Page 251 - DMGT545_INTERNATIONAL_BUSINESS

International Business

notes an Indian borrower issuing dollar denominated bonds to the investor outside US say UK,
Switzerland and the Netherlands.
The markets for foreign bonds and Euro Bonds operate in parallel with the domestic national
bond markets and all three market groups compete with each other.
In any given year, it has been seen that over 85% of new international bonds are Euro bonds rather
than foreign bonds. Euro bonds are known by the currency in which they are denominated, for
example; US dollar Euro bonds, Yen Euro bonds and Swiss franc Euro bonds or correspondingly
Euro dollar bonds, Euro Yen bonds and Euro SF bonds. Foreign bonds, on the other hand,
frequently have colourful names that designate the country in which they are used. For example,
Yankee bonds are dollar denominated foreign bonds originally sold to US investors, Samurai
bonds are Yen denominated foreign bonds sold in Japan and bulldog are pound – sterling
denominated foreign bonds sold in the UK.

Notes A Euro bond issue is one denominated in a particular currency but sold to
investors in national capital markets other than the country that issued the denominating
currency.

Bearer Bonds and registered Bonds
Euro bonds are usually bearer bonds. A bearer bond possession is evidence of ownership. The
issue does not keep any records indicating who the current owner of a bond is.
With registered bonds, the owner’s name is on the bond and it is also recorded by the issuer.
When a registered bond is sold, a new bond certificate is issued with the new owner’s name or
the new owner’s name is assigned to the bond serial number.
US security regulation requires Yankee bonds and US corporate bonds sold to US citizens to be
registered. Bearer bonds are very attractive to investors desiring privacy and anonymity. One
reason is that they enable tax evasion. Consequently investors will generally accept a lower yield
on bearer bonds than on registered bonds of comparable terms, making them a less costly source
of funds for the issuer to service.
Foreign bonds to meet security regulation of a country in which they are used:

l z For example, Yankee bonds must meet the same regulations as US domestic bonds. The US
securities Act requires full disclosure of relevant information relating to a security issue.
The expense of the registration process, the time delay it creates in bringing a new issue to
the market, the disclosure of information that many foreign borrowers considered private
have made it more desirable for foreign borrowers to raise the bonds in the Euro bond
market.
l z Same nations have imposed withholding tax on the interest which becomes cheaper to go
for Euro bonds.

Global Bonds

A global bond issue is a very large international bond offering by a single borrower i.e.
simultaneously sold in North America, Europe and Asia. Global bonds follow the registration
requirements of domestic bonds but have the free structure of Euro bonds. Global bond
offerings enlarge the borrowers’ opportunities for financing at reduced costs. Purchasers, mainly
institutional investment desire increased liquidity of the issue and are willing to accept lower
yields.

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