Basics

What are Eurobonds?

Unlike its name suggests Eurobonds are not necessarily bonds denominated in the EUR currency. A Eurobond is a bond that is issued in a currency unequal to the home currency of the issuer. For example, if Nigeria issues bonds denominated in USD, GBP or EUR they are all called “Eurobonds”. To this date, Nigerian issuers have only introduced Eurobonds denominated in USD, however countries such as Côte d'Ivoire and Senegal have successfully issued Eurobonds denominated in EUR.

What is the difference between stocks and bonds?

It can simplistically be said that bonds sit between stocks and fixed-term deposits.

Like dividend paying stocks (also known as shares or equities), bonds provide the investor with a regular payment in the form of a coupon. However, unlike stocks but like fixed-term deposits, most bonds (perpetual bonds excluded) have a fixed maturity date when the investor receives back the principal amount initially invested and the last coupon.

What makes a bond different from a loan?

Bonds are exactly like loans, with the main difference that bonds are more standardised, funds are borrowed from a much larger pool of investors and bonds are more widely and frequently traded.

Bonds are more standardised because they have fixed features such a clear issuance process (for more information: Issuance Process Section), a handful of formats and a liquid market.

Loans are granted by a single lender or a group/syndicate of lenders, whereas bonds are the result of a single issuer borrowing funds for numerous (global) capital market participants directly. In stead of a bank lending funds to the issuer, the bank presents the issuer to all capital market participants it knows in order to obtain the funding needed by the issuer. In the case for bonds, the bank will not under its own balance sheet, unless it’s actively underwriting the bond during the issuance process.

Finally, once a bond is issued, the bonds become available in the secondary market (for more information: Eurobond Market Section). Active buy and sell prices are provided in the secondary market and lenders can sell their positions in this market. Although such a market exists for loans, it is much less transparent, has significant less depth and activity (“liquidity”).

What is a ticker?

A ticker is the shorter version of the description name of a Eurobond. It usually includes an abbreviation of the issuer name, coupon rate and maturity date.

Some examples are presented below for a Eurobond issued by the Republic of Nigeria that has a 7.625% coupon rate and a maturity date on November 21st 2025.

What is an ISIN?

ISIN stands for International Securities Identification Number and functions as the barcode for a bond. It is unique to every bond and consists of 12 alphanumeric digits. The code starts with two letters followed by ten numerical digits.

What is the difference between REGS and 144A?

There are various security types or series of Eurobonds, however the main two types for Nigerian Eurobonds are the Regulation S (“REGS”) and 144A. The main difference between REGS and 144A bonds is that 144A are predominantly exclusively for US investors, whereas the REGS series is referred to as the “international” version of the bond.

A simple memory aid is that the ISIN code of bonds in the REGS series start with “XS”, whilst 144A series start with "US".

What is a day count?

A day count convention tells the investor how many days we assume there are in a month and in a year for each Eurobond issued. There are four conventions:

At the moment of issuance, the issuer decides which day count convention is adopted.

Knowing exactly how many days there are in a month and a year is important for accrued interest calculations. In other words, it ensures there will be no dispute on how accrued interest is calculated as both the buyer and seller use the same day count convention.

All Nigerian Eurobonds follow a 30/360-day count convention.