Why debt can come before equity
Owners who are not ready to share control often start with debt. A bond does not dilute the shareholders and does not change the governance of the company in the way an IPO does. At the same time it brings the company into contact with institutional investors, banks that arrange capital market deals, rating agencies and the exchange. Those relationships and habits carry over to a later share offering.
In practice a first listed bond or sukuk gives the company:
- a market price for its credit risk and a public track record of paying on time;
- funding that is often longer and less secured than a bank loan;
- a reason to build IFRS reporting, a disclosure process and an investor relations function;
- a group of investors who already know the company when it considers an IPO.
Bonds and sukuk: the difference
A conventional bond is a debt obligation: the issuer borrows money and pays interest and principal. A sukuk is structured to comply with Sharia principles, which prohibit interest. Instead of a loan, sukuk holders own an interest in assets, a lease, a sale on deferred terms or an investment agency, and receive returns from that structure. The economic result for the issuer can be close to a bond, but the legal work is different: an asset or business base is needed, the structure goes through a Sharia board, and documents are drafted around the specific contract.
| Point | Conventional bond | Sukuk | IPO |
|---|---|---|---|
| What investors get | Interest and repayment of principal | Returns from assets or a contract, then redemption | Shares, dividends and voting rights |
| Dilution of owners | None | None | Yes |
| Underlying assets | Not required | Usually required (lease, sale or agency structure) | Not applicable |
| Extra approval | No | Sharia board pronouncement | Regulator and exchange |
| Ongoing disclosure | Financial reports, material events, covenants | Same, plus compliance with the structure | Full public company regime and governance code |
Where to list
Nasdaq Dubai in DIFC is built for international issuers that want a USD listing under English common law, and it is one of the regional venues for debt and sukuk aimed at Gulf investors, under DFSA rules. The London Stock Exchange lists bonds on its Main Market and offers a separate market for professional investors, and London remains a traditional venue for both conventional and sukuk issues by Gulf and Central Asian borrowers. AIX in Astana, regulated by AFSA, lists bonds in USD and local currency under AIFC law and is a natural venue for Kazakh and regional issuers. DFM, ADX, Saudi Exchange and KASE also list debt instruments under their own rules; the Saudi Listing Rules were amended for debt instruments in October 2024.
The choice depends on the investor base, the currency, the governing law of the documents and whether the issue is offered to the public or only to professional investors. Issues for professional investors usually need a lighter document and less frequent reporting, but they also reach fewer buyers.
Credit rating
A rating is not mandatory on every market, but most institutional investors expect one from an international or a recognised local agency. The rating process looks at the business model, cash flows, leverage, governance and the legal structure of the group, which makes it a useful rehearsal for IPO due diligence. A rating also matters outside the debt market: under the KASE Listing Rules an issuer rating of BB- or higher can replace the size and revenue criteria for admitting shares to the Main Market.
Disclosure duties
- Offering document: a prospectus or an offering circular, often a base prospectus for a programme with several issues.
- Audited financial statements, usually under IFRS, and interim reports according to the exchange rules.
- Disclosure of inside information and material events that may affect the ability to pay.
- Reporting on covenants, use of proceeds and, for sukuk, on the underlying assets and the structure.
The regime is lighter than for listed shares: there is usually no requirement for independent directors or a free float. But it already requires the finance team to close the books on time, explain results to outsiders and handle market-sensitive information.
From the first bond to an IPO
A company that has issued listed debt for a few years enters IPO preparation with audited history, a working disclosure process and investors who know its credit. It does not skip the IPO steps, such as governance reform, the equity story and the prospectus, but it starts from a higher base. Eurasia Consulting Group publishes this material for educational purposes.