1. Chapter 16 International Long-Term Financing

2. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a International Finance: An Analytical Approach 2e by Imad A. Moosa Slides prepared by Afaf Moosa 2 Objectives To describe international bank loan financing. To distinguish between Eurobonds and foreign bonds. To describe international equity markets. To outline other means of international long-term financing.

3. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a International Finance: An Analytical Approach 2e by Imad A. Moosa Slides prepared by Afaf Moosa 3 International Bank Loans Foreign loans Euroloans

4. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a International Finance: An Analytical Approach 2e by Imad A. Moosa Slides prepared by Afaf Moosa 4 Foreign Loans Foreign loans are raised by borrowers who are foreign to the country where the loans are raised.

5. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a International Finance: An Analytical Approach 2e by Imad A. Moosa Slides prepared by Afaf Moosa 5 Euroloans Euroloans are denominated in currencies other than the currency of the country in which the loans are raised.

6. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a International Finance: An Analytical Approach 2e by Imad A. Moosa Slides prepared by Afaf Moosa 6 Syndicated Loans Syndicated loans (Euro or foreign) are so large that it becomes necessary to form a syndicate or a group of lending banks to finance the loans. The interest charged is a reference rate plus a spread.

7. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a International Finance: An Analytical Approach 2e by Imad A. Moosa Slides prepared by Afaf Moosa 7 Determinants of the Spread Availability of funds Creditworthiness of borrowers Maturity Fees

8. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a International Finance: An Analytical Approach 2e by Imad A. Moosa Slides prepared by Afaf Moosa 8 Eurobonds Eurobonds are placed (sold) in countries other than the country in whose currency the issue is denominated.

9. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a International Finance: An Analytical Approach 2e by Imad A. Moosa Slides prepared by Afaf Moosa 9 Foreign Bonds Foreign bonds are issued by borrowers who are foreign to the country where the bonds are placed. The bonds are denominated in the country’s currency.

10. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a International Finance: An Analytical Approach 2e by Imad A. Moosa Slides prepared by Afaf Moosa 10 Nicknames of Foreign Bonds Yankee bonds(United States) Samurai bonds(Japan) Bulldogs(United Kingdom) Matilda bonds(Australia)

11. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a International Finance: An Analytical Approach 2e by Imad A. Moosa Slides prepared by Afaf Moosa 11 Reasons for the Emergence of the Eurobond Market Absence of regulatory interference Less stringent disclosure requirements Favourable tax status

12. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a International Finance: An Analytical Approach 2e by Imad A. Moosa Slides prepared by Afaf Moosa 12 Types of International Bonds Straight fixed-rate bonds Floating rate notes Convertible bonds Bonds with equity warrants

13. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a International Finance: An Analytical Approach 2e by Imad A. Moosa Slides prepared by Afaf Moosa 13 Types of International Bonds (cont.) Zero-coupon bonds Multicurrency bonds Global bonds Novel bonds

14. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a International Finance: An Analytical Approach 2e by Imad A. Moosa Slides prepared by Afaf Moosa 14 Choice of Currency of Denomination Choose foreign bonds if:

15. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a International Finance: An Analytical Approach 2e by Imad A. Moosa Slides prepared by Afaf Moosa 15 International Equity Financing Primary market functions: underwriting of new equity issues. Secondary market functions: trading of equities abroad.

16. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a International Finance: An Analytical Approach 2e by Imad A. Moosa Slides prepared by Afaf Moosa 16 Reasons for Listing on Foreign Stock Exchanges To improve the liquidity of existing shares To boost political and commercial visibility in foreign countries To support a new equity issue To broaden ownership

17. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a International Finance: An Analytical Approach 2e by Imad A. Moosa Slides prepared by Afaf Moosa 17 Costs of Foreign Listing One cost of foreign listing is greater disclosure requirements.

18. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a International Finance: An Analytical Approach 2e by Imad A. Moosa Slides prepared by Afaf Moosa 18 Selling Shares in International Markets Private placements underwritten by institutions from the host country Selling Euro-equity issues Selling a subsidiary’s shares to foreign investors Selling shares to a foreign firm to form an alliance

19. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a International Finance: An Analytical Approach 2e by Imad A. Moosa Slides prepared by Afaf Moosa 19 Other Sources of Financing Parallel loans Credit swaps Government lending Lending by international organisations

20. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a International Finance: An Analytical Approach 2e by Imad A. Moosa Slides prepared by Afaf Moosa 20 A Parallel Loan Rio Tinto Toyota’s subsidiary Loan Loan + interest Toyota Rio Tinto’s subsidiary Loan Loan + interest Australia (AUD funds) Japan (JPY funds)

21. Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a International Finance: An Analytical Approach 2e by Imad A. Moosa Slides prepared by Afaf Moosa 21 A Credit Swap BHPNAB Deposit Deposit + interest BHP’s subsidiary Correspondent bank Loan Loan + interest Australia (AUD funds) Japan (JPY funds)