Loans rbs
A bond is a debt security issued by the borrower, purchased by the investor, usually through the intermediation of a group of underwriters.
Types of Bonds:
The traditional bond is the straight bond. It is a debt instrument with a fixed maturity period and a fixed coupon usually expressed as percentage of the face or par value, and repayment of the face value at maturity. This is known as bullet repayment of the principal. The market price at which a security is bought by an investor either in the primary market or in the secondary market is its purchase price, which could be different from its face value. When they are alike, the bond is said to be selling at par, and when the face value is less than (more than) the market price, loans rbs the bond is said to be trading at a premium (discount). The difference could arise because the option is different from the ruling rates of interest on bonds with equal perceived risk and maturity, or because markets perception of creditworthiness of the issuer is different. The yield is a measure of return to the holder of the bond and is a combination of purchase price and the coupon. Coupon payments may be annual, semi-annual or some other periodicity. Maturities can be upto thirty years or so in rare cases even longer. Bonds with maturities at the shorter end are often called notes. A very large number of variants of the straight bond have evolved over time to suit varying needs of borrowers and investors.
The issuer, at issuer's choice, can redeem a Callable Bond before its maturity. The first call date is normally some years from the date of issue. For example, a 15-year bond may have a call provision, which allows the issuer to redeem the bond at any time after 10 years. The call price is the price at which the bond will be redeemed. It is normally above the face loans rbs value with the difference shrinking as maturity is approached. This feature allows the issuer to streamline his liabilities, or refund a debt at a lower cost, if interest rates fall. In an environment of high interest rates, the callable bond should give an incentive to the investor in the form of a higher yield compared to an otherwise similar non-callable bond. A putt-able bond is the opposite of a callable bond. It allows the investor to sell it back to the issuer before maturity, at investors discretion. The investor pays for this privilege in the form of a lower yield.
Sinking fund bonds were a device, often used by small risky companies to assure the investors that they will get their money back. As an alternative to redeeming the entire issue loans rbs at maturity, the issuer would redeem a fraction of the issue each year so that only a small amount remains to be redeemed at maturity.
A Floating Rate Note (FRN) is a bond with varying coupon. Sometimes, the interest rate payable for the next six months is set with reference to a market index, such as LIBOR. In a few cases, a ceiling may be put on the interest rate, while in some cases there may exist a ceiling and a floor.
Zero Coupon Bonds are similar to the cumulative deposit schemes offered by companies in India. The bond is purchased at a large discount from its face value and redeemed at the face value on maturity. There are no interim interest payments. One possible advantage can arise from tax treatment if the difference between the face value and the purchase price at maturity is considered entirely capital gains, and taxed at a rate lower than the rate applicable to regular interest received on loans rbs coupon bonds. There is no reinvestment risk as in the case of coupon bonds, where the coupon cash flows must be invested at rates ruling at the time coupons are paid. Deep Discount Bonds provide a coupon at a rate below the market price for an equivalent straight bond. Bulk of the return to the investor is in the form of capital gains.
Convertible bonds can be exchanged for equity shares of the issuing company or some other company. The conversion price determines the number of shares for which the bond will be exchanged. The conversion value is the market value of the shares, and is generally less than the face value of the bond at the time of issue. As the share price rises, the conversion value rises. Generally a call provision is attached to allow the issuer to redeem the bond when the share price rises above a certain level which forces the holder to convert in order to avoid losing the premium on the bonds. Small but rapidly growing companies find it an attractive funding device. It is a form of deferred equity, effectively sold above the current market price. One motivation might be that the issuer believes that the market is currently under-pricing its shares.
Warrants are an option sold with a bond, which gives the holder the right to purchase a financial asset at a stated price. The asset may be a further bond, equity shares or a foreign currency.
The largest international bond market is the Eurobond market which is said to have originated in 1963 with an issue of Eurodollar bonds by Autostrade, an Italian borrower. Many Eurobonds are listed on the stock exchanges in Europe. This requires that certain financial reports be made available to the exchanges on a regular basis. However, secondary market trading in Eurobonds is almost entirely over-the-counter by telephone between dealers. Quotes are available on exchange where the issue is listed.
US CAPITAL MARKET
Among the national capital markets, the US market is the largest in the world. It is complemented by worlds largest and most active derivatives markets, both OTC and exchange-traded. It provides a wide spectrum of funding avenues. From a non-resident borrowers point of view, the most prestigious funding avenue is public issue of Yankee Bonds. These are dollar denominated bonds issued by foreign borrowers. It is the largest and most active market in the world but potential borrowers must meet very stringent disclosure, dual rating and other listing requirements. Option features can be incorporated since there are no restrictions on the size of the issue, maturity and so forth. Syndication structures and fees are flexible and borrowers who satisfy the registration requirements and rating norms can get very fine terms. Shelf registration is possible for selected borrowers. Under this facility, the issuer can register the necessary documentation in advance of the issue of securities.
JAPAN CAPITAL MARKET
The Japanese market was tightly regulated till 1980. Thereafter, the government implemented a series of regulatory reforms designed to integrate the Japanese financial markets with the global markets. Foreign institutions were allowed entry, and regulations on cross-border borrowing and investment were relaxed. Within a span of fifteen years, Japanese capital markets have developed enormously both quantitatively and qualitatively.
Bond finance in yen available to foreign borrowers includes in addition to the euro-yen segment, Samurai Bonds and Shibosai Bonds. Samurai Bonds are widely issued yen- denominated bonds and are considered the most prestigious funding vehicle. The Japanese Ministry of Finance lay down the eligibility guidelines for potential foreign borrowers. These specify the minimum rating, size of the issue, maturity and so forth. Shibosai Bonds are private placement bonds with distribution limited to institutions and banks. While eligibility criteria are less stringent, the Ministry of Finance still controls the market in terms of rating, size, and maturity of the issue.
In addition to these two, other vehicles are available to non-resident borrowers. Shogun Bonds are publicly floated bonds denominated in a foreign currency, while Geisha Bonds are their private placement counterparts.
SWISS CAPITAL MARKET
The Swiss Capital Market also provides bond finance avenues. Swiss investors do not attach great importance to formal rating preferring to rely on their own assessment of the borrowers creditworthiness. They tend to be quite selective. Public Bonds are floated through a prospectus, are fixed rate bullet redemption bonds, and are normally used for large funding requirements in excess of Sfr 100 million. Issuers need to get approval from the Swiss National Bank (SNB). Unlisted bonds are for smaller financing and for shorter maturities, such as eighteen months.
UK CAPITAL MARKET
The UK market has developed Bulldog Bond, a sterling denominated foreign bond, priced with reference to UK gilts. Fixed rate and floating rate bonds denominated in French franc as well as convertible bonds are available to non-resident borrowers in the French market. The Dutch market has Rembrandt Bonds, denominated in Dutch guilder.
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