Listed Eurobonds

Here at Swordblade, we have particular experience and expertise in implementing eurobonds as a tax-efficient methodology of raising capital for our clients. Due to our connections broadly across this segment of the industry, the issuance of Eurobonds is a question of weeks. The greatest benefit to utilising eurobonds as a strategy for growth is the commercial prestige and awareness that a company can generate by having a bond initially placed onto a major exchange with major players.

What is a Eurobond?

A eurobond (not Eurobond – bonds issued by the European Union and European governments) is a bond that is issued on a European stock exchange. In the case of Swordblade, our focus is primarily on the Frankfurt and Vienna exchanges. Eurobonds do not necessarily need to be issued on an EU exchange, as HMRC has provided a list of all exchanges that eurobonds can be listed on – found at the bottom of this page. Alongside this reputational benefit, comes the tax advantage of being exempt from HMRC’s 20% Withholding Tax, assuming a UK operating company.

In the case of Swordblade, our focus is primarily on the Frankfurt (FWB) stock exchange and would list a bond on this exchange. This would be done for several reasons:

Eurobonds are very useful to UK operating small-cap companies, due to the benefit and attraction they offer in the form of being exempt from the 20% Withholding Tax.

The Eurobond Process.

Work would begin with a sponsoring bank that is regulated and licenced by the stock exchanged to facilitate the listing. The sponsoring bank would clarify any compliance and suitability concerns surrounding the bond. From this stage, we would create an SPV, which would usually take the form of a UK PLC in most cases. Occasionally this would be a Swiss AG, dependent on the needs and wishes of specific clients.

In the case of a UK PLC, a bond would be drafted by Solicitors, as in the usual process, according to the wishes of the client. The bond would then be CREST enabled. CREST is the central securities depository for markets in the United Kingdom and holds UK equities and gilts (alongside Irish and some other international securities). This would be done with the help of a UK share registrar who we work closely with to facilitate the listing.

To trade any UK securities electronically, the settlement is done via CREST. This means to get the security issued into the account of the recipient, the security must be issued by the share registrar into CREST. For a Swiss AG, this process would be done through SIS, and remains relatively similar in principle.

For example, if someone in Germany with a brokerage account with a German bank buys a eurobond, the bank would work with a sub-custodian who has an account with CREST in London. The share registrar would issue the bond to the sub-custodian, and from there it would be transferred to the securities account of the investor. The share registrar is also responsible for making the regular interest rates to investors.

After the CREST enablement process the bonds can be electronically traded. The bonds would receive an ISIN number, meaning they could be traded on the exchange. The sponsoring bank in Germany would then apply for the bond to be listed, with the ISIN number used to acquire a German WKN (equivalent) number. This is in the case of a UK entity being listed in Frankfurt, in other scenarios equivalents would apply – but the process remains the same.

Why Eurobonds?

Using eurobonds is a very tax-efficient way of issuing bonds, given no need to retain 20% of Withholding Tax on interest payments. By doing this, a company not only is tax efficient but also isn’t required to do significant regulation and monitoring of interest payments to retain the 20% – making the process more hassle free. Furthermore, the prestige that comes with the bond of a business being issued on the FWB exchange, in particular, is a big attraction for investors to a business and helps to set up for future growth.

There is still a slightly larger cost due to the extra steps in the usual bond issuing process (though this is more than offset by the tax efficiencies). Furthermore, most bondholders do not usually use brokerage accounts and electronic purchases of bonds and prefer to retain paper copies. This is to avoid a big broker commission cut and keep costs to a minimum of maintaining that investment over time.

A company would generally be able to raise much more capital, and continue to do so in the future by building a profile on a major exchange. Our focus is not merely on facilitating the issuance of a corporate bond but also on ensuring the longevity and business potential of the work we do, to bring more value to our clients.

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