Companies and other organisations need to raise money from time to time to fund growth, expansion or new ventures. Many people are familiar with how companies issue shares to raise money but far fewer are aware of how companies borrow.

Companies can borrow money from a bank or lending institution, or they can issue debt securities. When a company issues debt securities it borrows money from the buyers of the securities, who become the lenders.

In return for borrowing the money, the issuer pays the debt security holders a fixed rate of interest (the coupon rate) until a defined date in the future (the maturity date). The investor (debt security holder) keeps earning interest on the debt securities until the maturity date, when they receive a final coupon payment and their original money back.

A debt security therefore has two main components:

  • face value or principal: the amount originally lent by the investor, usually expressed in units of $100 and repayable to the investor at a set date
  • interest or coupon payments at a set percentage of the face value per year. Interest accumulates daily and is paid to the investor on pre-determined dates, usually quarterly or half yearly.

Other issuers of debt securities include the Government - which issues government stock and Treasury bills - and banks.

Trading debt securities on the NZDX Market
Often, investors' circumstances change and they may not want to hold their debt securities until the maturity date - they may wish to sell them to another investor. The NZDX Market, as well as providing a primary market facility where investors can buy newly-issued debt securities from the issuer, also provides a secondary market where investors can buy and sell debt securities through NZX Advisors.

The price you receive when selling a debt security varies according to a number of factors including interest rates, face value, accumulated interest and time to maturity.

Frequently Asked Questions
For more information, the NZDX frequently-asked questions provides a summary of popular questions about the NZDX market.
Download the DX FAQs
 
Glossary of Debt Securities
Download information about the different types of debt securities