A maple bond is a type of financial instrument that is designed to allow Canadian investors to use Canadian dollars to invest in foreign businesses. When an investor purchases a foreign bond in most circumstances, it must be done using foreign currency. This introduced an additional risk, since it is possible that the foreign currency may become devalued compared to the domestic currency during the investment period. Instruments such as the maple bond remove this barrier to foreign investment, making it easier for companies to raise funds in other countries and for individuals to invest in foreign markets.
Prior to 2005, Canada had certain restrictions on registered investments in regards to foreign content. When these restrictions were lifted, foreign companies were provided with a concrete process to issue and register bonds within the country. These instruments are similar to samurai bonds in Japan, Yankee bonds in the United States and Matilda bonds in Australia, in that they remove some of the barriers involved in foreign investment. The two main requirements to issue a maple bond are to have a prospectus cleared in Canada and that any dealers or managers have to be registered within an appropriate Canadian jurisdiction. Both of these requirements can be lifted under certain circumstances.
The basic definition of a maple bond is a medium-term note that is issued in Canadian dollars and offered to the domestic Canadian market. These bonds are typically cleared or settled through the Canadian-based clearing system as well. The primary benefit that maple bonds offer to Canadian investors is the fact that they are issued in Canadian dollars. This allows a Canadian investor to use his native currency to invest in a foreign business, removing the uncertainty of currency fluctuations from the transaction. These bonds are typically less liquid than domestic notes, but can provide a more attractive yield.
Foreign companies can also benefit from the structure that provides for the issuing and registration of maple bonds. One benefit is that a maple bond makes it easier for Canadian citizens to invest in the company, which may bring increased bond sales. Another potential benefit is that the funds raised through the sales of a maple bond are in Canadian currency. This can be useful to an institution that is trying to raise funds to expand into the Canadian market, as the Canadian dollars raised can be used to build out infrastructure and make other large capital investments.
