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Yield Enhancement Products. Teo Kang Heng Global Financial Markets . Agenda. Investment Parameters Products SOR Forecast. Investment Parameters. Risk Parameters: Higher Risk = Higher Return Type of Risk (Interest rate, equity, FX…) Amount of investment in each category of Risk

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yield enhancement products
Yield Enhancement Products

Teo Kang Heng

Global Financial Markets

agenda
Agenda
  • Investment Parameters
  • Products
  • SOR Forecast
investment parameters
Investment Parameters

Risk Parameters: Higher Risk = Higher Return

  • Type of Risk (Interest rate, equity, FX…)
  • Amount of investment in each category of Risk
  • Principal Protection
  • Guaranteed Return
  • Rate of return
  • Tenure - short term or long term
yield enhancement products1
Yield Enhancement Products

Short Term Products

FX Based:

  • Fixed Deposit
  • Currency Linked Investment (CLI)
  • Digital Range Deposit (DRD) – Principal Protected

Credit Based:

  • Credit Linked Note
  • FTD Credit Linked Note

Equity Based:

  • Equity Linked Note

Longer Term Products

  • Principal Protected- Rainbow Equity Linked Note
  • Callable Daily Range Accrual Deposit
fixed deposit
Fixed Deposit

Assumption:

Client has excess funds in SGD to place out.

1 Month Deposit: 0.35% p.a.

2 Month Deposit: 0.50% p.a.

3 Month Deposit: 0.52% p.a.

6 Month Deposit: 0.60% p.a.

1 Year Deposit: 1.00% p.a.

currency linked investment cli
Currency Linked Investment (CLI)

Description

  • This deposit offers higher interest rate than a regular fixed deposit but the principal returned may be in either the original currency or an alternate currency on maturity date.
  • Minimum tenor 1 month

How it works

  • Customer deposits SGD 1,000,000 Fixed Deposit with the Bank
  • Customer selects alternate currency; conversion price (strike); tenor
  • Normal 3 months SGD deposit rate : 0.52%p.a (92 days)
  • Spot USD/SGD : 1.4200 at inception
  • Conversion Price : 1 USD = 1.4000 SGD
  • CLI SGD 3 months deposit : 3.8000%p.a.
currency linked investment cli1
Currency Linked Investment (CLI)

Conversion Condition

On Fixing date (two business days prior to maturity of deposit):

  • At 2 p.m. Singapore time, if the spot USD/SGD is above 1.4000, customer will receive SGD 1,009,578.08(P + I).
  • If spot USD/SGD is at or below 1.4000, conversion takes place at 1.4000. Thus, customer gets USD 721,127.20 (P + I).
currency linked investment cli2
Currency Linked Investment (CLI)

Benefits

  • Higher interest rates than a standard term deposit regardless of the currency returned on maturity (3.80%p.a. vs. 0.52%p.a.).
  • Customer decides on the currency pairs, tenors and FX conversion rates.

Risks

  • Deposit repayment will be in the weaker of the currency pair.
  • Potential capital losses in base currency term but partly cushioned by the higher interest rates.
  • Early redemption of deposit may affect the Principal amount of the deposit.
at expiry digital range deposit
At Expiry Digital Range Deposit

Description

  • A Principal protected deposit that allows customers to earn higher than normal fixed deposit interest provided that the pre-determined FX rate do not trade out of the pre-determined range at expiry date of the deposit.

How it works:

  • Spot AUD/SGD : 1.2280
  • Range: Upper Barrier 1.2500 ( spot + 0.0220)

Lower Barrier 1.1900 (spot – 0.0380)

  • Tenor: 6 months (184 days)
  • Normal 6 month deposit rate : 0.60% p.a.
  • DRD yield: 3.20%

At 2pm SGD time, expiry date:

  • If spot AUD/SGD is in the range, Customer gets principal plus 3.20% p.a. interest
  • If spot AUD/SGD is out of the range, Customer gets back only the principal.
on expiry digital range deposit
On Expiry Digital Range Deposit

Benefits

  • Potentially higher interest rates than a standard term deposit if range is intact
  • 100% principal protected
  • Client decides on the currency pairs, tenors and FX range

Risks

  • Minimal / (opportunity costs) if exchange rate breaches Range on expiry
  • Early redemption of deposit is not permitted
credit linked note
Credit Linked Note

Description

  • Credit Linked Note allows investors with risk appetite for good quality investment grade financial credits and looking to benefit from current wide CDS spread on these names.

How It Works:

  • 100% redemption of Note amount at maturity (applies only if held to maturity and no Credit Event on the underlying reference obligation.
  • Tenor : 1.5 years
  • Ref Entity : Standard Chartered PLC
  • Interest : 2.75% p.a. payable quarterly
  • Settlement date : T + 5 days
  • Credit Event : Bankruptcy

Failure to Pay

Restructuring

Non payment of Dividend/Coupon

credit linked note1
Credit Linked Note

Benefits

  • Higher yield pick up over cash market
  • Exposure to good quality investment grade credits.
  • Able to access risks of different markets and currencies
  • Accessing short term yield pick up on desired tenure

Risks

  • Potential loss of principal and coupons on default in the underlying reference entity.
  • Credit risk of the underlying reference entity.
  • Credit risk of the note issuer – DBS Bank rating Aa2/A+ from Moodys/S&P
  • Correlation risk of issuer and underlying reference obligation.
ftd credit linked note
FTD Credit Linked Note

Description

  • FTD Credit Linked Note allows investors with risk appetite for a basket of good quality investment grade financial credits and looking to hold for medium term.

How It Works:

  • 100% redemption of Note amount at maturity (applies only if held to maturity and no Credit Event on any underlying reference obligations.)
  • Tenor : 3 years
  • Ref. Entities : ICIC Bank (S&P rating BBB-)

Hyundai Motor Co (S&P rating BBB-)

Capital Land Ltd (S&P rating BBB+)

Bank of East Asia (S&P rating A-)

PCCW-HKT Telephone Ltd (S&P rating BBB)

  • Interest : 6.15% p.a. payable quarterly
  • Credit Event : Bankruptcy

(on any of the ref.Failure to Pay

obligations) Restructuring

Non payment of Dividend/Coupon

ftd credit linked note1
FTD Credit Linked Note

Benefits

  • Yield from FTD CLN is higher than a single name CLN

For example, FTD is 2.4 times (6.15%) the spread on the widest single name in the basket (2.60%)

  • Exposure to good quality investment grade credits.
  • Able to access risks of different markets and currencies
  • Accessing short term yield pick up on desired tenure

Risks

  • Potential loss of principal and coupons on default in the underlying reference entity.
  • Credit risk of the underlying reference entity.
  • Credit risk of the note issuer – DBS Bank rating Aa2/A+ from Moodys/S&P
  • Correlation risk of issuer and underlying reference obligation.
equity linked note
Equity Linked Note

Description

  • An equity-linked product that may offer a higher return than traditional Fixed income investment but with the downside risk that noteholders might receive equivalent amount of shares if the Final Share Price on the Determination Date is below the Strike Price

How it works (Assume 3 months placement, 90% strike)

  • Capital Land Properties Ltd : Payout 14.00% p.a.
  • Singapore Airlines Ltd : Payout 4.70% p.a.
  • Sembcorp Industries : Payout 3.50% p.a.
  • On expiry date, if price of underlying counter is > the strike price, customer receives P+I.
  • On expiry date, if price of underlying counter is <= the strike price, customer receives underlying shares (P+I will be converted to shares at the strike price).
equity linked note1
Equity Linked Note

Benefits

  • Qualifying Debt Security subject to 10% tax rate.
  • Flexibility in choice of reference share counter, tenor and currency denomination.
  • If conversion occurs, the customer receives the underlying shares at target conversion price (Strike price)

Risks

  • If converted, the customer receives shares that are valued at lower than the market price.
  • Unable to take advantage of potential gains below strike price.
rainbow equity linked note
Rainbow Equity Linked Note

Description:

A principal protected product that provides a higher rate of return than a fixed deposit and it is depended on the performance of the selected shares.

How it works:

  • 100% Principal protected (applies only if held to maturity or redeemed by the Bank).
  • Maximum Period : 3.5 years.
  • Fixed Interest : 1.00% p.a. (Year 1)

1.20% p.a. (Year 2)

1.40% p.a. (Year 3)

  • Interest at Maturity : 80% x (Average Return + 5%), subject to min. 0.50%
  • Performance of 5 shares : Singapore Telecommunication Limited

Overseas-Chinese Banking Corporation Limited

United Overseas Bank Limited

Keppel Corporation Limited

Sembcorp Marine Limited

  • Interest payout : Annually; Deposit Maturity Date
rainbow equity linked note1
Rainbow Equity Linked Note

Benefits

  • Qualifying Debt Security subject to 10% tax rate.
  • Flexibility in choice of reference share counter, tenor and currency of denomination.
  • Principal Protected Structure

Risks

  • If lower than range, customer will have no interest for the period.
  • Early redemption not advised.
callable daily range accrual deposit
Description:

A simple Principal Protected product that provides a potentially greater rate of return compared to a normal deposit.

How It Works:

100% Principal protected (applies only if held to maturity or redeemed by the Bank).

Max Period : 3 Years.

Interest : Payable Quarterly.

Callable : Quarterly.

Interest : 3.10% * N1/N2 where

Range : 0% < if 3M SGD SOR < 4.00% ( Year 1 )

0% < if 3M SGD SOR < 4.25% ( Year 2 )

0% < if 3M SGD SOR < 4.50% (Year 3 )

“N1” means in relation to a Coupon period, the number of calendar days in respect of which the 3M SGD SOR trades above the relevant lower barrier and below the relevant Upper Barrier set out.

“N2” means the total number of calendar days in the Coupon Period corresponding to the relevant N1

Callable Daily Range Accrual Deposit
callable range accrual deposit
Callable Range Accrual Deposit

Description:

A callable principal protected product that provides a higher rate of return than a fixed deposit with a step up coupon.

How it works:

  • 100% Principal protected (applies only if held to maturity or redeemed by the Bank).
  • Maximum Period : 5 years.
  • Interest : 3.90% p.a. (Year 1)

4.15% p.a. (Year 2)

4.40% p.a. (Year 3)

4.65% p.a. (Year 4)

4.90%p.a. (Year 5)

  • Range : 0% < if 3M SGD SOR < 4.00% ( Year 1 )

0% < if 3M SGD SOR < 4.25% ( Year 2 )

0% < if 3M SGD SOR < 4.50% (Year 3 )

0% < if 3M SGD SOR < 4.75% ( Year 4 )

0% < if 3M SGD SOR < 5.00% ( Year 5 )

  • Interest payout : Coupon x N1/N2; Quarterly
  • Callable : Quarterly
callable range accrual deposit1
Callable Range Accrual Deposit
  • “N1” means in relation to a Coupon period, the number of calendar days in respect of which the 3M SGD SOR trades above the relevant lower barrier and below the relevant Upper Barrier set out.
  • “N2” means the total number of calendar days in the Coupon Period corresponding to the relevant N1.
callable range accrual deposit2
Callable Range Accrual Deposit

Benefits

  • 100% principal protected (applies only when called or held to maturity).
  • Possibility of early termination.
  • Earn higher interest if 3 months SGD SOR stays within the range

Risks

  • Possibility of early call back if rates moves lower which would affect the yield of reinvestment of deposit.
  • Early termination of deposit by client might negatively affect the principal amount of the deposit.
  • No interest paid should 3 months SGD SOR move out of the range.
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