The global bond market is an active arena for borrowing and lending. Borrowers like multinational corporations, governments and national as well as supranational financial institutions are active borrowers of medium-term and long-term funds. High networth investors (HNIs) find such instruments to be suitable vehicles for making internationally diversified investments.
One of the most popular types of global bond issues are what are termed as ‘eurobonds’. A eurobond is a bond that is denominated in a currency, or a basket of currencies, other than the currency of the country in which it is being issued.
The nationality of the issuer is not a factor in such cases. For instance, consider US dollar-denominated bonds being issued in South Korea. These would be categorised as eurobonds, irrespective of whether they are issued by an American corporation like Ford or a Korean company like Hyundai. This is because the bonds are denominated in dollars whereas the local currency in Korea is the Won.
Another category of global bonds is what is termed as foreign bond’. A foreign bond is denominated in the currency of the country in which it is being issued, but is sold by a foreign entity. For instance, if IBM were to issue bonds denominated in Korean Won in South Korea, it would be classified as a foreign bond.
A bond that is issued by Hyundai in Won in the Korean market, obviously, belongs to neither of these two categories and would be classified as a ‘domestic bond’. Thus, we have three types of bond issues — local currency-local issuer bonds known as domestic bonds; local currency-foreign issuer bonds known as foreign bonds; and foreign currency-any issuer bonds known as Eurobonds.
Foreign bonds are known by nicknames. In the US, they are known as Yankee bonds; in the UK as Bulldog bonds; in Japan as Samurai bonds; and in Australia as Kangaroo bonds.
Eurobonds are largely unregulated. For instance, to issue US dollar bonds in the Japanese market, it’s not necessary to seek SEC approval. Consequently, they can be brought into the market quickly and with minimum disclosure.
This is vital from the standpoint of an issuer who is seeking to take advantage of favourable market conditions, for, if the time gap between planning and implementation of an issue is long, a potential issuer may miss the market.
Such bonds are issued in bearer form, which means that there is no record