors to become part of the journey – something meaningful and transformational.
Investor relationships must be built before the need to raise capital emerges
In practice, it is often the case that companies only remember about investors when they need their money. Investors sense when they are being taken advantage of, so it is crucial to build healthy and organic relationships before a company needs to raise capital. At the same time, it doesn’t end with the signing of investment deals. These relationships must be maintained regularly by two-way communication through which one can inform investors on the latest news and plans, growth projections, and financial results. Sometimes, simply asking how an investor is doing does not hurt. Moreover, be aware that relationship building is only occasionally based on a very rational and cookie-cutter approach, as much depends on the individual characteristics of the investors and how you manage to build a connection with them. Even if an investor decides not to invest in your business, it is worth continuing to communicate with them in a measured way, as in practice, an investor may come back after a while. Individual investor sentiment is as cyclical as capital markets, so don’t burn bridges.
Bond campaigns are dynamic and time-consuming
To paraphrase a well-known saying, in the context of this topic, it would go something like this: ‘If the investor doesn’t go to the company, the company goes to the investor.’ In any investment attraction campaign, it must be noted that much time will be spent meeting potential investors. Moreover, the more global the business, the more trips will be made outside the country. In our experience, the first bond campaigns were characterized by intensive traveling almost all over Europe to get to know investors from Switzerland, the UK, Germany, Sweden, Estonia, and other countries. During the campaigns, these meetings are called roadshows; where relationships are built, investors are introduced to the company, the financial results, and the investment offer. It is important to be aware that in less than a month, you may have to fly almost every day and, in most cases, schedule several meetings in one day.
Measure seven times and then measure three times more
When planning a bond issuance, it is fundamentally important to be aware of your ambitions, needs, opportunities, and capacity to manage and effectively use the investments you raise. We always advise our colleagues from other companies to be self-critical and conservative, i.e., not to borrow more than is necessary for growth. Every euro borrowed is a firm commitment in the medium term, which in today’s investment world is quite expensive. It would, therefore, be wise to borrow precisely as much as the company can put to work efficiently over a given period and meet any resulting commitments to the investor.
Tidy up your room before inviting guests
One of the key conditions for success in the capital markets is the timely completion of homework, which stems from a series of strictly defined regulatory requirements for all market participants. This means that the reporting and publishing process must be organized early on and become standardized, comparable from year to year, clean, and accurate. This will increase the confidence of potential investors and help them better understand the company’s related trends. At the same time, there must be a commitment to maintaining a high level of business transparency – investors value transparency on challenges, risks, improvements, trends, etc. Accessibility should also be a priority, i.e., company representatives should be no more than a few steps away from the investor, and effective feedback should always be provided.
Attracting investment takes place in a highly regulated legal environment
Every campaign is accompanied at every step by a myriad of legal documents and regulatory requirements that the company has to prepare and comply with specifically for the bond issuance. Moreover, these documents and requirements may vary depending on the country or region where the issuance is planned. Before you tap into the capital market, it is worthwhile to research the regulatory requirements and the laws in force in the specific countries where you plan to do the campaign. Also, laws and requirements change frequently, so you need to keep your hand on the pulse for the latest updates.
It is also about the timing
A bond campaign will be much more successful if launched at the right time. Timing can be crucial as market sentiment, the activities of other capital market participants, macroeconomic events, etc., can influence the outcome of a campaign. It is, therefore, important to keep an eye on investor sentiment, interest rate dynamics, and the general economic situation. In addition, it should be borne in mind that the typical preparatory period for a bond campaign is three to six months, depending on the company’s previous readiness and experience. This means that it is necessary to be able to anticipate how conditions might change in several months and what the potential impact on the outcome of the campaign will be.
Select good partners
Our experience has shown that good external advisers are one of the focal points of any investment attraction campaign. By good partners, we mean those who have a perfect understanding of the company’s core business, its strengths and weaknesses, and an excellent understanding of the mood of potential investors at a given moment. These are partners who, by bringing these two sides together, can achieve the desired result for all involved – capital raised for the company and a successful investment for the investors. They will help with the proper process mapping of the campaign and operational and administrative matters, advise on legal and marketing issues, support building business relationships, and be valuable help in the successful execution of the above aspects. Banks offering issuance structuring are often chosen as external partners for this type of campaign, as are external financial advisors and brokers who will handle project management and approach, e.g., institutional investors. Also, legal and marketing support will be precious, even if the company’s internal resources could cover some of these functions.