A bond issued in a currency other than the

currency of the country or market in which it

is issued.

Usually, a Eurobond is issued by an
international syndicate and categorized
according to the currency in which it is
denominated. A Eurodollar bond that is
denominated in U.S. dollars and issued in
Japan by an Australian company would be an
example of a Eurobond. The Australian
company in this example could issue the
Eurodollar bond in any country other than the
U.S.

Eurobonds are attractive financing tools as
they give issuers the flexibility to choose the
country in which to offer their bond according
to the country's regulatory constraints. They
may also denominate their Eurobond in their
preferred currency. Eurobonds are attractive
to investors as they have small par values
and high liquidity.


Difference Between Euro Credit and Euro
Bond Market - September 10th, 2010
Distinction between Euro Credit and Euro
Bond Market

Both Euro bonds and Euro credit (Euro
currency) financing have their
advantages and disadvantages.


For a given company, under specific
circumstances, one method of financing
may be preferred to the other. The major
differences are:



1. Cost of borrowing
Euro bonds are issued in both fixed rate
and floating rate forms. Fixed rate bonds
are an attractive exposure management
tool since the known long-term currency
inflows can be offset by the known long-
term outflows in the same currency.

In contrast, Euro currency loans carry
variable rates.



2. Maturity
Euro bonds have longer maturities while
the period of borrowing in the Euro
currency market has tended to lengthen
over time.



3. Size of the issue
Earlier, the funds available for lending at
any time have been much more in the
inter-bank market than in the bond
market. But of late, this situation does
not hold true. Moreover, although in the
past the flotation costs of a Euro
currency loan have been much lower
than a Euro bond (about 0.5 % of the
total loan amount versus about 2.25 %
of the face value of a Euro bond issue),
compensation has worked to lower Euro
bond flotation costs.



4. Flexibility
In a Euro bond issue, the funds must be
drawn in one sum on a fixed date and
repaid according to a fixed schedule,
unless the borrower pays a substantial
prepayment penalty.

By contrast, the drawdown in a floating
rate loan can be staggered to suit the
borrowers needs and can be repaid in
whole or in part at any time, often
without penalty.


Moreover, a Euro currency loan with a
multi-currency clause enables the
borrower to switch currencies on any
roll-over date, whereas switching the
denomination of a Euro bond from
currency A to currency B would require a
costly, combined, refunding and
reissuing operation.



5. Speed
Funds can be raised by a known
borrower very quickly in the Euro
currency market. Often, a period of two
to three weeks should suffice.

A Euro bond financing generally takes
more time, though the difference is
becoming less significant.





A eurobond is a bond denominated in
a currency not native to the issuer's home country.
Eurobonds are commonly issued by governments,
corporations, and international organizations.
How it works/Example:
Let's assume Company XYZ is headquartered in the
United States. Company XYZ decides to go to
Australia to issue bonds denominated in Canadian
dollars. This is an example of a eurobond. In many
cases, an issuer sells its eurobonds in a number of
international markets. Company XYZ might sell its
Canadian dollar-denominated bonds in Japan and
Canada too.
Eurobonds are not the same as foreign bonds. An
example of a foreign bond is a bond issued by U.S.-
based Company XYZ in Australia and denominated
in Australian dollars -- the home currency of
themarket in which the bonds are issued.
Eurobonds often trade on an exchange -- most often
the London Stock Exchange or the Luxembourg
Stock Exchange -- and they trade much like other
bonds. The eurobond market is considered
somewhat less liquid that the traditional bond
market, but is still very liquid.
Eurobonds are usually "bearer bonds," meaning that
there is no transfer agent that keeps a list
ofbondholders and arranges the interest
and principal payments. Instead, holders receive
interest when they present the coupon to the
borrower, and receive the principal when the bond
matures and the holder presents the physical bond
certificate to the borrower.
Like other bonds, eurobonds obligate the borrower
to pay a certain interest rate and principal amount
according to the terms of the indenture. However,
eurobonds often pay interest annually rather than
semiannually, like U.S. corporate bonds.
The less-frequent coupons make eurobonds
somewhat less valuable -- and thus require higher
yields -- than traditional U.S. corporate bonds. Even
if both investors receive the same amount of interest
every year, the difference in payment frequency
means that investors should compare eurobonds to
other bonds very carefully.
Why it Matters:
Eurobonds give issuers the opportunity to take
advantage of favorable regulatory and lending
conditions in other countries. Eurobonds are not
usually subject to taxes or regulations of any one
government, which can make it cheaper to borrow in
the eurobond market as compared to
other debtmarkets.
Borrowing in foreign currencies also present risks in
addition to the standard credit risk and interest rate
risks. Eurobonds are exposed to exchange rate risk,
and because exchange rates can change quickly
and dramatically, the total return on a eurobond can
be affected dramatically in a very short amount of
time.
Read on to learn about one of the
safest bonds known to man: What are the
Advantages of PET Bonds?




Types of Bonds
International Bond Issues - Eurobonds, Global
Bonds, Foreign Bonds
Eurobonds
The name Eurobonds can be misleading because
from the word, youd think either Eurobonds were
about the European bond markets, or about the
European currency, Euros. Eurobonds are actually
bonds that are denominated in a currency other than
that of the country in which they are issued. They
are usually issued in more than one country of issue
and traded across international financial centres.
Supranational organisations and corporations are
major issuers in the Eurobond market. Supranational
organisations (such as the World Bank or the
European Bank for Reconstruction and
Development) use such bond issues for financing
the development of emerging markets or to support
developing countries. Corporations, including banks
and multinational entities issue Eurobonds for many
purposes including financing for capital and other
projects. Eurobonds are not regulated by the country
of the currency in which they are denominated.
Eurobonds are so-called bearer bonds, they are
not registered anywhere centrally, so whomever
holds or bears the bond is considered the owner.
Their bearer status also enables Eurobonds to be
held anonymously.
The Eurobond market is largely a wholesale,
institutional market with bonds held by large
institutions. There are few individual investors in the
Eurobond market, in generalfewer in the UK than
on the continent. Since many investors hold
Eurobonds for a long time, these bond issues may
not be frequently traded which will make it more
difficult for an investor who wants to buy or sell a
Eurobond to assess the market price.
Types of Eurobonds
Conventional or Straight Eurobonds have a fixed
coupon (usually paid on an annual basis) and
maturity date when all the principal is repaid.
Floating rate bond notes (FRN) are usually short to
medium term bond issues, with a coupon interest
rate that floats, i.e. goes up or down in relation to a
benchmark rate plus some additional spread of
basis points (each basis point being one hundredth
of one percent). The reference benchmark rate is
usually LIBOR (London interbank offered rate) or
EURIBOR (Euro interbank offered rate). The
spread added to that reference rate is a function of
the credit quality of the issuer.
Zero-coupon bonds do not have interest payments.
The investor in this type of Eurobond may be looking
for some kind of tax advantage.
Convertible bonds can be exchanged for another
instrument, usually an ordinary share or shares
(fixed ahead of time with a predetermined price) of
the issuing organisation. The bondholder decides
whether to convert the bond. In convertible bonds,
the coupon payable is usually lower than it otherwise
would be. Because convertible bonds can be viewed
more as equity shares than bonds, the credit and
interest rate risks for investors are higher than with
conventional bonds.
High-yield bonds are also part of the Eurobond
markets, a class of bonds (rather than a type of
bond) which individual investors may encounter.
High-yield bonds are those that are rated to be
below investment grade by credit rating agencies
(i.e. issuer has a credit rating below BBB).
Eurobonds - Buying and Selling
Banks and brokers can help investors buy and sell
Eurobonds but most market professionals advise
potential individual investors to take advice and be
sure any broker or bank you use has expertise in the
type of Eurobond that you are interested in.
Eurobond issuers price Eurobonds related to LIBOR,
EURIBOR or the U.S. Treasury Bond Market Yield
curve, adjusted to indicate the credit quality of the
issuer.
Some investors considering investing in Eurobonds,
especially ones denominated in a currency other
than the U.S. dollar, may see mention of a swap
curve related to pricing. An interest rate swap has to
do with how corporations and banks think interest
rates will go, whether a rate will go up or go down or
stay the same and is effectively the fixed rate banks
will pay to convert a floating rate bond to fixed for
the various maturities.
There are advantages to Eurobond investments but
there are complexities and risks attached. Individual
investors may consider individual Eurobond issuers
or Eurobond funds.
On individual Eurobond issuers, the credit quality
and credit rating of the issuer are very important for
an investor to understand. Investors have credit risk
in investing in a Eurobond, and need to be able to
judge whether the yield on the bond is worth the risk.
The credit quality of some sectors of Eurobond
issuers may generally be higher than others but
each investment must be considered on the basis of
the issuer and the research and documentation
provided, not on some overall sense of what kinds of
organisations are good or bad.
If the Eurobond issuer is a corporation, there may
also be significant event risk as well, since credit
ratings can change over time as corporations
change.
Also, as noted above, many investors hold
Eurobonds for a long time so Eurobond issues may
not be frequently traded which will make it more
difficult for an investor who wants to buy or sell a
Eurobond to assess the market price. Consult a
financial advisor.







Euro Bond Market
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. An example is a Dutch
borrower issuing DM-denominated bonds to
investors in the UK, Switzerland and the
Netherlands.

The Eurobond market is the largest international
bond market, which is said to have originated in
1963 with an issue of Eurodollar bonds by
Autostrade, an Italian borrower. The market has
since grown enormously in size and was worth
about $ 428 billion in 1994.

Eurobond markets in all currencies except the
Japanese Yen are quite free from any regulation by
the respective governments. Straight bonds are
priced with reference to a benchmark, typically
treasury issues. Thus a Eurodollar bond will be
priced to a yield a YTM (Yield-to-Maturity) somewhat
above the US treasury bonds of similar maturity, the
spread depending upon the borrowers ratings and
market conditions.
Floatation costs of the Eurobond are comparatively
higher than costs indicated with syndicated
Eurocredits.





The Eurobond market is made up of
investors, banks, borrowers, and trading agents
that buy, sell, and transfer Eurobonds. Eurobonds
are a special kind of bond issued by European
governments and companies, but often denominated
in non-European currencies such as dollars and yen.
They are also issued by international bodies such as
the World Bank. The creation of the unified
European currency, the euro, has stimulated strong
interest in euro-denominated bonds as well;
however, some observers warn that new European
Union tax harmonization policies may lessen the
bonds' appeal.
Eurobonds are unique and complex instruments of
relatively recent origin. They debuted in 1963, but
didn't gain international significance until the early
1980s. Since then, they have become a large and
active component of international finance. Similar to
foreign bonds, but with important differences,
Eurobonds became popular with issuers and
investors because they could offer certain tax
shelters and anonymity to their buyers. They could
also offer borrowers favorable interest
rates and international exchange rates.
DEFINING FEATURES
Conventional foreign bonds are much simpler than
Eurobonds; generally, foreign bonds are simply
issued by a company in one country for purchase in
another. Usually a foreign bond is denominated in
the currency of the intended market. For example, if
a Dutch company wished to raise funds through debt
to investors in the United States, it would issue
foreign bonds (dollar-denominated) in the United
States. By contrast, Eurobonds usually are
denominated in a currency other than the issuer's,
but they are intended for the broader
international markets. An example would be a
French company issuing a dollar-denominated
Eurobond that might be purchased in the United
Kingdom, Germany, Canada, and the United States.
Like many bonds, Eurobonds are usually fixed-rate,
interest-bearing notes, although many are also
offered with floating rates and other variations. Most
pay an annual coupon and have maturities of three
to seven years. They are also usually unsecured,
meaning that if the issuer were to go bankrupt,
Eurobond holders would normally not have the first
claim to the defunct issuer's assets.
However, these generalizations should not obscure
the fact that the terms of many Eurobond issues are
uniquely tailored to the issuers' and investors' needs,
and can vary in terms and form substantially. A large
number of Eurobond transactions involve elaborate
swap deals in which two or more parties may
exchange payments on parallel or opposing debt
issues to take advantage of arbitrage conditions or
complementary financial advantages (e.g., cheaper
access to capital in a particular currency or funds at
a lower interest rate) that the various parties can
offer one another.
MARKET COMPOSITION
The Eurobond market consists of several layers of
participants. First there is the issuer, or borrower,
that needs to raise funds by selling bonds. The
borrower, which could be a bank, a business, an
international organization, or a government,
approaches a bank and asks for help in issuing its
bonds. This bank is known as the lead manager and
may ask other banks to join it to form a managing
group that will negotiate the terms of the bonds and
manage issuing the bonds. The managing group will
then sell the bonds to an underwriter or directly to a
selling group. The three levelsmanagers,
underwriters, and sellersare known collectively as
the syndicate. The underwriter will actually purchase
the bonds at a minimum price and assume the risk
that it may not be possible to sell them on the
market at a higher price. The underwriter (or the
managing group if there is no underwriter) sells the
bonds to a selling group that then places bonds with
investors. The syndicate companies and their
investor clients are considered the primary market
for Eurobonds; once they are resold to general
investors, the bonds enter the secondary market.
Participants in the market are organized under the
International Primary Market Association (IPMA) of
London and the Zurich-based International Security
Market Association (ISMA).
After the bonds are issued, a bank acting as a
principal paying agent has the responsibility of
collecting interest and principal from the borrower
and disbursing the interest to the investors. Often
the paying agent will also act as fiscal agent, that is,
on the behalf of the borrower. If, however, a paying
agent acts as a trustee, on behalf of the investors,
then there will also be a separate bank acting as
fiscal agent on behalf of the borrowers appointed.
In the secondary market, Eurobonds are traded
over-the-counter. Major markets for Eurobonds
exist in London, Frankfurt, Zurich, and Amsterdam.
SEE ALSO : Capital Markets


Read
more: http://www.referenceforbusiness.com/encycl
opedia/Ent-Fac/Eurobond-
Market.html#b#ixzz2xYiWnjLT







History of Eurobonds
The first Eurobonds were traded in 1963 and were
originally issued by Autostrade, anItalian motorway
construction company, in conjunction with SG Warburg
and Co;Autostrade issued $15 million in Eurobonds
through the London banking institution.After a slow start,
the
Eurobond
market has grown to become a major force in
theinternational securities markets, in part due to their
tax-free status and ease of trading.The name Eurobonds
can be confusing to the novice investor; it has nothing to
do withEuros, but instead refers to the original securities
markets where these bonds were sold.
Why a Company Might Issue a Eurobond
Many major MNCs, (for example, Wal-Mart) that want to
expand to another market on alarge scale (say, Thailand)
would need plenty of that country's currency (in this
example,Thai baht) and plenty of time in order to reach
their goal. In order to contain interestcosts, borrowing
should be done at a fixed interest rate. The solution,
in this example,would be for Wal-Mart is to issue a
eurobond denominated in Thai baht.However, the
subsidiary, set up in Thailand to manage the operations, is
unlikely to havethe necessary borrowing reputation
directly in the eurobond market, and would likely ask its
U.S. parent, which would have a goodcredit rating,to
issue the eurobond instead. The proceeds would then be
passed through as an internal loan to the subsidiary,
anddenominated in Thai baht.The Thai baht would be
provided to the parent by investors who have Thai baht
inaccounts at banks outside of Thailand. In return,
investors receive a eurobond andcoupons in pre-
determined increments, and at a fixed interest rate.If the
Thai subsidiary grows according to plan, it will generate
earnings, which will beused to pay its loan interest to
the parent. The parent then uses these receipts to meet
itsobligations to pay interest on the Thai eurobond. Bond
principal is usually not paid untilmaturity, either from the
sale of the Wal-Mart expansion stores to another company
or byissuing another eurobond.
Risk Reduction
By issuing the eurobond in Thai baht the U.S.-based
parent does not havecurrency risk because its Thai baht
liability (the bond) is offset by a Thai baht asset (its
internalloan). Similarly, the Thai subsidiary's liability to
pay interest in Thai baht to its parent ismatched by Thai
baht income from its local superstores.As an alternative to
issuing in a foreign currency, some MNCs issue a bond in
another currency, and then use currency andinterest rate
swapsto convert the currency andinterest rate basis into
the desired form. The exchange then provides the
protectionagainst currency and interest rate
mismatches.MNCs often use this alternative method,
depending on their reputation in certaincurrency types,
and are able to issue at a lower cost. (Readers unfamiliar
with swaps

How MNCs Issue Eurobonds
To increase investor interest, a MNC can have its
eurobond issue underwritten by a bank,which obligates
those banks to provide any shortcoming in principal. In
addition, banksare paid fees to distribute the eurobonds to
investors, to attend road shows to generateinvestor
interest and to prepare an information memorandum
and prospectus, setting outdetails of the eurobond, the
MNC and the purpose for the funds.
Conclusion
Eurobonds provide MNCs with simplified international
operations. Though newobstacles arise, the advantages far
outweigh the reliance on third-party entities for
smoothtransactions. Because the eurobond market is
restricted to large well-known and reputableMNCs and
other issuers, investors tend to accept less strict covenants
and do not requiresecurity. .