Types of Foreign Bonds

Yankee Bonds

Yankee Bonds are US dollar denominated issues by foreign  borrowers (usually foreign governments or entities,  supranationals and highly rated corporate borrowers) in  the US bond markets. Yankee bond has certain peculiar  features associated with the US domestic market. SEC  regulates the international bond issues and requires  complete disclosure documents in detail than the  prospectus used in Eurobond issues. Foreign borrower will have to adopt the US accounting practices and the  US credit rating agencies will have to provide rating for  these bonds. These bonds are sponsored by a US  domestic underwriting syndicate and require SEBI (Securities  and Exchange Board of India) registration prior to selling them in  the domestic US market. Reliance Industries Ltd. has  been the most successful corporate to tap this instrument  with a 50-year, $50 million Yankee Bond issue.

Types of foreign bonds

Samurai Bonds

These are bonds issued by non-Japanese  borrowers in the domestic Japanese markets. Borrowers  are supranationals and have at least a minimum  investment grade rating (A rated). The maturities range  between 3-20 years. The priority for allowing issuance of  Samurai bonds is given to the sovereigns after the  supranationals and their entities and to high quality  private corporations specifically if there are Japanese  trade links. This is also a registered bond and the  settlement and administrative procedures make it  relatively costly. Among the Yen financing instruments,  this instrument is the most expensive in terms of issuing  costs. As this instrument is issued for the public, the  arrangements for underwriting and selling have to be  made which involves large documentation.  There are two major parties to a Samurai bond issue, the  securities house, which acts as lead arranger, and the  bank, acting as a chief commissioned company. The  process followed is generally the same as is followed  elsewhere for the Eurobonds. However, it is to be noted  that the documentation and formalities are friendly and  hospitable.

Bulldog Bonds

These are sterling denominated foreign  bonds which are raised in the UK domestic securities  market. The maturity of these bonds will  be either for very short periods (5 years) or for very long  maturities (25 years and above). Bonds with intermediate  maturity periods are rare. These bulldog bonds are  generally subscribed by long-term institutional investors  like pension funds and life insurance companies. These  bonds are generally redeemed on bullet basis (one time  lump sum payment on maturity), however, due to the  long maturities, early amortizations, say 5 equal annual  installments prior to the maturity date, may also be  allowed. A margin on the UK government bond will be  the yield earned on this paper. These bonds which are  offered either by placing or offer for sale process, will  have to be listed on the London Stock Exchange.

Shibosai Bonds

These are the privately placed bonds issued in the  Japanese markets. The qualifying criteria is less stringent as compared  to Samurai or Euro Yen bonds. Shibosai bonds are offered to a  different market segment that consists of institutional investors,  including banks. The eligibility criteria, amount, maturity and  redemption as well as coupon rate and issue price are all governed by  Japan’s Ministry of Finance (MoF) guidelines. In terms of eligibility,  MoF has classified various borrowers (sovereign and corporate) into  different groups. The rated borrowers are divided into three groups in  accordance with the rating, while non-rated borrowers are segmented  on the basis of country rating or previous bond issue floatation  experience. The pricing formula is elaborate and starts with the  computation of base rate, spreads being added according to the credit  rating of the borrowers. The procedures for completing bond issue  formalities are elaborate and take about forty-five days after the  mandate is awarded.

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