EURO BONDS The process of lending money by investing in bonds originated during the 19th century when the

merchant bankers began their operations in the international markets. Issuance of Eurobonds became easier with no exchange controls and no government restrictions on the transfer of funds in international markets.

EUROBONDS All Eurobonds, through their features can appeal to any class of issuer or investor. The characteristics which make them unique and flexible are: a) No withholding of taxes of any kind on interests payments b) They are in bearer form with interest coupon attached c) They are listed on one or more stock exchanges but issues are generally traded in the over the counter market.

Typically, a Eurobond is issued outside the country of the currency in which it is denominated. It is like any other Euro instrument and through international syndication and underwriting, the paper is sold without any limit of geographical boundaries. Eurobonds are generally listed on the world's stock exchanges, usually on the Luxembourg Stock Exchange.

Anu Ppt Denominated in currency other than the currency of the country where bonds are issued. Underwritten by the underwriters of multi-nationality Tailored to the needs of multi-national of investors. Eurobonds are free from rules and regulations Advantages Obtaining financing by issuing Eurobonds is often cheaper than obtaining a foreign currency bank loan.

protection from large market shocks and erratic market discipline Provides a way for companies to obtain financing in an economy where financing is hard to obtain normally aimed at institutional investors and not the public

Disadvantages Issue costs to take into account Investing in a Eurobond is not a good idea for investors who may need a repayment of the investment at short notice

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Euro bonds are debt instruments denominated in a currency issued outside the country of that currency e.g. a Yen non-floated in Germany, a won bond issued in France. They are normally issued as unsecured obligations of the borrowers. The instrument floated by the Indian companies is Euro convertible bonds (ECBs). Euro convertible Bond is an equity-linked debt security which can be converted into shares or into Depository Receipts. It is a foreign currency debt instrument that an Indian Company Issues. The investor in the ECB has the option to convert it into equity usually in accordance with a predetermined formula and sometimes also at a predetermined exchange rate. This offers capital appreciation on sale. Investor has also option to retain it as a bond. Investors have an option to convert the bond if the market price of the stock goes up beyond a percentage of the share price at the time of issue at a predetermined premium. Some companies retain the right to convert compulsorily. The maturity of bond can range up to 10-12 years and if the option to convert equity is not exercised, the bond is redeemed. Mostly Euro Convertible Bond issues are listed at London or Luxembourg stock exchanges. Certain variations in Euro Convertible Bonds have evolved in the past few years. These are: 1. Straight debt bonds: These bonds resemble to debentures and have following special features that distinguish with other types of Eurobonds. (a) Fixed interest bearing securities; (b) Redeemable at face value (or par) by borrower on maturity with provision for early redemption on premium over the issue price by borrower.

(c) These bonds are unsecured. (d) Income on the bonds is exempt for withholding for tax at source but this does not exempt investors from reporting their income to their national authorities. (e) It makes possible tax evasion by illegal means and tax avoidance by legal means which is wide spread phenomenon. (f) Tax evasion become easier due to bearer nature of these bands. (g) Fluctuations in the secondary market prices of bonds produce capital gains and capital loses. (h) Yield is dependent upon short-term interest rates and that is the reason that London Inter Bank Offered Rate is the most convenient yardstick to measure Euro-bond yield. 2. Convertible bonds: These bonds are like the convertible debentures in the domestic market. This conversion can be done at the stipulated period. The conversion price is fixed at a premium above the market price of common stock on the date of the bond issue. On conversion, the borrowing company issue new stock for giving effect to conversion and would prefer to have capital gain rather than receiving fixed rate interest income. 3. Multiple tranche bond: The issuer initially issued only one-half or onethird bonds depending on the market conditions. Subsequent issues are at the option of the issuer. There is no obligation upon the issuer to issue any further bonds after initial issue particularly when borrower is not prepared to accept a lower rate of interest. 4. Currency option bonds: These bonds are issued in one currency but with the option for the investor to take payment of interest and principal in a second currency. It has been noted that in past such bonds were issued in Sterling and another currency usually the Deutsche mark or US dollar. UK Government prohibited outflow of Sterling under Exchange Central Act, 1947 and subsequently under Control of Borrowing Orders. The last Sterling issue for a wholly foreign borrower in London Market was made for Norway in 1952 and for New Zealand in 1971. 5. Floating rate notes (FRN): Floating rate notes are like Euro-dollar Bonds in denomination of $ 1,000 each with the difference that they carry a spread or margin above six months LIBOR (London Inter Bank Offered Rate) for Euro-dollar deposits. Floating rates notes have been used by both American and Non-American banks as main borrowers to obtain dollar without exhausting credit lines with other banks.

6. Floating Rate Certificates of Deposits (FRCDs): It is a certificate of deposit with a bank carrying floating rate of interest and is a negotiable bearer instrument which could pass title through delivery. This instrument carry coupon reflecting short term interest rate for six months. The prices of the FRCDs are close to par, the investors chance to lose the capital are rare. Other types of Eurobonds: Include the following: (a) Drop-lock bonds: It is a floating rate bond, which automatically get converted into fix rate bond at a pre-determined coupon rate. This automatic conversion takes place on reaching a predetermined specified rate of interest. As such, this issue of this kind of bond remains subjected to these conditions. (b) Floating rate bonds with variable interest rate: These are interest bearing bonds carrying fixed coupon rate for short-term which are converted into another bonds of the same nominal value, with longer maturity and/or a lower coupon. These bonds are issued when investor do not commit to long-term investment. (c) Detachable warrant bonds: Where investors are invested in acquiring shares and are guided by movement in share prices, rather than interest rate these bonds provide them money for purchasing equities. (d) Deferred purchases bonds: The bonds are issued with subscription money being deferred for future period recoverable in instalments after a part of the money at the time of issue of bonds. (e) Deep Discount and Zero Coupon Bonds: On these bonds, yield is worked out on coupon price of the bond on maturity to take advantage of future capital appreciation of the bond on maturity. (f) Short-term capital notes: This instrument is designed to help borrower to raise funds through banks credit on a floating rate basis for medium to long term maturities at a lower cost of borrowing.