The negotiations for the issue of bonds is a very different process from negotiations for a concession contract or even to negotiations for divesture. The terms and conditions of the bonds are not very negotiable, and the availability of funding from the capital markets is usually provided (if it is provided at all) on a take it or leave it basis. The most important issues to be negotiated in a bonds issue is with its own financial advisers.
Some important issues from the point of view of the government as an issuer are:
• Issuer. Who is the issuer? The government itself maybe an issuer, in which case note that it would be liable for the repayment of the interest and principal of the bonds. Alternatively, the government may transfer for the facility or infrastructure to a special purpose vehicle, which then proceeds to issue bonds. If the bonds are issued by a special purpose vehicle, the strength of the assets and revenues of this vehicle needs to be sufficient to attract investment. Alternatively the government maybe obliged to guarantee the performance of the special purpose vehicle.
• Liability. The issuer, and often the directors of the issuer, is responsible for certain statements made in relation to the issuer. The liability applies to offering documents (or prospectuses) but may extend to communications such as press releases, research reports or other correspondence made by the issuer (or its advisers) during the course of the offering. The issuer can limit its liability by:
o Sticking to the facts. Any statements for which the issuer or the directors would be liable should be statements of facts.
o Providing no extra information. The security laws and regulations usually set out specific information that needs to be provided. Unless there is a good reason, there should not be extra information provided beyond what is strictly necessary. There should also be no liability for the issuer for information that is not produced by the issuer or within its control, for instance, for research reports.
o Providing no projections. There should be no projections or statements of intention in relation to the future.
• Providing no indemnities. The issuer should not provide an indemnity to the financial advisers or the underwriter.
• Lock-up. Following an issue, the financial advisers usually require a restriction on the issue of new securities and a restriction on transfer of securities by existing shareholders. This is ordinary, but it should be limited in time. The usual lock-up period is around 6 to 9 months, and it should not exceed one year.
• Covenants and events of default. These are covenants and undertakings by the issuer. These are usually less extensive han under loan agreements, and they should be carefully reviewed to ensure that they are consistent with the issuer's plans and business operations.