international bond

8/9/2019 International Bond

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INTERNATIONAL BOND

PRESENTED BY :SYEDA KHAULA

MURAD

11242


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Introduction ToIntern tion ! Bond"

De#nition o$ %Intern tion ! Bond&Debt investments that are issued in a country by

a non-domestic entity.

The key concept is that the bonds are issued either in acurrency other than the domestic country or by an issuer

that doesnt reside in the country in which bonds areissued.

International bonds can be government orcorporate bonds.


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Ho' It (or)"

Foreign companies or governments issue bonds that are securitizedand sold to domestic investors in the form of international bonds.

They pay interest at specifc intervals, and pay theprincipal amount back to the bond s buyer at maturity.

interest are paid in the currency of the issuing country

the value of the bond in the domestic currency will fluctuate

depending on the economic conditions and exchange rates between the domestic country and foreign country.


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A St ti"tic ! Per"*ecti+e !

Domestic

International

Total

$ 47.8% 45.1% 47.5%

18. % 11.7% 17.!%

DM

7. % 1 ."% 7.4%


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A,ount" o$ Do,e"tic ndIntern tion ! Bond" Out"t ndin-

"#s o$ %ear-&nd '(() in *.+.

illions


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ii / 3orei-n 0ond" . They are issued on alocal market by a $oreign borrower andare usually denominated in the localcurrency. 0oreign bond issues andtrading are under the supervision o$

local market authorities.

A,oco n d , a $oreign corporation,

issues bonds in the *.+. $or placementin the *.+. market alone.


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iii/ Euro0ond" . They are underwritten by amultinational syndicate o$ banks andplaced mainly in countries other than theone in whose currency the bond isdenominated. These bonds are nottraded on a specifc national bondmarket.

A,oco n d , a $oreign corporation,issues bonds, in a ma1or intern tion !

#n nci ! center , to be placedinternationally.


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i+/ .!o0 ! Bond"

# global bond is a very large international bondo2ering by a single borrower that issimultaneously sold in 3orth #merica, &urope and#sia.

4ostly institutional investors are the purchasersso $ar.


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Euro M r)et The &urobond market is an o2shore market where

borrowers and lenders meet because o$ its lower costs andlack o$ regulation.

The &urobond market is 1ust one segment o$ the so-called&uromarket, which also includes &urocurrency, &uronotes,&uro commercial paper, and &uroe5uity markets.

&uromarkets are o2shore capital markets, in the sense that

the currency o$ denomination is not the o6cial currency o$the country where the transaction takes place.

0or e7ample, a 4alayan frm deposits *+D not in the *.+.but with a bank outside the *.+., $or e7ample in +ingapore

or in +wit8erland. This *+D deposit outside the *.+. is calledan &uro deposit.


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Euro0ond M r)etStructure

9rimary 4arket :ery similar to *.+. underwriting.

+econdary 4arket ;T/ market centered in


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EURO BOND 5S 3OREI.NBONDS

&urobonds make up over =( percent o$ theinternational bond market. The two ma1or reasons isthat the *.+. dollar is the currency most $re5uentlysought in international bond fnancing.

&urodollar bonds can be brought to market more5uickly than $oreign bonds because they are noto2ered to *.+. investors and thus do not have to meetthe strict +&/ registration re5uirements.

&urobonds are typically bearer bonds that provideanonymity to the owner and thus allow a means $orevading ta7es on the interest received. ecause o$ this$eature, investors are generally willing to accept alower yield on &urodollar bonds in comparison to


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3orei-n Bond" ndEuro0ond"

earer onds and >egistered onds 3ational +ecurity >egistrations

>ecent >egulatory /hanges


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Be rer Bond" ndRe-i"tered Bond"

Be rer Bond" are bonds with no registeredowner. #s such they o2er anonymity but they alsoo2er the same risk o$ loss as currency.

Re-i"tered Bond" ! the owners name isregistered with the issuer.


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N tion ! Securit6Re-i"tr tion"

$oriegn bonds must meet the re5uirementso$ the +&/, 1ust like *.+. domestic bonds.

&urobonds sold in the primary market in the*nited +tates may not be sold to *.+.citi8ens.

a *.+. citi8en could buy a &urobond on thesecondary market.


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Recent Re-u! tor67 n-e"8L '"9

+hel$ >egistration "+&/ >ule ?)@ #llows the issuer to preregister a securities

issue, and then o2er the securities when thefnancing is actually needed.

+&/ >ule )??# #llows 5ualifed institutional investors to trade

private placements. These issues do not have to meet the strict

in$ormation disclosure re5uirements o$ publiclytraded issues.


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T6*e" o$ In"tru,ent"

). +traight 0i7ed >ate Debt'. 0loating->ate 3otes

A. &5uity->elated onds?. Bero /oupon onds@. Dual-/urrency onds

C. /omposite /urrency onds


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Str i-7t 3i ed R te De0t These are plainE bonds with a specifed

coupon rate and maturity and no optionsattached.

+ince most &urobonds are bearer bonds ,coupon dates tend to be annual rather thansemi-annual.

The vast ma1ority o$ new international bondo2erings are straight f7ed-rate issues.


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3!o tin-;R te Note"

Fust like an ad1ustable rate mortgage.

/ommon re$erence rates are A-month and C-month *.+. dollar

+ince 0>3 reset every C or )'months, the premium or discount isusually 5uite smallG as long as thereis no change in the default risk .


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E


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=ero ou*on Bond"

Beros are sold at a large discount$rom $ace value because there is nocash How until maturity.

&.g. sukook bond in 9akistan

T r

PAR PV

#1$ +=


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o,*o"ite urrenc6Bond"

The currency composite is a port$olioo$ currencies! when some currenciesare depreciating others may beappreciating, thus yielding lowervariability overall.

Typically straight f7ed rate debt.


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Instrument

Straight Fixed-

RateFloating RateNoteConvertibleBond

#nnual 0i7ed /urrency o$issue or conversion to

e5uity shares.Straight fxedrate withequitywarrants

#nnual 0i7ed /urrency o$issue plus conversionto e5uity shares. Zero none 8ero /urrency o$issue

ual Curren!y

Bond

#nnual 0i7ed Dual currency

Frequen!yo"#ayment #nnual

Si$e o"Cou%on

#ayo& at'aturity

7 r cteri"tic" o$ Intern tion !Bond M r)et In"tru,ent"

/urrency o$issue

0i7ed

&very A or Cmonths

:ariable /urrency o$ issue


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(76 In+e"tin- In Intern tion ! Bond 3und"> 8Ad+9

1/ Tr n"* renc6;;(7ic7 Bond"

International bond $unds can provide you withtransparency that other types o$ $unds do not. This

means that you will be able to see e7actly which bondsyou are investing in when you put money into the $und. 2/ o"t E?cienc6

#nother advantage o$ going with an international bond$und is that it is going to be more cost e6cient than atraditional bond $und. %ou will have $ewer e7penses,and more o$ your money will go towards purchasingbonds.


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@/ E "6 Purc7 "e nd S !e

I$ you invest in an international bond ,you should beable to buy or sell shares o$ them anytime that thee7change is open.

4/ Tr n"* renc6;;S7 re Price"+ince you will be able to buy at anytime, you aregoing to know e7actly what the share price is.

Transparent share prices allow you to know e7actlywhat you are getting into

/ Di+er"i#ed *ort$o!io:

one o$ the another reason people should buyinternational bind to increase their port$olio.


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Di"; d+ nt -e" O$ In+e"tin- InIntern tion ! Bond 3und"

1/ o"t" ;ne o$ the biggest disadvantages o$ international bond $unds is

that the costs cut into the potential returns $rom investment. /ost covers administration e7penses and the salaries o$ the $und

managers. There are other $ees that you will have to pay such as $ees and

sales charges. y the time you are done paying all o$ the di2erent $ees, it is

going to signifcantly reduce the amount o$ money that you canmake $rom this investment.

2/ Li,ited Kno'!ed-e o$ Return" you are not going to have much in$ormation about how the $und

is per$orming. Jith international bond $unds, you are not going to know how

much o$ a return is made until the end o$ the accounting 5uarter$or the $und.

This means that you are going to be able to fnd out how you are


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@/ L c) o$ ontro! Investors do not have any control over where their

money is going. They do not get to have any say in theselection o$ the bonds in the $und.

4any investors like to have some kind o$ control overthe investments that they put their money in.

owever, with this type o$ investment, you are notgoing to have the choice.

4/ Ti,in- Jith international bond $unds, the bonds are going to

mature at di2erent points. ecause o$ this, you could run into timing issues that

a2ect the amount o$ money that you get back when youcash out.

%ou may not get the $ull amount o$ money that you haveinvested because o$ the maturity times o$ the bonds in

the $und.


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/ Ri") they are riskier than domestic bond $unds.

4any o$ these $unds invest in areas that are not 5uite developed,and this increases the amount o$ risk $or the bond $und. 4any people $eel sa$er when they are investing money into their

own economy instead o$ in the economy o$ an unstable country.

/ Un)no'n Bu6 nd Se!! Price" Jith international bond $unds, you are potentially going to have

some problems with the $act that you do not know the buy andsell prices o$ the shares when you initiate the transaction.

Jith mutual $unds, you are going to put in an order to buy sharesor sell your own shares, and the price will then be calculated at

the end o$ the trading day. This uncertainty can signifcantly cut into your returns and cost

you money that you were not counting on.


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THE PRO ESS O3 BRIN.IN. A NE(INTERNATIONAL BOND ISSUE TO MARKET

). # borrower desiring to raise $unds by issuing bonds to theinvesting public.

'. They will contact an investment banker and ask it to serve as leadmanager o$ an underwriting syndicate that will bring the bonds tomarket.

A. The lead manager will invite other banks to $orm a managinggroup to negotiate terms with the borrower, market conditions,and manage the issuance.

?. Then managing group, along with other banks, will serve asunderwriters $or the issue, i.e., they will commit their own capitalto buy the issue $rom the borrower at a discount $rom the issue

price.@. 4ost o$ the underwriters, along with other banks, will be part o$ a

selling group that sells the bonds to the investing public.C. The various members o$ the underwriting syndicate receive a

portion o$ the spread "' to '.@K o$ the issue si8e , depending uponthe number and type o$ $unctions they per$orm.

L. The lead manager receives the $ull spread, and a bank serving as


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PAKISTANSINTERNATIONAL BOND

9akistan o2ers one international bond that is sukuk bondE SUKUK BOND: +ukuk in general may be understood as a shariah compliant M ond

DI33EREN E The Di2erent etween +ukuk #nd /onventional ond are the

absent o$ intere"t e!e,ent and the e7istence o$ an under!6in-*er,i""i0!e tr n" ction . There is no annual coupon rateattached to the sukuk and thus its characteristic is o$ 8ero couponbonds.

sukuk holders are entitled to share in the revenues generated by

the sukuk assets as well as being entitled to share in the proceedso$ the reali8ation o$ the sukuk assets. the certifcate represents a debt to the holder, the certifcate will

not be tradable on the secondary market and instead is held untilmaturity or sold at par.


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DIS;AD ANTA.E CAD ANTA.ESO3 SUKUK

Bene#t" nd 3e ture" Tradable shariah-compliant capital market product providing medium to long-term f7ed or

variable rates o$ return.

#ssessed and rated by international rating agencies, whichinvestors use to assess riskNreturn parameters o$ a sukuk issue. >egular periodic income streams during the investment period

with easy and e6cient settlement and a possibility o$ capitalappreciation o$ the sukuk.


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TYPES O3 SUKUK

+ukuk can be o$ many types depending upon the type o$Islamic modes o$ fnancing and trades used in its structuring.

$ollowing are more common!

1/ Mud r 0 Su)u) 2/ Mu"7 r ) Su)u) @/ I r Su)u) 4/ Mur 0 7 Su)u) / S ! , Su)u) / I"ti"n Su)u) / H60rid Su)u)


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+ukuk in 9akistano U"e o$ Su)u) to ,eet -o+tG" 0orro'in- re


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o inn 7 Intern tion ! Air*ort K r c7i : #s the budgetdefcit soared to a record high at >s).LL trillion in the lastfscal year, the government raised >s)=' billion through anIslamic bond, called +ukuk, against the security o$ FinnahInternational #irport Parachi Q another asset mortgageda$ter 9akistan 4otorways "4' .

o The +tate ank o$ 9akistan has adopted a global standard$or sukuk "Islamic bonds , which could help 9akistani issuesattract investment by $oreign institutions $rom the Oul$ andelsewhere.


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RE3EREN ES

http!NNwww.fnweb.comNinvestingNC-disadvantages-o$-international-bond-$unds.htmlRa788'$bv30g0d

http!NNwww.fnweb.comNinvestingN?-disadvantages-o$-investing-in-international-bond-$unds.htmlRi788'$dO7138s

http!NNmybankersonline.comNdiaspora-sukuk-bonds-$or-pakistani-e7patriatesN

http!NNnews.data-sync.bi8NtagNpakistan-investment-bondsN
http://www.finweb.com/investing/6-disadvantages-of-international-bond-funds.htmlhttp://www.finweb.com/investing/6-disadvantages-of-international-bond-funds.htmlhttp://www.finweb.com/investing/6-disadvantages-of-international-bond-funds.htmlhttp://www.finweb.com/investing/4-disadvantages-of-investing-in-international-bond-funds.htmlhttp://www.finweb.com/investing/4-disadvantages-of-investing-in-international-bond-funds.htmlhttp://www.finweb.com/investing/4-disadvantages-of-investing-in-international-bond-funds.htmlhttp://mybankersonline.com/diaspora-sukuk-bonds-for-pakistani-expatriates/http://mybankersonline.com/diaspora-sukuk-bonds-for-pakistani-expatriates/http://mybankersonline.com/diaspora-sukuk-bonds-for-pakistani-expatriates/http://news.data-sync.biz/tag/pakistan-investment-bonds/http://news.data-sync.biz/tag/pakistan-investment-bonds/http://news.data-sync.biz/tag/pakistan-investment-bonds/http://news.data-sync.biz/tag/pakistan-investment-bonds/http://mybankersonline.com/diaspora-sukuk-bonds-for-pakistani-expatriates/http://mybankersonline.com/diaspora-sukuk-bonds-for-pakistani-expatriates/http://mybankersonline.com/diaspora-sukuk-bonds-for-pakistani-expatriates/http://www.finweb.com/investing/4-disadvantages-of-investing-in-international-bond-funds.htmlhttp://www.finweb.com/investing/4-disadvantages-of-investing-in-international-bond-funds.htmlhttp://www.finweb.com/investing/4-disadvantages-of-investing-in-international-bond-funds.htmlhttp://www.finweb.com/investing/6-disadvantages-of-international-bond-funds.htmlhttp://www.finweb.com/investing/6-disadvantages-of-international-bond-funds.htmlhttp://www.finweb.com/investing/6-disadvantages-of-international-bond-funds.html


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http!NNi$resource.comN'()(N(?N'LNhow-sukuk-works-introduction-structuring-and-application-o$-sukuk-bondsN

http!NNinvestinginbonds.euN9agesN

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