What it means
Foreign-currency bonds issued in a particular country by outsiders often get nicknames, and the maple bond is the Canadian example. Similar markets include Yankee bonds in the United States, Samurai bonds in Japan and Kangaroo bonds in Australia.
The common feature is a foreign issuer, a local currency and a local investor base. Issuers choose maple bonds for several reasons.
They gain access to a new group of investors, spread their funding sources, and may match Canadian dollar income with Canadian dollar debt. A company with operations in Canada, for example, can borrow in the currency it earns and avoid exchange rate mismatch.
The issuer must follow Canadian securities rules, which usually means preparing a prospectus (the formal offering document) and meeting disclosure requirements. A credit rating helps because Canadian investors need to compare the bond with domestic alternatives.
The cost and effort mean maple bonds suit established borrowers raising large amounts. Many issuers who raise Canadian dollars do not need them, and so swap the proceeds into their home currency.
A cross-currency swap exchanges the Canadian dollar cash flows for cash flows in another currency, which turns the funding into the equivalent of a home-currency loan. The all-in cost then depends on the swap pricing as well as the coupon.
Investors view maple bonds as a way to earn a yield above comparable domestic issues from a foreign name. They also take on the credit risk of an overseas borrower, so analysis of the issuer, its country and its legal framework is important.
Timing matters as well. Issuers tend to come to the market when Canadian dollar funding is cheaper than alternatives after swap costs, so the volume of maple issuance moves with conditions in both markets.
In practice
Real-world examples.
Example
A European utility with a Canadian subsidiary issues a maple bond to fund its Canadian expansion. Because it earns Canadian dollars, it can repay in the same currency without worrying about exchange rate swings. The bond also gives it a new group of investors who already know the Canadian business.
Example
A foreign development bank raises CAD 500,000,000 from Canadian pension funds in a maple bond. It then swaps the proceeds into its home currency at an agreed rate. The swap fixes its home-currency cost for the life of the bond.
Example
An Asian manufacturer wants to broaden its investor base. It issues a maple bond, gaining access to Canadian institutions that did not previously hold its debt. The issue is rated by a credit agency to help investors compare it with domestic names.
Formula
Calculation
Proceeds in home currency = Proceeds in Canadian dollars x Exchange rate
Annual coupon = Face value x Coupon rate
An overseas company issues a maple bond with a face value of CAD 100,000,000 and a 4.5% coupon. At an exchange rate of 0.75 US dollars per Canadian dollar, the proceeds are CAD 100,000,000 x 0.75 = $75,000,000. The annual coupon is CAD 100,000,000 x 0.045 = CAD 4,500,000, which at the same rate is CAD 4,500,000 x 0.75 = $3,375,000 a year.Case study
Seen in the real world.
Meridian Infrastructure is an illustrative, fictional overseas company that owns toll roads in several countries, including one in Canada. It wanted to raise CAD 200,000,000 to refinance part of the Canadian project.
Meridian chose a maple bond because its Canadian toll revenue was in Canadian dollars, so borrowing in the same currency avoided exchange rate risk. The bond was priced at a modest premium over comparable Canadian issuers because investors were less familiar with the name.
In this illustrative story, the extra yield was a worthwhile price for matching currencies and diversifying the funding base. The company later issued a second maple bond at a tighter spread as investors became comfortable with its credit. Its treasurer also noted that the first issue had made later documentation faster and cheaper.
Watch out
Common mistakes.
- Assuming any bond issued by a Canadian company is a maple bond, when the term refers to foreign issuers raising Canadian dollars in Canada.
- Ignoring currency risk when the issuer's income is in a different currency from the bond.
- Overlooking the cost of swapping the proceeds into another currency, which adds to the true cost of borrowing and can change which market is cheapest.
Questions
People also ask.
Who issues maple bonds?
Foreign companies, governments and development institutions that want to borrow Canadian dollars from Canadian investors, usually after getting a credit rating.
How is a maple bond different from a Eurobond?
A maple bond is issued in Canada in Canadian dollars under Canadian rules, while a Eurobond is issued outside the country of its currency.
Why would investors buy one?
They get exposure to a foreign borrower in their own currency, often at a slightly higher yield than domestic issuers offer.
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