Wednesday, September 16, 2009

Assisting in the marketing of Eurocurrency Bonds by international banks

In recent years multinational banks have become active as agents, underwriters, and, in some instances, investors in the rapidly growing market for Eurobonds. A Eurobond is a debt security denominated in a currency other than those of the countries where most or all of the security is sold. For example, An American automobile company may desire to float an issue of long-term bonds to raise capital for one of its subsidiaries operating in Greece. The company might issue bonds denominated in British pounds (or even dollars) to be sold in several countries in Western Europe through an underwriting syndicate made up of banks, securities dealers, and other firms.
Most Eurobonds are denominated in dollars; tough substantial amounts are also denominated today in marks, guilders, pounds, and francs. These bonds generally carry maturities ranging from 11 to 15 years. Eurobonds normally are straight debt offerings, though warrants and conversion features occasionally are attached to improve the marketability of a particular issue. The majority are callable bearer bonds with coupons attached.
Large multinational banks assist the Eurobond market in several ways. Major Banks such as Morgan Guaranty Trust Company of New York have established international clearing systems to expedite the delivery of bonds traded in the secondary market. Banks and security brokers are the principal intermediaries through which both old and new Eurobonds find their way to the long-term investor. The borrower-a government or large corporation-usually contacts a major international bank and asks it to organize a syndicate to place a new issue. At this point a consortium will be formed, embracing at least four to five American, British, Belgian, French, or German banks and a bank located in the borrowing country. The consortium typically agrees to subscribe to the Eurobond issue at issue price minus a commission (usually in the 2 to 3 percent range). Institutions in the consortium will then organize a large group of banks and securities dealers as underwriters in several countries. Sometimes more than 100 banks are in cluded in the underwriting syndicate. Once formed, the underwriting group gives the borrowers a firm offer for its bonds, and it receives funds immediately. The underwriting institutions will then place the issue with a large, geographically diverse group of investors representing many different countries.

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