tailieunhanh - BIS Working PapersNo 334Why issue bonds offshore?by Susan Black and Anella MunroMonetary and

Reforming and liberalizing financial markets began in the wake of the country’s 1991 balance-of payments crisis. The thrust of these reforms was to promote a diversified, efficient and competitive financial system, with the ultimate objective of improving the allocation of resources through operational flexibility, improved financial viability, and institutional strengthening. The pace of reform was, however, slower than those in product markets, partly because the introduction of stricte prudential controls on banks revealed significant problems in asset portfolios. Prior to the reforms state-owned banks controlled 90% of bank assets—compared with approximately 10% at end-2005— and channeled an extremely high proportion of funds. | BANK FOR INTERNATIONAL SETTLEMENTS BIS Working Papers No 334 Why issue bonds offshore by Susan Black and Anella Munro Monetary and Economic Department December 2010 JEL classification G15 G14. Key words offshore bonds interest rate parity local currency debt. BIS Working Papers are written by members of the Monetary and Economic Department of the Bank for International Settlements and from time to time by other economists and are published by the Bank. The papers are on subjects of topical interest and are technical in character. The views expressed in them are those of their authors and not necessarily the views of the BIS. Copies of publications are available from Bank for International Settlements Communications CH-4002 Basel Switzerland E-mail publications@ Fax 41 61 280 9100 and 41 61 280 8100 This publication is available on the BIS website . Bank for International Settlements 2010. All rights reserved. Brief excerpts may be reproduced or translated provided the source is stated. ISSN 1020-0959 print ISBN 1682-7678 online 4 Why issue bonds offshore 1 Susan Black2 and Anella Munro3 Abstract This paper asks why Asia-Pacific residents issue debt in offshore markets and considers the implications for domestic debt markets. We use unit record data for bond issuance by nongovernment residents of Australia Hong Kong Korea Japan and Singapore to link the decision to issue offshore to potential benefits. The results suggest that residents of smaller markets issue bonds offshore to arbitrage price differentials to access foreign investors and to issue larger lower-rated or longer-maturity bonds. These bond characteristics tend to be correlated with offshore bond market size. The results support the notions that i deviations from covered interest parity are actively arbitraged by residents of minor currency areas as well as by internationally active borrowers as established in the literature and ii issuers benefit from the liquidity and .