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182 Corporate Finance BRILLIANT’S

Convertible bonds are issued by a H$Ýd{Q>©~c ~m°ÝS²>g H§$nZr Ûmam Bí`y {H$`o OmVo h¢,
company where the holder has the option to Ohm§ hmoëS>a Ho$ nmg `h Am°ßeZ ahVm h¡ {H$ dh ^{dî` _|
exchange the bonds for the company's stock at ~m°ÝS> H$mo H§$nZr Ho$ ñQ>m°H$ go EŠgM|O H$a gH|$Ÿ& H$Ýd{Q>©~ëg
certain times in future. Credit risk plays an ~m°ÊS²>g Ho$ _yë`{ZYm©aU _| H«o${S>Q> [añH$ _hÎdnyU© ^y{_H$m
important role in the valuation of convertibles.
{Z^mVr h¡Ÿ& `{X H«o${S>Q> [añH$ H$mo AZXoIm {H$`m J`m Vmo
If credit risk is ignored, poor prices are obtained H$_ H$s_V| àmßV hmo§Jr Š`m§o{H$ Hy$nZ VWm no_|Q>, ~m°ÝS²>g na
because the coupons and payments are
overvalued on bonds. Credit risk is taken into Amodad¡ë`yS> hmoVr h¡Ÿ& H«o${S>Q> [añH$ H$mo Bg{c`o ^r {c`m
account because the debt holders get repaid in OmVm h¡ Š`m|{H$ S>oãQ> hmoëS>g© H$mo V^r nyU© ^wJVmZ hmoJm O~
full only if the value of the asset exceeds the AgoQ> H$s H$s_V CÝh| Xr OmZo dmcr aH$_ go A{YH$ hmo
amount owing to them. Om`oŸ&
6. Other International Instruments 6. AÝ` B§Q>aZoeZc BÝñQ¯>_oÝQ²>g

(i) Yankee Bonds: Yankee Bonds are dollar (i) `oÝH$s ~m°ÝS²>g: `oÝH$s ~m°ÝS²>g \$m°aoZ ~m°amoAg© Ûmam
denominated bonds issued by foreign Bí`y {H$`o J`o S>m°ca {S>Zmo{_ZoQ>oS> ~m°ÝS²>g hmoVo h¢Ÿ& `h
borrowers. It is the largest and most active {díd H$m g~go ~‹S>m VWm g~go g{H«$` ~mOma h¡Ÿ& BgH$s
market in the world. Fees and structures are
\$sg VWm ñQ´>ŠMa âcopŠg~c hmoVo h¢ VWm do ~m°amoAg© Omo
flexible and borrowers who satisfy the
registration requirements and ratings get fine a{OñQ´>oeZ H$s Amdí`H$Vm VWm aoqQ>J H$mo nyam H$aVo h¢
terms. CÝh| AÀN>o Adga àmßV hmoVo h¢Ÿ&
Yankee Bonds can also be offered under `oÝH$s ~m°ÝS²>g SEC Ho$ Rule 144-A Ho$ AÝVJ©V ^r
Rule 144-A of SEC. These issues are exempt from Am°\$a {H$`o Om gH$Vo h¢Ÿ& `o ~m°ÝS²>g O{Q>c a{OñQ´>oeZ
elaborate registration and disclosure VWm {S>ñŠbmoOa [aŠdm`a_|Q²>g Amdí`H$VmAm| go ^r _wº$
requirements. Low rated or unrated borrowers hmoVo h¢Ÿ& cmo aoQ>oS> `m AZaoQ>oS> ~m°amoAg© àmBdoQ> ßcog_oÝQ²>g
can make private placements. H$a gH$Vo h¢Ÿ&
(ii) Samurai Bonds: Samurai Bonds are (ii) g_wamB© ~m°ÝS²>g: g_wamB© ~m°ÝS²>g gmd©O{ZH$ ñVa
publically issued yen denominated bond and na Bí`y {H$`o OmZo dmco `oZ {S>Zmo{_ZoQ>oS> ~m°ÝS> h¢ VWm
like Yankee Bonds are the most prestigious `oÝH$s ~m°ÝS²>g Ho$ g_mZ ~hþV à{V{ð>V \§$qS>J H$m òmoV h¢Ÿ&
funding vehicle. Underwriting procedures and
documentation are quite elaborate floatation A§S>aamBqQ>J H$s à{H«$`m VWm H$mJOr H$m`©dmhr `hm± A{YH$
cost is high here. O{Q>c hmoVr h¡ VWm âcmoQ>oeZ H$m°ñQ> ^r Á`mXm hmoVr h¡Ÿ&
(iii) Shibosai Bonds: Shibosai bonds are (iii) er~mogmB© ~m°ÝS²>g: er~mogmB© ~m°ÝS²>g àmBdoQ>
private placement bonds with distribution ßcog_oÝQ> ~m°ÝS²>g hmoVo h¢ VWm BZH$m {dVaU ~¢Šg VWm
limited to institutions and banks. The ministry B§ñQ>rQ>çyeÝg VH$ hr gr{_V ahVm h¡Ÿ& {dÎm _§Ìmc` ~mOma
of finance controls the market in terms of rating, H$mo aoqQ>J, AmH$ma, Bí`y H$s _¡À`y[aQ>r Am{X g§X^© _| {Z`§{ÌV
size and maturity of the issue. H$aVm h¡Ÿ&

International Bond Markets B§Q>aZoeZb ~m°ÊS> _mH}$Q²>g
International bond market is an important BÝQ>aZoeZc ~m°ÊS> _mH}$Q> cm°J-Q>_© S>oãQ> Ho$ {cE
market for long-term debts. Most of the _hÎdnyU© _mH}$Q> h¡& ~hþV go Xoem| Ho$ nmg S>mo_opñQ>H$ VWm
countries have an active bond market for
gmW hr gmW \$m°aoZ BÝdoñQ>g© Ho$ {cE g{H«$` ~m°ÊS> _mH}$Q>