Warsaw, 21.04.2009
Iwona Chojecka
The municipal Eurobonds as a global financial instrument of financing
regional investments
Key words
Eurobonds, financial instrument, capital markets, stock exchange, procedure of issue, regional
investment
Abstract
The article concerns the various aspects of the municipal Eurobonds’ issues as an
instrument of the global financial markets. The main aim of the text is the presentation of the
detailed and general models, the challenges and the threats of the issues of bonds denominated in
currencies not national to the official currency of the municipal subjects, where they are issued.
The article is divided into the five chapters. The first chapter describes the history and the
general characteristic of the Eurobonds, which allows varying them from other foreign bonds and
other bonds denominated in the foreign currencies. This part shows the different types of
divisions of the Eurobonds. The second chapter presents the specific functions of the Eurobonds
connected with the municipal character of the issues and the international aspects of issues these
debt securities as an international global financial instrument. The third chapter characterizes the
subject organized the Eurobonds' issues procedures and there are described the role of this
entities in this process. The fourth chapter presents the procedure of the municipal Eurobonds’
issues from the primary financial market point of view and the text treats about the steps of the
municipal Eurobonds’ issues types procedures: the open priced, the bought deal, the fixed price
reoffering, the yield pricing, the auction issue and the mixed procedure. The fifth chapter
describes the introduction of the municipal Eurobonds to the regulated market at the example of
Poland. The sixth chapter presents the Polish experiences with the municipal Eurobonds’ issues.
The article is summarized by the future prospects and directions of developing the
Eurobonds municipal market paying attention to the advantages and the threats connected with
this debt securities' issues to the stability of the global financial market.
The introduction
The subject of hereby thesis is the attempt to present the possibility of financing the
regional investments by Eurobonds' issue, which allows to gather the capital on the international
financial markets. The main aim of the thesis is the popularization and the presentation of the
municipal Eurobonds issues' procedures and the possibilities of introducing them to the organized
market at the example of Polish regulated capital market. In hereby thesis was presented also the
first polish experiences connected with the Eurobonds' issues by the cities.
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1. The general characteristics of Eurobonds
The first issues of Eurobonds took place in 60's of the XX century in the response on
introducing the tax imposed on the incomes from the foreign bonds offering on the American
financial market. The situation caused the higher amount of issues denominated in American
dollars outside the United States. The first this type of issues was realized by the British banks.
At this historical field, the bonds denominated in currencies other than the national currency are
described as Eurobonds even if, they are issued at another market than European market and
whey are denominated in other currencies than American dollar.
The Eurobonds as an instrument of international capital markets characterize by the
privileged fiscal statues and the issue creating with the attendance of international financial
syndicate. The Eurobonds is qualified as the securities, which create the obligation to the issuer to
pay to the owner of the Eurobonds the amount (once or periodically) with the proper interest rates
on previous described conditions in the issue's procedure.
The Eurobond can be dominated in every currency, including the currency of home
country of the issuer under the condition that it is changeable outside the home country of issuer.
At this point is necessary to take into account, that in case of Euroland the issue of bonds
denominated in national currency of euro by one of the member countries of EU to the other
member countries of EU will fulfill the conditions of the home issue, named in case of the
member of The Economic and Monetary Union - the issuance of Euroland or the euro zone. The
home issues of Euroland should be differed from the issue of the bonds denominated in euro with
the intention of offering them to the investors outside the euro zone (the international issue of
Eurobonds).
With the fiscal neutrality of Eurobonds is connected the anonymity of trading this debt
securities and the lack of tax obligation excluded the existence of the eventual capital incomes
tax. The anonymity of trading the Eurobonds can be displaced in material or dematerialized form
organized by the issuer with the attendance of the special depositary register, which identifies the
borrower on the basis of the bank's account number.
The issue of Eurobonds takes the basis on the high reputability of the issuer connected
with the lack of the hedging of this debt securities in the form of mortgage or the different type of
guarantees, which can be similar not only with the higher investment risk on the investors' side,
but also with the narrowing amount of the issuers.
It is worth to underline, that the choice of the law, which will be the basis of the
regulation of the relation between the subjects participated in organizing the municipal
Eurobonds' issues neither were supervised by the governmental entities in the home country of
the issues, nor submits to the supervision of the Eurobonds' issue by the governmental entities in
the country, which the currency was used to denominate the Eurobonds.
The Eurobonds should be differed from the foreign bonds denominated in the currency of
the home country of the issuer and issuing in anther country than the home country of the issuer
in the currency of this second country and submitting to the law of this country and to the
procedures concerning the debt securities force in this country. The potential buyers of
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Eurobonds are indicated in different countries in contrary to the foreign bonds, which are
designed for the investors from the one, indicate national market. The foreign Eurobonds
denominated in dollars placed at the American market are named Yankee bonds, the bonds
issuing in Holland were named Rembrandt bonds, the bonds issuing in Japan - Samurai bonds,
the bonds issuing in London - Bulldog bonds. The type of the foreign bonds is the bonds, which
is served by the national syndicate in the country of borrower. The other type of bonds, which we
can not qualified neither to the category of the Eurobonds, nor to category of foreign Eurobonds
are the bonds issuing by the national subjects in foreign currencies (ex. Shogun bonds created in
Tokyo, or Sushi Bonds placed on Japan’s market).
The complexity of Eurobonds' market results their differences in the types of the issues.
We can vary the Eurobonds at the point of the interest rates, the currency of denomination, the
manner of the purchase, the rights connected with the securities, the form of the debt securities,
the type of issue or the period of the maturity.
2. The functions of the municipal Eurobonds
The municipal Eurobonds characterizes the specific functions base on the peculiarity of
Eurobonds as an international instrument of financial markets.
The municipal Eurobonds join the long - term credit functions and the accumulation of
significant financial assets by their issuer. The high quality of issue creates the possibility to
gather in short term period (even during a month) the significant capital. In case of the debt
securities issuing by the cities hereby function is more important because of the potential lack of
he liquidity of the debt securities market.
The Eurobonds guarantee to the cities the diversification of the sources of financing,
which allowed differentiating the grade of the risk generated in connection with the financing of
investment by the external capital. The various types of the issues of Eurobonds create the
possibility to fit their construction to the necessity and the request of the cities (tailor’s made
issuance). The Eurobonds constitute the more attractive source of investment than the
"traditional" bonds to the foreign investors by minimizing the currency course risk. Additionally,
the denomination of the securities issuing by the cities in the trustworthy currency on the
international market might guarantee the success of the debt securities' issue.
The Eurobonds issue attracts the foreign capital to make the direct investment at the
particular municipal area. The Eurobonds issue is the signal to the foreign capital, that this
municipal area indicates high level developing potential and it is worth to pay particular
investment attention. This circumstance is connected with the promotion function of the city
among the foreign investors. Even the previous signals of the potential issue of Eurobonds, and
next appropriate high assessment of Eurobonds giving by the rating agencies, and at least the
success of Eurobonds issue, enlarges their credibility and enlarges the prestige of the city not
only as an issuer, but also as a trustworthy target of following investments. At this field are
created the developing function of the municipal Eurobonds, which are noticed by the new
buildings, the development of enterprise in the region and the creation of new places of the work.
The function of municipal Eurobonds as trustworthy securities gather the functions of
cumulating the capital, the easy process of change the owner and the comfortable process of
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transferring the rights connected with these debt securities from the debtor to the creditor.
This is also necessary to pay the attention to the fact, that the Eurobonds less than the traditional
bonds indicate the guarantee function. Commonly, their issue isn't guaranteed by mortgage or
other guarantee or the outcomes from the issuer's investment and doesn’t submit to the
supervisory procedures of the supervision authority. Additionally, the anonymity of trade and the
privilege taxation status create impossibility to employ the protection procedures against money
loudening occurrences. The simplified issues of Eurobonds in case of bought option should result
by creating the gray market of turn over of these debt securities. The attempt to protect against
generating hereby risk factor was the creation of the simplify type of issue the Eurobonds - fixed
- price re-offer. This procedure impacts on the subjects participating in the syndicate, even after
its dissolution, the obligation to place the Eurobonds' issues at the detailed price (re-offer price).
3. The entities engaged in the issues of the municipal Eurobonds
The procedure of issuing the municipal Eurobonds begins the stage of preparing this
issue, including the choice of lead manager. This subject assesses the financial credibility of the
future issuer and it advises at the stage of negotiations. The initial parameters of issue are
characterized by lead manager in the form of intention letter, which are presented to the issuer in
order to achieve his acceptance in the form of giving the official mandate for the lead manager.
The initial phase concerns the gathering of necessary documentation connected with the issue: the
offering circular or the conditions of issue. The conditions of issue present the analogous
construction to the appropriate document of the traditional municipal Eurobonds. The offering
circular commonly consists the form of information brochure, in witch we can indicate the basic
data concerning the issue and the detailed information about the issuer and optionally, about the
guarantor of the issue, and also the statement of issuer about the truthfulness and the complexity
of information and the warnings concerns the fact, that any subject hasn't the authorization to
make the statement or to give information not including in the offering circular and the warnings
about the possibility of changing the financial situation of issuer of eurobands from the date of
publishing the document.
Next, the issue procedure of the municipal Eurobonds goes into the stage of building the
banking syndicate (syndication process) by the lead manger, which is organized by the banks as
the guarantors, the managing participants and dealing participants.
The lead manager can undertake the actions towards promotion the new issue among the
investors (road show). Later banks, which was joined in issue procedure on the basis of the
engaging the invitations from the lead manager, make the researches of the potential demand on
the municipal Eurobonds among the final buyers. The collecting data during the syndication
process allows to establish the optimal amount of municipal Eurobonds' issue comparing to the
demand.
The role of the lead manager not only presents the process of building the syndicate, the
marketing actions, but also is connected with the supervision activities under the secondary
trading of Eurobonds in the form of appointing the trustee, the fiscal agent, the principal paying
agent. The trustee makes the role of protecting the rights of the possessors of the Eurobonds by
the possibility of representing their interests in the front of the courts, the active supervision of
issue' s process. The analogous activities can fulfill the fiscal agent, at the difference that, this
subject represents the interests of the issuer. The paying agent is responsible for the technical
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service of payment in the form of the interest rates and the capital.
The co-managers of the issue creating the management group are commonly the group of
about the 6 to 20 banks, which undertakes not only the placement the issue among the final
investors, but also it fulfills the underwriting of issue by the purchase of 40 % or more the issue
of Eurobonds in order to next offer them on their own risk. The co-managers also play the role of
the creation in the syndicate by building the group, which joins the guarantors and the dealing
organizers. The co-managers undertake the actions on the basis of signing the subscription
agreement, in witch they oblige to guarantee whole issue (underwriting) and to place the
Eurobonds among the investors at the detailed price. The additional agreement is signed among
the managers, in witch was detailed their obligations. It allows making the internal definition of
the area of the responsibility among the co-managers, whose responsibility are regulated at the
field of underwriting agreement. It is also possible to sign between the managing groups the subwriting agreement with other subjects at the case of the lack of the successful placement of the
municipal Eurobonds between investors creating the possibility to sell this Eurobonds, which
hasn't still purchase.
The underwriters by subscription the declared amount of municipal Eurobonds on the
basis of the underwriting agreements guarantee to the city the success of issue by the complex
placement of issue among the investors.
The selling group, in which participate even the 200 institutions, fulfills the operational
functions by making the activities of selling the Eurobonds between the final investors. To this
group belongs also co- managers and underwriters, but their role besides the purchase of the
particular amount of the Eurobonds from the lead manager, consists also the obligation to
convene the investors to the investment. The participants of selling group act their tasks on the
basis of the agreement signed between the co- managers, which describes the discount of the
offering municipal Eurobonds to the selling group, the amount of the placed debt securities, the
method and terms of paying.
4. The municipal Eurobonds' issues procedures
4.1. The stages of the issue the municipal Eurobonds on the basis of open priced procedure
The basic procedure of the Eurobonds' issue in the case of open priced procedure indicates
the following elements: after the starting stage of the municipal Eurobonds' issue, next the stage
of negotiation and the stage of building the syndicate, it appears the final stage of creating the
issue conditions and the public placement.
The term of the estimation of the final issue conditions of the municipal Eurobonds is
previously the announcement day in the financial newspapers about the start of the municipal
Eurobond issue. Next, the lead manager send the invitation telex previously by informal
information sending by e- mail or telephone, which consists the invitation to the selected banks to
create the syndicate. The invitation presents the first, non- binding conditions of the issue, which
final description appears on the pricing day. The invitation consists: the amount of the issue, the
interest rates, the maturity period, the issue price. The withdrawal of the offer by the issuer is
possible only to the period of making the agreement in the final conditions area. Hereby situation
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can appear in case of the unacceptable cost at the issuer side.
The conditions of the issue proposed by the lead manager, after its acceptance by the
issuer, are subjected to present to the syndicate. The conditions constitute a basis to sign the
appropriate agreements between the co- managers and the issuer, witch build the fundaments to
taking the common and solid responsibility of the subscription whole issue. If the supply of
Eurobonds among the investors outdoes the demand on the debt securities, the creating area of
the Eurobonds is subjected to placement by lead manager among the underwriters. As the
moment of the appropriate issue procedure we can establish the moment of acknowledgement by
the underwriters the intent of giving the guarantee of the Eurobonds by signing the underwriting
agreement.
The following step of the Eurobonds' issue is the offering day, when the lead manager
conducts the placement between the syndicate participants in the declared amount in the response
on the invitation. The lead manager informs the syndicate participants about the final price
allotted Eurobonds with the issue conditions containing the directions at the payment area.
Next, the co- managers and the selling group conduct the public placement of the
municipal Eurobonds among the final investors in about two weeks. It is also the period, in witch
are made the procedure of introducing the Eurobonds to the stock exchange trade (commonly in
Luxembourg or London).
The closing day of the Eurobonds' issue is the date of passing the assets gaining from the
issue from the final investors to the lead manager.
The final stage of Eurobonds procedure takes the place at the moment of publication by
the lead manager the so- called tombstone in the specialized financial newspapers containing the
information about the municipal Eurobonds issue with the list of the syndicate participants in the
hierarchy arrangements starting from the participant characterized by the highest stage of
engagement.
4.2. The stage of the municipal Eurobonds issue at the basis of bought deal procedure
The issue of the Eurobonds at the basis of the bought deal procedure is subjected to the
significant simplicity in comparison to the open priced procedure. The lead manager organizes
the syndicate of banks. The advantage of bought deal procedure is the abbreviation of time, in
which the issuer can gain the assets from the issue. The task of the lead manager is signing the
agreement with the appropriate parameters of the Eurobonds' issue (the amount, the interest rates,
the issue price, the structures of costs) and subscribing the whole issue before its formal
announcement.
It takes place in this situation the transaction making on the over-the-counter market
(OTC) under the suspended condition of final success of the issue and the reservation of the
detailed term describing by the issue date. At the later stage the creation of syndicate begins by
sending the invitation to the selected banks describing the general Eurobonds' issue conditions
with the proposal of signing the underwriting agreements.
In the response on the invitation the participants establishes the demand on the municipal
Eurobonds, which is similar with taking the responsibility for the final investors. The allocation's
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process of the Eurobonds can commence with the moment of acknowledgement by the
participants of co-managers group the intent of guarantee the issue on the basis of underwriting
agreement. Generally, after one day, accordance with the appropriate standards and after the
allocation of the Eurobonds, it takes place the assignment of the subscription agreements between
the participants of the co-managers group and the issuer, and later also the appropriate
agreements between the co-managers detailed their responsibility.
4.3. The municipal Eurobonds' issue on the basis of fixed price re-offer procedure
Besides the advantages of the simplicity of the bought deal procedure, we indicate some
risk factors, which should be take into consideration. The transaction between the participants of
syndicate concerning the Eurobonds is realized between the launch day (the day of announcing
the starting of the issue) and the closing day (the day of the allocation the bonds). The syndicate's
participants in case of forecasting the unpositive prognoses of the appropriate placement of
Eurobonds among the final investors can undertake the steps towards to the withdrawal of the
assets from the investment by previous offering this Eurobonds to this investors on the lower
price than detailed in the announcement of the issue.
In case of the positive prognoses of the possibility placement's area of the Eurobonds'
issue among the final investors, the participants of the syndicate can propose on the gray market
the price different from the previous issue price, what can not only hinder the creation of the
syndicate in case of unacceptable by the participants of syndicate the level of the final Eurobonds'
issue price, but also can convene the issuer and lead manager to make the decision connected
with the change of the issue conditions in order to guarantee the success of this issue.
In order to prevent against hereby practices is employed the fixed price re-offer
procedure. The characteristic element of this issue is the fact, that the syndicate's participants are
obliged to make the transaction of the Eurobonds on the detailed price on the primary market up
to the moment of breaking the syndicate. The final issue price is subjected to establish commonly
by the issuer, the lead manager and the syndicate taking into consideration their experiences in
the researches of demand on the Eurobonds.
4.4. The municipal Eurobonds' issue on the basis of the simplified procedures
In order to simplify the process of the Eurobonds' issue are employed the following
procedures: the yield pricing procedure and the auction issue.
The yield pricing procedure concerns the ideal efficiency of the secondary trade of debt
securities. The final issue price is established on the basis of the comparable method concerns the
research of the character of the comparable issues of the securities.
The auction issue begins the announcement of the auction about the Eurobonds' issue by
the issuer. The demand at the investors’ side results the establishment of description of
parameters of the Eurobond issue. This is the type of issue devoted to the issuers characterized by
the high level of credibility on the financial markets and it concerns the placement of issue with
the attendance of the bank's syndicate.
Actually, we can observe the tendencies to diminish the amount of the participants in the
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syndicate and to pass the weigh of the responsibility for the placement of issue to the lead
manager by subscribing by them the majority of the offering debt securities.
4.5 The rating
The obligatory element of the municipal Eurobonds' procedure is giving the rating by the
rating agencies. The rating is the independent and objective assessment of the credit risk of the
subject taking out the loan on the market, using the special symbols. This assessments make the
rating agencies - the special institution created in this aim.
Thanks the transparent rating both investors and the clients of the issuer take the
necessary information about their credit credibility. The high rating underlines the prestige and
makes the strength of this subject on the financial market, what stands out them from the
competitors being at the same time a promotion tool and causing the increase level of the
credibility of the issuer. This rating assessment can be very important to the city, because it can
impact on the significant method in order to diminish the financial cost of the credit in the form
of issuing the Eurobonds.
The rating assessments can directly impact on the conditions of achieving the financial
assets by cities at the form of Eurobonds' issue. The low assessment automatically can negatively
impact on the final placement of the issue among he investors. The rating agency, in the aim of
giving the assessment of the economic and financial condition of the entity, assesses the plans of
the development and also it researches the economic surroundings of the entity and it assess the
potential risk of the investment.
4.6. The subjects organized the trade of the Eurobonds
The organization supervises the professional trade of the Eurobonds is the International
Securities Market Association (ISMA) (previous the International Securities Market Association
(ISMA). The association has the main office in Zurich and gathers the financial institutions,
which are actives on the primary and secondary market of Eurobonds. The rules voluntary
employed by the ISMA members generally are used on the secondary trade market of Eurobonds.
The easy trade of Eurobonds is conducted by the electronic system of making and acknowledging
the transitions (TRAX).
The aim of the association is the popularization of Eurobonds as a financial instrument
employed to achieve the assets in order to invest them. ISMA also fulfills the education functions
by organizing the courses and publishing activity, guarantees and supervises the quality of the
services making by the members, among whom we can differ also the market makers and the
brokers. The main task of market makers is the organization the liquidity of the secondary
market. The main task of the brokers is connected with the joining the sides of the transactions.
4.7. The clearing process of Eurobonds
The transferring of the ownership between the sellers and the buyers takes place with the
attendance of the international clearing institutions like Euro-clear and Cedel.
The function of clearing institutions is noticed by taking the Eurobonds in the depositary,
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and next by placing the issue between the syndicate's members distributing the debt securities.
The participants of the syndicate transfer the assets gaining from the final investors to the main
lead manager on the special currency account. Later the transactions on the secondary market run
also with attendance the clearing system, what presents the realization of the honesty trade of the
financial instruments rule by making the transparent settlement between the sides of the
Eurobonds' transactions.
5. The introduction the municipal Eurobonds to the organized market in Poland
The municipal Eurobonds might be also the subject of trading on the stock exchange
market. The public offering of the purchase of the securities in Poland, including the municipal
Eurobonds, to not less than 100 persons or undefined addressee in order to introduce securities to
the regulated market, is submitted to the public offering act, the executives’ acts and the
regulations appropriate to the particular markets. The regulated market in Poland is the part of the
organized market of financial instruments subjected to the supervision and the control of Polish
Financial Supervision Authority (PFSA).
The regulated market consists the stock exchange market in the form of Warsaw Stock
Exchange in Warsaw, in witch we can differ the basic market and the parallel market. At the
frame of the regulated market functions also the non stock - exchange market in the form of
MTS-CeTO S.A. The second part of the organized market of the financial instruments is New
Connect, which isn't subjected to the control of PFSA and it belongs to the alternative system of
trade of the financial instruments.
In case of the debt securities issuing by the cities submitted to polish law is established the
exclusion from the obligation of notifying the PFSA about the intent of introducing the debt
securities to the regulated market in Poland. According to article 7 sec. 2 point 2 the public
offering act the public offering of the municipal bonds needn't draw the prospectus and
acknowledge it by the PFSA and also offering to the public the prospectus.
It means, that the municipal Eurobonds' issue in Poland in case of offering this debt
securities to the public needn't fulfilling the formal demands proper to the prospectus or the
information memorandum. The information document, which is the basis of this proposal, can
exist in any form and it isn't subjected to the obligation of the publication imposed generally by
the public offering act.
These liberal demands are also used towards the municipal Eurobonds introducing to the
polish organized market by the non - polish cities. Additionally, we should pay attention to the
situation, when the Eurobonds are listing at some stock - exchange in the EU and the issuer wants
to introduce them also at the polish stock exchange, than the Eurobonds must be submitted to
single passport procedure. The PFSA acknowledges the receiving of the appropriate documents
from the authority in the home country of the issuer, which is similar with the acknowledgement
of the information document, but without the formal verification.
In case of introducing the municipal Eurobonds to organized trade, they have to be
dematerialized. The essence of the dematerialization is consisted the fact, that the rights joining
with the Eurobonds aren't connected with the document, but electronic account organized by the
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clearing institution (in Poland - The National Depositary for Securities, KDPW). The
introduction of the Eurobonds to the organized market in Poland demands the signing by the
cities the depositary agreement in KDPW.
The dematerialization of the bonds presents the aim of guaranteeing to the issue
participants the maximum safety stage and the appropriate conditions to the secondary trade of
the Eurobonds. The dematerialization allows eliminating the problems connected with printing
the bonds and protecting them from the forgery, the lost or the damage. The dematerialization
guarantees also the possibility of organizing the easy transfer of this bonds between the buy and
sell sides.
6. The municipal Eurobonds' issues in Poland
Poland belongs to the group of the countries, in witch the municipal Eurobonds' issue is
gaining the popularity. The first Eurobonds' issue in Poland was the debt securities issue
denominated in DEM in 1998 making by the Krakow city. The nominal price issue was
established on 66 millions DEM, but the issue price was established on 99,9 DEM for 100 units.
The credibility of Krakow city as an issuer was acknowledged on the rating basis assessed by the
Standard & Poor’s for the Krakow city on the BBB for the international market and on BBB+ for
the polish market.
The bank's syndicate was builded by the following entities: Westdeutsche Landsbank
Polska, CIB Securities, West Merchant Bank, Bank Przemysłowo-Handlowy, Bank Zachodni,
natomiast agentami płatniczymi zostali wyznaczoni- Westdetusche Landesbank Giorozentrale
oraz WestLB International, Weil, Gotshal & Manges. The interest rate of the debt securities
paying in the 2 parts in the year (27 May and 27 November) was based on the changing interest
rate LIBOR for the DEM including the provisions (1%). The Eurobonds was introduced to the
regulated market in Luxembourg. The gathering assets from the Eurobonds' issue was devoted to
the municipal transports needs, and particular for building the trains' lines, building the roads and
purchase new buses for the municipal transport.
The next, Cracow city Eurobonds' issue, denominated in euro, was conducted in 2000 in
order to renew the Eurobonds' issue with the previous buyout option. The Cracow city makes the
previous buyout option in 2005 on the market price of shares listed on the stock exchange in
Luxembourg.
The next Eurobonds' issue is planned by the capital city of Poland - Warsaw and the
region Mazowsze. According to the act passing by the Municipal Council of Warsaw (number
XXI/710/ 2007 on 20 December 2007) and changing it by the act dated 10 July 2008 (number
XXXVII/1115/2008) the Warsaw city will issue the 10- years bonds at the constant interest rate.
The main aim of the Eurobonds' issue is the achieving the assets in order to support the municipal
budget and to pay the financial commitments.
The tax concession for non- residents will be connected with the outcomes achieving from
the interest rate title from the selling this bonds to the end 2019. On the basis of executive act of
the Ministry of Finance dated on 27 November 2008 hereby municipal Eurobonds' issue will
include the tax concession for the non - residents investors, witch means, that the authorities will
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desist the income from the Eurobonds' issues making by Warsaw on the foreign markets in 2009
from imposing the income tax.
Hereby tax concession can impact on enlargement the liquidity of Eurobonds on the
secondary market by creating the advantage for the investors to make the decision about the
bought out of the municipal Eurobonds. The lack of establishing this concession could have
difficult or even to stop the Eurobonds' issue at the face of the high level of competition on the
foreign financial market and might enlarge the costs of the issue. The tax concession for Warsaw
Eurobonds will concern the incomes gathering to 31 December 2019. The ratting agency
Moody's assessed the credit ability of Warsaw city on „A-„.
The Eurobonds' issue are planned also by the Mazowsze region. The Mazowsze region's
council on 8 September 2008 passed the act of issue the bonds by Mazowsze region on the
foreign market in 2008 (the act number 165/08). The maturity period of the bonds denominated
in euro was described on 25 years, but the bought out is planned from 2029 to 2033. The
Eurobonds' issue is established on 50 000 EUR. The issue will have the non-public character and
will be addressed to the foreign legal persons or the companies without the legal ability.
The municipal Eurobonds' issue is devoted to gather the pecuniary assets in order to
supply the budget and to pay the credits. The assets achieved from the issue will be devoted to
financing the expenses not including in the planned incomes in the budget of Mazowsze region.
Additionally, the Fitch Ratings- London assessed the Mazowsze region for the credit in foreign
currency at the „A-„ level.
The Summary
The advantage of the municipal Eurobonds' issue can be the fact, that they are the
excellent source of achieving the new assets in order to finance the regional investments by the
entities of public sector, and particularly by the cities. In this method the cities can gather the
capital not only by issuing the debt securities denominated in national currency, but also by
issuing the debt securities denominated in different currencies than the national currency. In this
method by issuing the global financial instrument - the Eurobonds - the cities can achieve the
capital on international financial markets and place them according the regional needs. The
municipal Eurobonds' issue guarantees not only the capital flow, but also presents the excellent
promotion activity of the city as a place of capital investments and enlarges their investment
credibility towards also the foreign capital.
The advantage before the global financial markets is connected with guarantying the
transparent procedures of municipal Eurobonds' issues and guarantying the investment safety
even towards to the debt securities' issue by the public entities sector. The risk factors results
from the investment of assets in the municipal Eurobonds' issue with using the financial
construction and with the instability of the financial situation and also the political and economic
situation in the issuer's country and at the global scale, the changes of the legal environment, the
changes takes place on the financial markets, the changes of the interest rates, the changes of the
currencies' courses, the trading on the secondary market, the level of liquidity, the credit ratings
and the construction of the particular financial instrument.
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In order to mineralize this risk factors serves the employment of the appropriate issue
Eurobonds' procedure at the international scale and submitting this debt securities issue to the
rating procedures. The maximization of the supervision under the issue and the appropriate rating
procedures towards municipal Eurobonds' issues should resulted from the fact, that by issuing the
municipal Eurobonds are achieved and are invested the assets on the public aim by the public
sector.
The future prospects and directions of the municipal Eurobonds' issue indicate on the face
of financial crisis the necessity of guarantying the international stability to the financial markets.
One of them is noticed at the reforms of financial supervision in the international scale in order to
eliminate the gray market of debt securities trading. Additional risk factors are connected with the
exclusion the Eurobonds from the supervision of national authorities and the anonymity of the
investors and the investing capital, witch can result the investments making in accordance with
the anonymous source of capital.
The relevant factor is the assessment of Eurobonds making by the independent
institutions. It is necessary to take into consideration the creation the uniform and harmonized
rules of the international taxation of the income from the Eurobonds including the settlement of
loses resulted from the course changes.
The author is the employee of the Polish Financial Supervision Authority. Hereby text consists
the private ideas of the author and does’t present the official statements of the Polish Financial
Supervision Authority.
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