The long-term securities market has a specialtype of debt, called Eurobonds. Borrowers on them are governments, large corporations, international organizations and some other institutions that are interested in attracting financial resources for a sufficiently long period of time and at the lowest cost. For the first time these tools appeared in Europe and were called eurobond, in connection with which today they are often called “Eurobonds”. What kind of bonds are these? How are they issued and what advantages do they give to each participant in this market? We will try to explain the answers to these questions in detail and clearly in the article.
The concept and main characteristics of Eurobonds
In simple words it can be said thatbonds issued in a currency other than the national currencies of the lender and the borrower, and placed simultaneously on the markets of several countries (with the exception of the issuing country). They are intended, as a rule, to raise funds for the long term - up to 40 years. There are short-term Eurobonds issued for a year or three to five, and medium-term - for a period of ten years.
Eurobond market participants
Существуют специальные институты, размещающие Eurobonds. What are these structures? This is an international syndicate of underwriters, which includes financial institutions from different countries. At the same time, the national legislation of their release and turnover are regulated in a limited manner. There are also issuers (governments, international and national structures) and investors (financial structures - insurance companies, pension funds, etc.). All participants are members of the International Capital Market Association (ICMA), a self-regulating organization based in Zurich. Clearstream and Euroclear are used as depository clearing systems.
There is a special Commission Directive.European Communities, which gives a full official definition of this instrument, regulates the rules and procedure for the supply of emissions on the market. According to her, Eurobonds are tradable securities with a number of attributes:
- the necessity of their underwriting procedure and their placement through a syndicate, at least two of whose members belong to different states;
- their supply is carried out in large volumes in the markets of several countries (but not in the country of the issuer);
- initially acquired through a credit institution or other approved financial institution.
Eurobond properties
Eurobonds - what are these papers and whatcharacteristic features they have? Firstly, each Eurobond has a coupon that grants the investor the right to receive interest from the bonds within a certain time frame. Secondly, the interest rate can be both fixed and floating (depending on various factors). Thirdly, the payment of the stipulated interest may be made in a currency other than the one in which the loan was raised. This is called a double denomination. In addition, it is important to know a number of other features of such papers, namely:
- these are bearer securities;
- placed simultaneously in several markets;
- produced for a long time - usually 10-30 years (up to 40 inclusive);
- the currency in which the loan is attracted is foreign both for the issuer and for the investor;
- the nominal value of the Eurobond has a dollar equivalent;
- interest on coupons is paid without withholding tax;
- Eurobonds are issued by an emission syndicate comprising banks, brokerage and investment companies of a number of countries.
Eurobonds are one of the most reliable financial instruments, and therefore their buyers are usually financial institutions such as investment companies, pension funds, and insurance organizations.
The history of the emergence and development of the Eurobond market
Eurobond issue according to the classical schemeThe accommodation was first implemented in Italy in 1963. The issuer was the state road construction company Autostrade. 60 thousand bonds with a par value of $ 250 each were placed. Precisely because Eurobonds were originally introduced in Europe, and to this day the bulk of their trade is carried out in the same place, the name of the paper has the prefix "Euro". Today it is more a tribute to tradition than a real characteristic of the instrument.
The active development of this market took place in80s. Then bearer Eurobonds were especially popular. Later, in the 90s, they began to "oppress" euronotes - medium-term registered bonds issued by developed countries and having (unlike Eurobonds) collateral. This was due to the growth of market capitalization and the strengthening of the status of major borrowers. Then their share in the total issue of Eurobonds reached 60%.
At the end of the 20th century, largebond issues called jumbo. The liquidity of Eurobonds has increased, while the interest of this financial instrument has increased among the largest borrowers in the face of US government agencies and national entities. In addition, due to the global crisis and the default on the loans of the governments of several countries in South America, the role of bond loans has increased in comparison with bank loans. The so-called "flight to quality" process occurred, when investors prefer safe investments rather than high-yield investments with a rather serious risk.
Eurobonds today
Today, eurobonds are not usedless in demand. The main goal of issuers entering this market is to search for alternative sources of financial resources (along with traditional domestic, in particular, bank loans), as well as loan diversification. In addition, there are a number of advantages that Eurobonds have. What are these "profits"? First, cost savings in connection with raising capital (can reach 20%). Secondly, there are less various legal formalities and obligations assumed by the issuer. Thirdly, there are practically no restrictions on the directions and forms of use of funds, market flexibility, etc.
Issue and circulation of Eurobonds
There are various accommodation options.Eurobonds, the most common - open subscription. It is carried out through a syndicate of underwriters, and the issues are listed on the stock exchange. After the initial sale, they are "thrown" by dealers to the secondary market, where they can be acquired by telephone and via the Internet from investment companies. Like any investment instrument, Eurobonds have quotes and yield on them, which depend on supply and demand in the market. However, there is another version of the issue - limited placement among a certain circle of investors. In this case, the bonds are not traded on the stock exchange (not listed).
Russian Eurobonds: current situation
For the first time, our country entered the international market.Eurobonds in 1996. The first issues of debt of this type were carried out during 96-97. Then the right to place them under the observance of a number of conditions received two subjects of the federation - Moscow and St. Petersburg. Today, the largest corporations in the country are participants in this market: Gazprom, Lukoil, Norilsk Nickel, Transneft, Pochta Rossii, MTS, Megafon. Eurobonds of Sberbank, VTB and Gazprombank, Alfa Bank, Rosbank and others also play a significant role. It is important to note that for Russian companies entering the Eurobond market is limited by national legislation. So, joint-stock companies can attract financing with the help of this tool in an amount not exceeding the amount of their share capital. There are also restrictions on the issuance of unsecured Eurobonds (usually requires collateral) and other rules. You can find out the reliability of Russian issuers according to data from specialized rating agencies such as Moody "s, Standard & Poor" s and others.
Russia is present annually at the internationalborrowing market. Despite the fact that the country has enough own sources of financing, according to the Minister of Finance, this is an important event within the framework of the Russian budget policy. In 2014, it is planned to have one or two exits to the external market with Eurobonds in dollars and euros totaling $ 7 billion (presumably).
Ukrainian Eurobonds: buy and “burn out”
Россия участвует в данной системе не только как issuer, but also as an investor. In December last year, Russia bought Eurobonds of Ukraine totaling $ 3 billion, becoming the only buyer of this issue. However, such an investment may turn for the country not the best way. Since February of this year, S & P and Fitch have repeatedly downgraded the rating to Ukrainian Eurobonds. What does this mean? The rating of bonds reached the level of CCC (pre-default), their value in the market decreased, and the probability of default on them increased. At the same time, Russia may demand early repayment of the debt, but its position on this issue is weak. In connection with the negative trends in the economy of Ukraine, the Russian Federation will not be easy to prove that she did not suspect about the possibilities of default, the risks of which were recorded in the 200-page prospectus. Ukraine’s refusal to meet its obligations has very unpleasant consequences for the country itself, due to the deterioration of credit history on the international market, the arrest of property of holders of its securities abroad and the inability to enter the debt Eurobond market for a long time. Therefore, in the interests of both parties, a positive resolution of the issue of bonded debt.
Conclusion
Thus, Eurobonds are very reliable,as a rule, long-term investment instruments that allow to attract financing on the international capital market. They are placed through specially created syndicates and regulated by supranational structures. The rating agencies that determine the reliability of financial instruments of a particular country play a significant role in the Eurobond market. Today, Russia is an active participant in the international Eurobond market, acting as an issuer and investor.
