Euromarkmet bond rates lure Canadians

Canadian corporations and governments are increasingly looking to Euromarkets to borrow funds. The reason, Canadian bankers say, is that rates in Europe have been lower than in Canada. Latest to use the Euromarket have been Chrysler Credit Canada Ltd.; Bell Canada, the utility owned by Bell Canada Enterprises Inc. of Toronto; Inco Ltd., the Toronto-based nickel-mining giant; and the Canadian National Railway Company, which is owned by the federal government.

An example of the lower costs for Canadian borrowers is Canadian National. It issued C$100 million at a yield of 12.59 percent. This is 0.2 of a percent lower than it would have cost in Canada and could mean $200,000 a year in savings for CN's treasury.

The issue by Inco Ltd., announced in March, is for US$60 million. Inco is issuing bonds in sterling because it has two refinery operations in Britain and because of market conditions for the pound, according to Ian Austin, Inco's treasurer.

Bell Canada had been planning a C$125 million issue in Canada and had gone so far as to prepare a prospectus. It switched to the European market when it saw it could save money. The C$125 million deal has a yield of 12.25 percent. That coupon is paid on an annual basis; in Canada the coupons are paid semiannually, so that 12.25 percent in the Euromarket would equal 11.90 in Canada.

Cheaper rates were still the attraction for Bell. ``On an after-tax basis we saved about 40 basis points,'' says Frank Duck, director of finance for Bell Canada. ``And that works out to $500,000 a year after tax.''

The use of the Eurobond market by corporations is not new. But the bulk of Euro-borrowing has been by Canadian governments -- federal, provincial, and municipal -- and by government-owned companies, such as the Export Development Corporation and the Federal Business Development Bank, both of which went to the market in the past seven months.

Total use of the Euromarkets by Canadian borrowers was $4.48 billion last year, up from $3.9 billion the year before. Those figures include all currencies and have been translated into US dollars. That made Canada the fourth-largest user of Euromarkets in both 1983 and '84, after the United States, Japan, and France. In 1982, Canadian companies and the government borrowed $6.95 billion, which, at 13.8 percent of Euro-borrowings, made it second only to the United States.

There are two types of borrowings by Canadians in Europe. The first, and by far the largest, is US dollar financing by Canadian borrowers. There is also a Euro-Canadian market of financings from the pool of offshore Canadian dollars.

Non-Canadian borrowers are also using the Euro-Canadian market as a currency hedge. Examples so far this year were the Kingdom of Denmark, which borrowed C$100 million; Gaz de France, C$75 million; and the Bank of Tokyo, C$75 million.

The Canadian corporate interest in the Euromarkets may have slowed in the very short term. What the corporations are looking for is an interest-spread ``window'' when the rates vary -- and that can be as little 20 or 40 basis points -- between Canada and Europe.

Just a few weeks after Bell's latest issue, the company is not sure it would borrow in Europe now. ``Interestingly enough, today the difference between the two markets has narrowed so much we might borrow in Canada,'' says Mr. Duck.

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