Maple Bond

What is Maple Bond?

Maple Bond is named in Canadian dollars (CAD), executes on the secondary market and gives foreign issuers access to the Canadian debt market.

Understanding the Maple Bond

A domestic company might decide to enter a foreign market assuming that it accepts that it would get alluring interest rates in this market or on the other hand in the event that it has need for foreign currency. At the point when a company chooses to tap into a foreign market, it can do as such by giving bonds named in the currency of the expected market. A foreign issuer that needs access to the Canadian debt market would issue a bond alluded to as the Maple Bond, named in recognition of the national symbol of Canada, the maple tree.

At the point when foreign substance limitations on registered investments were eliminated in Canada in 2005, maple bonds immediately acquired in notoriety. Prior to the elimination of the foreign property rules (FPR), registered investors were limited in the amount they had the option to invest in foreign investments and were limited to investing just 30% outside of Canada. As per Statistics Canada, almost $23 billion USD worth of maple bonds were invested in 2006. Nonetheless, their prevalence plunged because of the credit crisis in 2008, as Canadian investors avoided debt sold by foreign companies. As rates for Canadian debt have consistently become lower than US debt beginning around 2016, the ubiquity of these bonds has soared by and by as offerings of Maple bonds leaped to a record high of $14.9 billion Canadian (roughly $11.9 billion USD) in 2017.

Maple bonds are Canadian-dollar designated bonds issued by foreign corporations or borrowers in the Canadian fixed income market. Borrowers will generally issue debt in the Maple Bond market in the event that they can accomplish funding at an equivalent or lower cost than what is available in different markets. The issuance of Maple bonds is, hence, impacted by how cost-compelling it is for the issuer to borrow in Canadian dollars and swap the proceeds once more into their funding currency of decision.

Moreover, since the foreign issuer accepts the credit risk when it issues bonds in Canadian dollars, it is powerless to any costs or benefits from the changes in the exchange rate of Canadian dollars to the foreign issuer's currency. For instance, an American corporation that issues Maple Bonds might be confronted with higher coupon payments in US Dollars (USD) and, subsequently, a higher cost of borrowing, assuming exchange rates went up essentially. CAD40 coupons that were paid for at an equivalent rate of USD33 may now cost the responsible company USD36 assuming exchange rates increased.

Like other foreign bonds, like the Bulldog Bond, Samurai Bond, and Matilda Bond, the Maple Bond permits domestic investors (in this case, Canadian investors) to invest in foreign companies without stressing over the effects of foreign exchange variances. Since investor bear no currency risk from holding these bonds, Maple Bonds are an alluring investment security for Canadian investors. Likewise, Canadians utilize these bonds to broaden their fixed-income holdings and earn incremental yield while keeping away from foreign exchange risk. As such, Maple Bonds give an opportunity to invest in foreign companies without dealing with the effects of currency exchange variances.

Foreign companies can utilize Maple Bond issues to raise Canadian dollars for setting up operations in Canada. In 2017, The Walt Disney Company, Apple Inc., Pepsico Inc., and United Parcel Service (UPS) Inc. all borrowed from the Canadian market utilizing Maple Bonds. Apple, for instance, raised C$2.5 billion ($1.96 billion USD) at a rate of 2.513% from Canadian fixed income investors through AA+ rated seven-year notes, which were as senior unsecured debt.

Highlights

• Maple bond offers Canadian investors the chance to invest in foreign companies without stressing over the effects of foreign exchange changes.
• Maple Bond is designated in Canadian dollars, executes on the secondary market and gives foreign issuers access to the Canadian debt market.
• Elimination of the foreign property rules (FPR) in 2005, which put limitations on registered investors access to foreign investments, prompted a flood in maple bond ubiquity.