Eurobond Market

Russian: What is a Eurobond? Why are Eurobonds issued?

Foreigner: Eurobond is a bearer security, which is not registered and issued in a market other than that of its currency of denomination. Eurobonds are sold internationally and not in just one domestic market to obtain credits in foreign financial markets.

R.: What organizations can issue Eurobonds?

F.: As a rule, Eurobonds are issued by governments, municipalities. banks, international financial organizations, national companies and trasnationals.

R.: How is a bond placement arranged?

F.: Most often, primary placing of Eurobonds is done by investment banks, which act as lead managers. In such cases investment banks provide a number of advisory services. They give recommendations to issuers about the date of issue, currency of issue, coupons, methods of issuing securities, preparation of the necessary documents, etc.

R.: What is the typical maturity of Eurobonds?

F.: Eurobonds usually mature in five or more years, and have a fixed rate of interest.

R.: How is the bond price determined?

F.: It is done on the basis of the credit rating of the issuer. Debt issues are rated according to the credit ratings determined by various financial companies including Moody's, Standard and Poor's. The highest rating assigned by Standard and Poor's is AAA. It means that the capacity to pay the interest and repay the principal sum is extremely strong.

R.: And how often are interest payments made?

F.: Once or twice a year. It's important to say that Eurobonds are not taxed.

R.: How is the market developing?

F.: It has become one of the world's largest markets for short-term funds. Turnover in the market is now reckoned to be greater than the combined turnover of the New York and London stock exchanges.

R.: As you've said, investment bankers are the main intermediaries in this market, specializing in assisting firms to obtain new financing. And why is the market so attractive to borrowers?

F.: The market is outside the direct control of any national central bank, so it is free, competitive and flexible. It is characterized by relatively low capital costs for borrowers. Issuers can get cheap credits. I've read that Russia has issued its Eurobonds in the international bond market, and the first issues were successful.

R.: Yes, they were. So far Russia has made several placements of Russian Eurobonds. The first $1 billion issue with a 9.25% interest was made in Zurich, the second issue was made in Germany and was denominated in Deutsche marks. We are thinking of new issues.

F.: For what purposes will the funds obtained by your government be used?

R.: The money will be spent on resolving most burning social problems, including elimination of arrears and payment of wages and salaries.

F.: I must say here that in addition to Eurobonds denominated in a single currency, the market is moving in favour of the Euro.

Words you may need:

Англійський варіант	Російський варіант	Український варіант
bearer security	npeдъявительская ценная бумага	пред’явительська цінна папера
transnational	транснациональная компания	транснаціональна компанія
placement	paзмещение (ценных бумаг)	розміщення (цінних паперів)
lead manager	6aнк, являющийся организатором и гарантом займа	банк, який є організатором і гарантом займа
mature	наступать (о сроке платежа)	наставати (про термін платежу)
rate	npисуждать рейтинг	присуджувати рейтинг
turnover	o6oрот	оборот

Ex. 12. Give extensive answers to these discussion questions:

1. What role do financial markets play today?

2. What are the major financial markets today?

3. How can financial markets be classified?

4. What is a bond?

5. What is the difference between debt and equity markets?

6. What does the global bond market consist of?

7. How do you assess the Russian Bond market?

8. How are emerging bond markets developing? What problems are they facing?

9. How are bond placements arranged?