Eurobonds

A eurobond is a debt instrument issued in a market which is «offshore» in relation to the country of the ultimate debtor’s economic activity and substance. It may also be issued in a currency different to the home currency of the issuing country or market.

A classic example of a eurobond is a bond issued by an Irish or Dutch SPV (special purpose vehicle) to global investors to finance the operations of an Indonesian mining company, guaranteed by the mining company. The SPV is just an issuing vehicle and does not carry or generate any risk additional to the risks of the ultimate borrower.

Eurobonds can be issued and placed through private offers, although public issues are more common. When a private issue is made, or when it is exclusively aimed at professional (qualified) investors, or when the denomination of the bond is high enough to qualify for light-touch regulatory treatment (100,000 € or higher), the issue can usually be made without drawing up and publishing a prospectus. Public issues typically require a prospectus to be pre-approved by the local regulator.

Eurobonds may be admitted to trading on various investment markets — fully regulated (such as MiFID-compliant exchanges) or lightly regulated (such as MTFs — multilateral trading facilities). It is not uncommon to use offshore exchanges to trade eurobonds.

While technically the issuer is not precluded from administering its own securities register, in the overwhelming majority of cases eurobond issuers rely on the services of electronic depositories (such as Euroclear, Clearstream or central depositories of particular countries) to enable the investors to hold title to the bonds securely.