BMGT446: International Bonds

bond

agreement to borrow from investors for a set period and then repay the amount

-in return, investors receive coupon payments

maturity

life of the bond

face value

amount to be repaid when the bond matures

coupon rate

the % of face value that will be paid to bondholders on a regular basis

equity and bond markets

dominate in the U.S.

bond market

dominates in Japan

loans

dominate in Europe

minimize cost of order

1. Internal funds (retained earnings)

2. Debt (Loan and Bond)

3. New Equity

international bonds

foreign bonds and Eurobonds

foreign bond

is offered by a foreign borrower to investors in a national capital market and denominated in that nation’s currency

-issued in a domestic country by a foreign company, using the regulations and currency of the domestic country

Eurobond

issue is denominated in a particular currency but sold to investors in national capital markets other than the country that issued the denominating currency

-issued and traded in countries other than the country in which the bond’s currency or value is denominated

yankee bonds

dollar bond issued by non-US firm and traded in US

samurai bonds

Japanese yen bond sold in Japan

bulldogs bonds

british pound bond issued by non-UK firm and traded in UK

dim sum bond

Chinese yuan bond issued China’s offshore markets

Panda bond

Chinese yuan bond issued China’s onshore markets

dragon bond

dollar bond issued in Asia

bearer bonds

bonds in which ownership is demonstrated through possession of the bond

-issuer does not keep any records indicating who is the current owner of the bond

-bearer bonds are very attractive to investors desiring privacy and anonymity, one reason for this being that they enable tax evasion

registered bonds

bonds whose ownership is demonstrated by associating the buyer’s name with the bond in the issuer’s records

global bond issue

very large bond issue that would be difficult to sell in any one country or region of the world

-simultaneously sold and subsequently traded in major markets worldwide

-most have been denominated in the U.S. dollar

straight fixed-rate bonds

have specified maturity date and fixed coupon payments

-annual coupon interest

Euro-medium-term notes (Euro-MTNs)

are (typically) fixed-rate notes issued by a corporation with maturities ranging from less than a year to about 10 years

-fixed maturity and pay coupon interest on periodic dates

-partially sold on a continuous basis through an issuance facilities that allows the borrower to obtain funds only as needed on a flexible basis

floating-rate notes (FRNs)

typically medium-term bond with coupon payments indexed to some reference rate

-three month or six month SOFR, which replaced LIBOR

-quarterly or semiannual coupon payments

equity-related bonds

two types: convertible bond and bonds with equity warrants

convertible bond

issue allows the investor to exchange the bond for a predetermined number of equity shares of the issuer

-floor value is its straight fixed-rate bond value

bonds with equity warrants

can be viewed as straight fixed-rate bonds with the addition of a call option (or warrant) feature

-entitles bondholder to purchase a certain number of equity shares in the issuer at a prestated price over a predetermined period of time

dual-currency bond

straight fixed-rate bond issued in one currency that pays coupon interest in that same currency

-at maturity, principal is repaid in another currency

-coupon interest frequently at a higher rate than comparable straight fixed-rate bonds

-amount of the principal repayment at maturity is set at inception

-Japanese firms have been big issuers of dual-currency bonds

primary market

borrower deciding to raise funds by issuing Eurobonds to the investing public will contact an investment banker and ask it to serve as the lead manager of an underwriting syndicate that will bring bonds to market

managing group

helps negotiate terms with the borrower, ascertain market conditions, and manage the issuance

underwiters

committing their own capital to buy the issue from the borrower at a discount from the issue price

secondary market

OTC market with principal trading in London

-comprises market makers and brokers connected by an array of telecommunications equipment