Druk Wang Alloys issues Nu. 400 millions corporate bonds with a coupon rate of 7.5% p.a at Nu.1,000 per unit. The bond term is for 10 years.

The prospectus mentions that the offer is to raise funds for the operation and expansion of the company.

The increasing demand for ferro-silicon products and improving financial positions of the company, it looks less of a monkey business.

Our government also issued a series of bonds last year with coupon rate as low as 3%. 7.5% is good.

But sovereign bonds have low risk. How often governments go bankrupt like companies?

Let us see if it’s worth investing in the corporate bonds. We can also see how to calculate its returns.

Corporate bonds – Returns Calculations

Corporate bonds can be issued at discount as well for which the returns calculation will be different.

In this case, coupon rate is given (7.5% p.a) and it’s easy. Let us consider I purchase this bond of Nu.100,000.

Annual return = Nu. 7,500. The coupon payment term is bi-annually. So, I will receive Nu.3,750 every 6 months.

If I were to hold it till maturity, I would have received total of Nu.75,000 in 10 years as returns.

Corporate bonds – Is it Worth Investing

Bonds are better investment for risk-averse investors who need periodic and predictable returns for their money.

If you are young and can stomach investment risks, investing in bonds is not recommended.

However, if you have other investment classes and want to diversify your investment portfolio, this corporate bond is a good option.

7.5% coupon rate is good especially when we consider future values and compound interest.

You might say banks pay higher than 7.5% for FDs. But they’ll pay only on maturity. Consider time-value of money as well.

If you re-invest every coupon payment, you will be able to earn more than Nu.75,000 in 10 years – higher than that of FDs.

Moreover, as a shareholder you will lose as part of profit will be taken out for this bond redemption reserve.

Investing in this bond is to counter this short-term potential loss. You are not only an owner but also becoming a creditor of the company.

Conclusion – I won’t Invest in the Bonds

It’s not because it’s not worth investing, it’s because I am unable to invest in it. I don’t have idle cash. Most of my stocks are blinking red.

I wanted to subscribe few units to diversify my highly stock concentrated investment portfolio, actually.

It’s very much likely that corporate bonds would receive oversubscription. Institution investors would love such coupon rates.

If you are thinking of subscribing this corporate bonds, first read its offer document to get some basis for your decision.

Corporate bonds are good alternative investments. It provides periodic income for investors while principal is still preserved. 

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