Ajay Srinivasan on How Cash Flows Create Innovative Bonds

1. AJAY SRINIVASAN ON • HOW CASH FLOWS CREATE INNOVATIVE BONDS

2. INTRODUCTION Have you ever wondered why companies issue bonds? Well, they do so in order to raise capital without giving up ownership or control. Bonds basically are marketable loans from investors. They allow the company to borrow money in exchange for interest payments. There are a lot of bonds like secured bonds, convertible bonds, etc., which offer flexibility to companies having diverse financial goals. This makes bonds a flexible way for companies to ensure they can raise funds and smoothen their cash flow. Here, in our blog, we are going to take you through the various aspects of the bond market. We will also tell you what Ajay Srinivasan, the former CEO of Aditya Birla Capital, has got to say about how cash flows can help create innovative bonds.

3. WHY DO COMPANIES PREFER ISSUING BONDS OVER TAKING LOANS FROM BANKS? Borrowing from banks is the most traditional approach for companies that need money. So, a lot of companies borrow from banks to fulfil their cash requirements. However, issuing bonds is often a more optimal option. For one, there could be end uses that a bank might not finance. Or there could be a structure that works for some investors that might not work for some lenders. And bonds tend to be marketable instruments as opposed to loans so can attract wider interest. Bond issuance gives companies greater flexibility to operate. Bonds release firms from the restrictions that are often associated with bank loans. There are a lot of different types of bonds available in the market. However, one such unique type of bond which has got popularity in recent times is the innovation bond.

4. UNDERSTANDING THE CONCEPT OF INNOVATION BONDS Innovation bonds are also called social innovation bonds or impact bonds. They are a type of outcome-based financing option. In this type of bond, the private investors offer upfront capital for social programs. They only get repaid with the return if the program achieves the predetermined measurable outcome. As per Ajay Srinivasan, all bonds leverage cash flow. They are also a stable way for companies to raise money. • They bring together expertise from different fields. • They allow new interventions to be tried and evaluated. • They offer greater flexibility and resilience in delivery service. • They allow investment in their early interventions.

5. OTHER INNOVATIVE BONDS CONCEPT OF CASH FLOW: Ajay Srinivasan has also talked about some other innovative bonds that use the principle of leveraging underlying cash flows: • Asset-Backed Securities against card payments • Mortgage-Backed Securities backed by mortgage payments from homeowners • Commercial MBS with cash flows from commercial rents, hotel revenues or mall revenues • Toll Road Bonds backed by future toll revenues • Airport Bonds, funded by passenger fees, landing charges and duty-free concessions • Cell Tower Bonds, where companies securitize long-term lease payments from telecom operators

6. CONCLUSION In this way, by leveraging the flexibility offered by bonds, companies can ensure that their cash flow can be managed. Bonds thus allow companies to gain financial stability and carry out their business operations in a smooth and effective manner. However before actually issuing bonds, companies must analyse the extent to which the bond issuance is feasible for their business. Based on that they should take up the decision as to whether they should issue bonds or take up other forms of raising capital for their business.

7. THANKS FOR WATCHING • https://ajaysrinivasan.com