During the past few months there have been many questions raised regarding Inter’s finances. The usual questions have been why can’t Suning who are one of the richest companies in the world invest freely into the club to sign superstar players? Over the next four days we will try to answer these issues starting with the first questions: what is a bond, how does it work and why have Inter decided to use a bond?
First of all, what is a bond?
A bond is a fixed income investment in which an investor loans money to an entity typically corporate or governmental which borrows the funds for a defined period of time at a variable or fixed interest rate known as the yield rate. Companies, municipalities, states and sovereign governments try to raise money and finance a variety of projects and activities using bonds (as per Investopedia, 2017).
How does it work?
Inter decide to place a bond so the club can have investors that buys the bonds at a certain price, when people start buying shares, the bond will have another price, meaning the price goes up, and the return rate will be attractive for investors. Whether or not the rate of bonds goes up or down depends on the market, for an example “if interest rates in the economy drop to 4%, the bond will continue paying 5% coupon rates, making it a more attractive option.” (Investopedia , 2017), that makes the rate that Inter bonds its utilizing attractive which is 4.87%.
Why are Inter using a bond?
As you, all know Suning is having problem with the Chinese government restrictions on investing abroad in sporting projects, where they cannot invest the money from Suning directly, because Inter does not have the liquidity to do it by their own. This is why Inter’s management goes with the option of the public investment, with the protection that Inter are owned by a Fortune 500 company, Suning.
Inter can place these bonds so he club can have public funds, where anybody can buy these, so with all money that comes in, Inter can invest in either the transfer market, renewing contracts, build a new stadium or anything the club want.
Luis Felipe Chapa Fuentes.
Luis Felipe Chapa Fuentes is a 27 year old Inter fan with a B.A in Finance studies from Universidad de Monterrey and is currently undertaking a Master of Business and Administraion at the Instituto Tecnologic de Monterrey. Follow him on Twitter here.
