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Currency-linked Bond China

Basic and Extra

Why invest in Currency-linked Bond China?

We believe that the Chinese currency has a lot of room to appreciate, as robust economic growth tends to strengthen the currency of the growing country. The importance of the currency is also reinforced by China's rise to an economic super power. For a few years now, a hot political question has been the undervaluation of the Chinese Yuan against the currencies of its most important trading partners. China has already embarked on a path leading to the abolishment of all restrictions on currency exchange. During this process, we can expect the Yuan to appreciate against the currencies of its most important trading partners, such as the United States.

Currency-linked Bond China offers an interesting way to benefit from the strengthening of the CNY against the USD. Moreover, currency as an asset class brings diversification to a portfolio consisting of equity and fixed income investments; even if the Chinese equity market fell, the Chinese currency may strengthen.

There is, however, a risk that the Chinese authorities will halt the Yuan's rise as they did in 2008 in order to support their export sector. This may happen if the current market turbulence deteriorates into a full-blown crisis, which would weaken China's export outlook considerably. Even if the USD strengthened against the Chinese Yuan, the nominal capital of Currency-linked Bond China is repaid in full at maturity.

Currency-linked Bond China

Currency-linked Bond China is a bond issued by Nordea Bank Finland Plc. The maturity is approximately five years and the yield is based on the performance of the currency pair CNY/USD (Chinese Yuan against the U.S. dollar) serving as the reference asset.

The bond comes with two alternatives: Basic and Extra. The yield on the Basic bond at maturity is 70% and the yield on the Extra bond 150% of the decrease in the value of the USD against the Chinese Yuan in accordance with the terms of issue. The change in the reference asset is the percentual change between the initial price and the final price of the currency pair. The initial price is the quotation of the currency pair on 15 November 2011. The final price is the quotation of the currency pair on 26 October 2016. If the Chinense Yuan depreciates against the U.S dollar, or remains unchanged, no yield is paid. Regardless of the currency pair performance, Nordea repays the nominal capital of the bond at maturity.

Risks of the investment

The Currency-linked bond involves a risk of the issuer Nordea Bank Finland Plc’s repayment ability. The risk relating to the issuer's repayment ability means the risk that the issuer becomes insolvent and cannot fulfil its commitments, for example, in the event of the issuer's bankruptcy. The investor can lose the invested capital and the possible yield partially or in full in the event of the issuer's insolvency. Nordea has a credit rating Aa2 by Moody's and AA- by Standard & Poor's. The bond is unsecured.

The premium, ie the proportion of the subscription price exceeding the nominal value of the bond, is not returned and it is not included in the capital protection. The size of the loss caused to the investor by the premium depends on how much lower the yield on the bond is than the premium paid. If the yield is zero, the investor's loss equals the premium paid. In the Extra bond the premium is about 10%.

The investor can also sell Currency-linked Bond China on the secondary market before maturity. In such a case the repurchase price may be above or below the bond’s nominal value. In normal market conditions Nordea quotes a secondary market price for the bond on all banking days when banks are generally open in Finland.

Performance of the Chinese Yuan against the U.S. Dollar (CNY/USD), September 2006–September 2011, and forecast up to 2013.

The presented figures describe previous yield or performance, and no reliable assumptions on future yield or value can be made based on them.

Yield table: Currency-linked Bond China

The initial price used in the calculations is the quotation for CNY/USD on 26 September 2011, which was 0,156

CNY/USD value at maturity (Chinese yuan in US Dollars)	CNY/USD change	Currency-linked Bond China Basic		Currency-linked Bond China Extra
		Issue price ca.	100 %	Issue price ca.	110 %
		Participation rate	70 %	Participation rate	150 %
		Value at maturity	Return p.a.	Value at maturity	Return p.a.
0,40	156 %	209 %	15,9 %	335 %	24,9 %
0,35	124 %	187 %	13,3 %	287 %	21,1 %
0,30	92 %	165 %	10,5 %	238 %	16,7 %
0,25	60 %	142 %	7,3 %	190 %	11,6 %
0,20	28 %	120 %	3,7 %	142 %	5,3 %
0,15	-4 %	100 %	0,0 %	100 %	-1,9 %
0,10	-36 %	100 %	0,0 %	100 %	-1,9 %
0,05	-68 %	100 %	0,0 %	100 %	-1,9 %

* 10% premia above par taken into account in return calculation

Issue terms in brief

Issuer	Issuer Nordea Bank Finland Plc; credit ratings Aa2 (Moody’s) and AA- (Standard & Poor’s).
Loan number and ISIN	Currency-linked Bond China Basic 4566 A FI40000031208 Currency-linked Bond China Extra 4566 B FI40000031216
Issue date	3 October 2011
Maturity	11 November 2016
Subscription period	3 October–11 November 2011
Places of subscription	Nordea Bank Finland Plc and its branches in the Baltics.
Subscription price	Basic 4566 A: variable, about 100% Extra 4566 B: variable, about 110%
Minimum subscription	1,000 euros
Yield at maturity	Basic 4566 A: 70% of CNY appreciation against the USD in accordance with the issue terms. Extra 4566 B: 150% of CNY appreciation against the USD in accordance with the issue terms.
Reference asset	Currency pair CNY/USD.
Initial price	The closing value of the reference asset on 15 November 2011
Final price	The closing value of the reference asset on 26 October 2016
Repayment of capital	The issuer Nordea Bank Finland Plc repays the nominal capital of the bonds in full at maturity irrespective of the performance of the reference asset. The bonds involve a risk of the issuer’s repayment ability. The premium, if any, is not returned (about 10% in Extra bond).
Security	The bonds are unsecured.
Structuring cost	The subscription price includes a structuring cost of about 0.8% p.a. (see the terms of issue for more details). No separate subscription or management fee is charged on the bonds.
Secondary market	In normal market conditions the issuer Nordea Bank Finland Plc quotes a repurchase price for the bonds, which may be lower or higher than the nominal value.
Taxation	Possible index-linked yield is subject to tax at source on interest income for natural persons and Finnish death estates.
Safe custody	Free of charge with Nordea Bank Finland Plc.
Cancellation of the issue	The issuer has the right to cancel the issue based on changes in the economic circumstances or if the total amount of subscriptions is low, or if something should occur that the issuer considers might endanger the issue.
Listing	An application will be made for the bonds to be listed on NASDAQ OMX Helsinki.

Loans 4566A (Currency-linked Bond China Basic) and 4566B (Currency-linked Bond China Extra) under the MTN programme (a medium-term note programme reported to the Finnish Financial Supervisory Authority from Sweden in accordance with the Prospectus Directive) of Nordea Bank AB (publ) and Nordea Bank Finland Plc, dated 25 May 2011. The bond-specific terms and the base prospectus are available at the places of subscription. Read the issue terms and the base prospectus before subscription. The Swedish version of the terms is binding and thus applied in possible dispute situations.

Nordea Markets is the name of the Markets departments of Nordea Bank Norge ASA, Nordea Bank AB (publ), Nordea Bank Finland Plc and Nordea Bank Danmark A/S.

The information provided herein is intended for background information only and for the sole use of the intended recipient. The views and other information provided herein are the current views of Nordea Markets on the date of this document and are subject to change without notice. This document is not an exhaustive description of the described product or the risks related to it, and it should not be relied on as such, nor is it a substitute for the judgement of the recipient.

The information provided herein is not intended to constitute and does not constitute investment advice nor is the information intended as an offer or solicitation for the purchase or sale of any financial instrument. The information contained herein has no regard to the specific investment objectives, the financial situation or particular needs of any particular recipient. Relevant and specific professional advice should always be obtained before making any investment or credit decision. It is important to note that past performance is not indicative of future results.

Nordea Markets is not and does not purport to be an adviser as to legal, taxation, accounting or regulatory matters in any jurisdiction.

This document may not be copied, distributed or published for any purpose without the prior consent in writing of Nordea Markets.