Kangaroo Bonds

Definition

Kangaroo Bonds are bonds issued by non-Australian companies, financial institutions, or governments in the Australian market, and denominated in Australian dollars (AUD). These bonds allow foreign entities to access Australian capital markets, thereby diversifying their investor base and tapping into additional sources of capital.

Examples

European Bank for Reconstruction and Development (EBRD): The EBRD has issued Kangaroo Bonds to fund its operations while diversifying its investor base.
Ford Motor Credit Company: An American company like Ford issuing Kangaroo Bonds to attract Australian investors and diversify its funding sources.
Asian Development Bank (ADB): The ADB might issue Kangaroo Bonds to support its projects while taking advantage of the favorable borrowing terms in the Australian market.

Frequently Asked Questions

What is the purpose of Kangaroo Bonds?

Kangaroo Bonds provide an opportunity for foreign entities to raise capital from Australian investors. They help in diversifying funding sources and expanding the investor base.

Who typically issues Kangaroo Bonds?

Typically, non-Australian governments, multinational corporations, international financial institutions, and supranational organizations issue Kangaroo Bonds.

What are the benefits for Australian investors?

Australian investors benefit from having access to high-quality foreign issuers, portfolio diversification, and potentially higher yields compared to domestic bonds.

How do Kangaroo Bonds affect the issuer’s financial strategy?

Issuing Kangaroo Bonds allows foreign entities to enter new markets, raise funds in different currencies, and reduce currency risk provided they operate or have liabilities in Australian dollars.

Are there any risks associated with Kangaroo Bonds?

For investors, risks include currency risk if hedging is not performed, credit risk of the issuer, and potential political and economic changes affecting bond prices.

Eurobonds: Bonds issued in a currency. not native to the issuer’s home country and sold in international markets.
Masala Bonds: Bonds issued outside India but denominated in Indian Rupees.
Maple Bonds: Bonds issued in Canada by foreign entities and denominated in Canadian dollars.
Samurai Bonds: Bonds issued in Japan by foreign entities and denominated in Japanese yen.

Online References

Suggested Books for Further Studies

“Debt Markets and Analysis” by R. Stafford Johnson: This book provides comprehensive coverage of debt instruments, including a segment on international bonds like Kangaroo Bonds.
“Bond and Money Markets: Strategy, Trading, Analysis” by Moorad Choudhry: Enhances understanding of global bond markets with examples of Kangaroo Bonds.
“International Finance” by Keith Pilbeam: Explores international finance concepts and practices, including funding through international bonds.

Fundamentals of Kangaroo Bonds: Finance Basics Quiz

### What currency are Kangaroo Bonds denominated in? - [ ] US Dollars - [ ] Euros - [ ] Japanese Yen - [x] Australian Dollars > **Explanation:** Kangaroo Bonds are denominated in Australian dollars, facilitating foreign issuers to access capital from Australian investors. ### Who issues Kangaroo Bonds? - [ ] Only Australian companies - [x] Foreign entities - [ ] Australian government - [ ] Domestic financial institutions > **Explanation:** Kangaroo Bonds are issued by foreign entities looking to diversify their funding sources by tapping into the Australian capital market. ### What is one primary benefit for issuers of Kangaroo Bonds? - [x] Diversification of funding sources - [ ] Access to low-interest rates globally - [ ] Investing in Australian real estate - [ ] Gaining control over Australian companies > **Explanation:** One of the key benefits of issuing Kangaroo Bonds is the diversification of funding sources, providing access to a new pool of investors. ### What kind of risk do investors in Kangaroo Bonds face if they do not hedge their position? - [x] Currency risk - [ ] Interest rate risk - [ ] Political risk exclusively - [ ] Zero risk as they are backed by Australian dollars > **Explanation:** Investors face currency risk if they are based outside of Australia and do not hedge their position, as exchange rate fluctuations can impact returns. ### Besides companies, which other entities issue Kangaroo Bonds? - [ ] Only individuals - [x] Governments and multinational institutions - [ ] Only banks - [ ] Regional Australian councils > **Explanation:** In addition to companies, foreign governments and multinational institutions also participate in issuing Kangaroo Bonds. ### How do Australian investors benefit from purchasing Kangaroo Bonds? - [ ] They gain Australian citizenship. - [x] Portfolio diversification and access to high-quality foreign issuers. - [ ] Lower their tax rates. - [ ] Guaranteed returns with no risk. > **Explanation:** Australian investors benefit by diversifying their portfolios and gaining access to high-quality foreign issuers with potentially higher yields. ### Which of the following is not a similar bond to Kangaroo Bonds? - [ ] Maple Bonds - [ ] Samurai Bonds - [ ] Masala Bonds - [x] Junk Bonds > **Explanation:** Junk Bonds refer to high-yield or non-investment grade bonds, while Maple, Samurai, and Masala Bonds are similar to Kangaroo Bonds in that they are issued in a foreign market but denominated in local currency. ### What differentiates Kangaroo Bonds from regular domestic bonds in Australia? - [ ] Higher interest rates - [ ] Lower credit risks - [x] Issued by foreign entities - [ ] Issued in Euros > **Explanation:** Kangaroo Bonds are differentiated by being issued by foreign entities, whereas domestic bonds in Australia are issued by local entities. ### Which term describes bonds issued by the Indian entities outside of India but in Indian Rupees? - [x] Masala Bonds - [ ] Samurai Bonds - [ ] Maple Bonds - [ ] Yankee Bonds > **Explanation:** Masala Bonds are bonds issued outside of India but denominated in Indian Rupees. ### Why might a company choose to issue Kangaroo Bonds rather than a domestic bond? - [x] To tap into the Australian investor base and diversify funding sources - [ ] To avoid international regulations - [ ] To circumvent local currency issues - [ ] To gain Australian citizenship > **Explanation:** Companies issue Kangaroo Bonds to access the Australian investor base, diversifying their sources of funding across different international markets.

Thank you for exploring the intricacies of Kangaroo Bonds in finance. Keep pushing the boundaries of your financial understanding!