Kangaroo Bond

Definition

A Kangaroo Bond is a type of foreign bond issued in the Australian market by non-Australian entities, denominated in Australian dollars. These bonds enable international issuers to diversify their investor base and access Australian capital. The name “Kangaroo Bond” is derived from Australia’s association with the kangaroo.

Phonetic

Kangaroo Bond: /kæŋɡəˈru bɒnd/

Key Takeaways

Definition: A Kangaroo Bond is a foreign currency bond issued by a non-Australian company in the Australian debt market for the purpose of raising capital from Australian investors.
Currency: Despite being issued by foreign entities in the Australian market, Kangaroo Bonds are denominated in Australian dollars (AUD) and pay interest to investors in AUD. This makes them attractive to local investors seeking to invest in and receive returns in their home currency.
Investment: Kangaroo Bonds offer both the issuer and the investor benefits. The issuer gets access to the Australian debt market, helping them raise funds and diversify their investor base. Investors have the opportunity to invest in foreign companies without being directly exposed to currency risk while also enjoying potentially higher yields than investing in local bonds.

Importance

Kangaroo Bonds are important in the business and finance world as they provide a unique financing option for borrowers seeking access to funds in the Australian market. These bonds, issued by foreign institutions, are denominated in Australian dollars, and they enable issuers to tap into the robust financial market of Australia. In turn, this diversifies their funding sources and expands their investor base. Additionally, Kangaroo Bonds benefit Australian investors who wish to invest in international institutions while curbing foreign exchange risks and supporting local currency investments. Overall, they offer a valuable avenue for both issuers and investors, fostering economic growth and global financial integration.

Explanation

A Kangaroo Bond serves as an important financial instrument in the global market, enabling the diversification of investments and expanding the borrowing opportunities for both the issuers and investors. The primary purpose of these bonds is to allow non-Australian entities to tap into the thriving Australian financial market, gaining access to a broader range of investors. This helps the issuer fulfill their financial needs, while offering investors the chance to add geographic diversity to their portfolios. Kangaroo bonds also promote stronger economic and financial ties between countries, increasing monetary cooperation and trade. From an investor’s perspective, Kangaroo Bonds provide an avenue to achieve exposure to the Australian market, which is historically known for its stability and attractive interest rates. This access enables investors to benefit from the potential growth of the Australian economy and hedge their investments against currency risks by investing in Australian dollars. Furthermore, by investing in these bonds, investors diversify their portfolios which subsequently mitigates investment risk and results in an overall more resilient financial strategy. The issuance of Kangaroo Bonds by reputable international corporations, sovereign governments, and multinational agencies further contributes to investor confidence, attracting ample market interest and support.

Examples

A Kangaroo Bond refers to a foreign bond issued in Australian dollars by a non-Australian entity in the Australian market. They are named after Australia’s iconic animal, the kangaroo. Here are three real-world examples of Kangaroo Bonds: 1. Apple Inc.’s Kangaroo Bond Issuance (2015): In June 2015, the American technology giant Apple Inc. issued a Kangaroo Bond worth AUD 2.25 billion. This was the company’s first-ever bond issuance in the Australian market, and at the time, it was the largest Kangaroo Bond deal by a non-financial issuer. 2. International Finance Corporation’s (IFC) Kangaroo Bond (2018): In July 2018, the International Finance Corporation (IFC), a member of the World Bank Group, issued a ten-year Kangaroo Bond worth AUD 300 million. The issuance was significant because it was the first green bond (a bond focused on financing environmentally-friendly projects) issued in the Kangaroo market maturing in ten years. 3. Asian Development Bank’s (ADB) Kangaroo Bond (2020): In November 2020, the Asian Development Bank (ADB) issued a ten-year Kangaroo Bond worth AUD 558 million (about USD 397 million), with a coupon rate of 1.30%. The issuance was aimed at raising funds for social and economic development in the Asia-Pacific region. The bond was ADB’s first AUD fixed-rate transaction offering in the Australian market in 2020. These examples highlight the diverse range of entities, including multinational corporations, international development banks, and financial institutions, that utilize the Kangaroo Bond market to raise funds in Australian dollars.

Frequently Asked Questions(FAQ)

What is a Kangaroo Bond?

A Kangaroo Bond is a term used in finance and business to describe a foreign bond issued in the Australian market by a non-Australian issuer in Australian dollars. It provides an opportunity for the issuer to access the Aussie investor base, diversify their funding sources, and potentially take advantage of favorable market conditions.

How does a Kangaroo Bond work?

Kangaroo Bonds work in a similar way to other foreign bonds. They are issued by non-Australian entities in the Australian market and are denominated in Australian dollars (AUD). Investors in Kangaroo Bonds assume the credit risk of the issuer and receive periodic coupon payments and the face value of the bond at maturity.

Why are they called Kangaroo Bonds?

They are called Kangaroo Bonds after the name of the animal that is native to Australia and is a symbol commonly associated with the country. Similarly, other foreign bonds might have unique names related to the local symbols or animals of the country where they are issued, such as Yankee Bonds in the United States or Samurai Bonds in Japan.

Who typically issues Kangaroo Bonds?

Kangaroo bonds can be issued by a variety of entities, including foreign corporations, governments, and supranational organizations such as the World Bank. These issuers usually aim to diversify their funding sources, tap into a new investor base, or benefit from the market condition in Australia.

What are the advantages of investing in Kangaroo Bonds?

For investors, Kangaroo Bonds can provide portfolio diversification by exposing them to foreign issuers, different industries or sectors, and global economic conditions. Investing in Kangaroo Bonds denominated in AUD also eliminates the foreign exchange risk for Australian investors.

Are there any risks associated with investing in Kangaroo Bonds?

Yes, there are risks associated with investing in Kangaroo Bonds. These include credit risk, interest rate risk, and liquidity risk, which are common to all types of bonds. Credit risk relates to the risk of the issuer defaulting on their obligations, while interest rate risk pertains to the impact of interest rate changes on bond prices. Liquidity risk refers to the possibility of not being able to sell the bond easily in the market due to low demand or unfavorable market conditions.

How can I invest in Kangaroo Bonds?

To invest in Kangaroo Bonds, you can contact a financial advisor, brokerage firm or bank that deals with bonds, or an online trading platform that allows the buying and selling of bonds. They can provide guidance on the selection of Kangaroo Bonds that suit your risk appetite and investment goals.

Related Finance Terms

Australian Dollar-denominated Bond
Foreign Issuer
Investment Diversification
Australian Debt Market
Yield Spread

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