Introduction to Corporate Finance

12: Raising Long-Term Financing

Frank Popoff, Chairman of

the Board (retired), Dow

Chemical

‘A Samurai bond is just

an exercise in matching

exposure and income.’

See the entire interview on

the CourseMate website.

COURSEMATE

SMART VIDEO

Australian company could be classed as Eurobonds, as could non-Australian dollar-denominated

bonds issued in Australia by a non-Australian company. For example, in May 2012, BHP issued a

two-part Eurobond note program, which comprised €1.25 billion in 2.125% coupon bonds due 2018,

and €750 million in 3% coupon bonds due 2024.

7 A foreign bond is an issue that is sold by a non-resident corporation in a foreign country and is

denominated in the host country’s currency. An example is a Swiss franc-denominated bond sold in

Switzerland by a Japanese corporate issuer. In most years Yankee bonds, dollar-denominated bonds

issued by foreign firms in the US market, are the single largest category of foreign bonds. The

Australian equivalent to these bonds are often referred to as Kangaroo bonds – these are issued in

the Australian market by non-Australian companies, are denominated in Australian dollars and are

subject to Australian laws and regulations.

8 International ordinary equity, issues that are sold in more than one country by non-resident corporations,

typically represents between 5 and 10% of all worldwide offerings.

In Australia, equity capital raisings are conducted by the equity capital market (ECM). Activity in

this market can by quite volatile, as can be seen from Figure 12.3, which shows the volume and

value of transactions undertaken by the market every year over the 10 years to 2012. It is interesting

to note that, although the value of proceeds raised appears to have tailed off since the bumper year

when the maximum was raised in 2009, the number of transactions has still remained high. This

would suggest that average transaction sizes have fallen, although since the data has been measured

in US dollars, it probably also reflects the appreciation of the Australian dollar against the US dollar

during that period.

foreign bond

A bond issued in a host

country’s financial market, in

the host country’s currency, by

a non-resident corporation

Yankee bonds

Bonds sold by foreign

corporations to US investors

Kangaroo bonds

Bonds sold by foreign

corporations to Australian

investors, issued in

the Australian market,

denominated in Australian

dollars and subject to

Australian laws and

regulations

international ordinary

equity

Equity issues sold in more

than one country by non-

resident corporations

FIGURE 12.3 A DECADE OF AUSTRALIAN EQUITY CAPITAL MARKET (ECM) ACTIVITY

Australian equity capital markets

Proceeds $USbn

70 900

800

700

600

500

400

300

200

100

0

60

50

40

30

20

10

0

9.1 19.6 20.7 20.9 38.0 44.7 40.0 58.8 29.0 24.3 19.8

2002

172

213 250

284

696

783

386

595

486

(^553539)
Proceeds in $USbn (LHS)
Number of ECM issues (RHS)
Number of ECM issues

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Same period volume comparison (Jan – Sep)

Source: Thomson Reuters

Source: Michael Bennet, ‘IPOs Expected to Come Back if Recovery in Shares Continues’, The Australian, 31 December 2012, Newspix/News Limited.

Source: Cengage Learning