CFM3202c - Understanding loan relationships: borrowing
Types of finance: eurobond market
It is important to note that there is a tax definition of a
eurobond that is different to the commercial understanding of the
term ‘eurobond’.
The tax definition is in ICTA88/S349 and is important in
deciding whether tax should be deducted from any interest paid.
Eurobonds, in the commercial sense, originated when American
industry wanted to raise money in Europe to use for investment in
Europe. In the world of business, a eurobond is a bond which is
issued in a market that is different to the home market of the
issuer. So, if a UK company wishes to borrow money in Europe, it
might issue bonds in a non-sterling currency in the European market
– eurobonds. Where, for instance a German company chooses to
issue bonds in sterling in the UK market these would be called
‘bulldog bonds’.
These bonds are normally issued in bearer form, which means
there is no register of who holds the bond. The person holding or
‘bearing’ the bond can collect the interest payments or
coupon, and can ultimately collect the repayment of the capital
without further question. Interest is normally paid once a year and
the bonds normally have a life of five years or more. In practice,
most eurobonds are traded through clearance and settlement systems
such as Cedel and Euroclear.
