Index-linked bond Finland
Subscription period till the 4th of November, 2010
Final terms
Basic and Extra
Index-linked bond Finland in brief
- A bond issued by Nordea Bank Finland Plc with a maturity of approximately 5 years.
- Share basket: shares of 10 Finnish companies.
- In the yield calculation the change in the value of the four best performing companies in the share basket is always 40% irrespective of the performance of the shares during the loan period.
- Subscription price variable: in the Basic bond approximately 100%, in the Extra bond approximately 110%.
- Participation rate: Basic bond 70 %, Extra bond 160 %.
- Minimum subscription: eur 1,000
- Subscription period: 27 September–5 November 2010.
- In normal market conditions Nordea quotes a repurchase price for the investment on all banking days.
- The issuer Nordea Bank Finland Plc returns the nominal capital of the bond at maturity and pays out the possible index-linked yield.
- The bond involves a risk of the issuer’s repayment ability and of losing the premium.
The outlook for the Finnish economy is bright and Finnish equities are attractive. The export-driven economy of Finland and many Finnish companies benefit from the fact that global economy has began to recover and the euro has been weakened by the debt crisis of Southern European countries. Compared to many other European countries the Finnish public finances are in a good shape, and consumer confidence in the economy has risen, which improves the outlook for companies operating in the domestic market. The outlook for companies and consumer demand is further boosted by the continuously low interest rate level.
In the Helsinki stock exchange the earnings reporting season of this summer clearly beat the market expectations and the valuations of many Finnish companies have decreased as their earnings have improved. Another sign of the improved situation of Finnish companies is that the number of new orders increased clearly more robustly than forecast.
Despite the positive outlook for equity markets, the market sentiment is still nervous and significant share price volatility is expected to continue. In the present market situation an index-linked bond is a wise choice, because the nominal capital of the investment is repaid irrespective of the share price performance.
Index-linked bond Finland Basic and Extra
The index-linked bond Finland is a bond issued by Nordea Bank Finland Plc. Its maturity is approximately five years and its yield is based on the performance of the shares of ten companies forming a share basket. There are two alternatives: Basic and Extra. The alternative Basic is suitable for a cautious investor. Its yield at maturity is 70 % of the increase in the value of the share basket in accordance with the terms of issue. Alternative Extra suits risk-tolerant investors who seek a higher return. Its yield at maturity is 160 % of the rise in the value of the share basket in accordance with the terms of issue. Nordea repays the nominal capital of the bond at maturity.
Risks of the investment
The index-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. The investor can lose the invested capital and the possible yield partly or in full in the event of the issuer's insolvency. Nordea has been given a credit rating Aa2 by Moody’s and AA- by Standard & Poor’s. The bond is unsecured.
The investor may lose the capital invested exceeding the nominal value either partially or in full. In the Extra bond this premium risk is approximately 10%, as its subscription price is approximately 110%. The investor can also sell the index-linked bond Finland before maturity. 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.
Share basket
The reference assets of the index-linked bond comprise the shares of ten Finnish companies. Together the shares form a share basket. All companies in the share basket have equal weights (10%). Read more about the companies and the observations of Nordea Equities Finland on pages 6–11.
In the table below are the recommendations of Nordea Equities Finland on the companies. The recommendations were checked on 1 September 2010.
| Wright | Company | Recommendation |
|---|---|---|
| 1/10 | Cargotec Oyj | Buy |
| 1/10 | Kesko Oyj | Buy |
| 1/10 | Metso Oyj | Buy |
| 1/10 | Nokia Oyj | Buy |
| 1/10 | Nokian Renkaat Oyj | Buy |
| 1/10 | Outokumpu Oyj | Buy |
| 1/10 | Rautaruukki Oyj | Buy |
| 1/10 | Sampo Oyj | Buy |
| 1/10 | TeliaSonera Oyj | Buy |
| 1/10 | Tieto Oyj | Strong buy |
The performance of the share basket and the OMX Helsinki 25 Index, September 2005–September 2010
Starting level indexed at 100%. Source: Bloomberg.
The presented figures describe previous yield or value performance, and no reliable assumptions on future yield or value can be made based on them.
Yield calculation
In yield calculation the change in the value of the four best performing shares in the share basket is always 40% irrespective of the performance of the shares during the loan period. The rise in the value of the share basket is calculated as the average of the rise in the value of the reference assets. The rise in the value of a reference asset is calculated as the difference between its starting price and final price. The starting price is the closing price of the reference asset on 10 November 2010. The final price is the closing price of the reference asset on 29 October 2015. In the alternative Basic the positive change in value is multiplied by the participation rate 70 % and in the alternative Extra by the participation rate 160 %. If the value of the share basket falls or remains unchanged, no yield is paid. See the yield calculation examples below. The bond's smallest possible maturity value is 100%.
Example 1: Strong rise
| Share | Start Value | Final Value | Change % | Change to be observed in yield calculation | |
|---|---|---|---|---|---|
| Share 1 | 100 | 300 | 200% | 40% | |
| Share 2 | 100 | 270 | 170% | 40% | |
| Share 3 | 100 | 260 | 160% | 40% | |
| Share 4 | 100 | 250 | 150% | 40% | |
| Share 5 | 100 | 240 | 140% | 140% | |
| Share 6 | 100 | 230 | 130% | 130% | |
| Share 7 | 100 | 220 | 120% | 120% | |
| Share 8 | 100 | 200 | 100% | 100% | |
| Share 9 | 100 | 170 | 70% | 70% | |
| Share 10 | 100 | 150 | 50% | 50% | |
| Average change in reference asset = 129% | Change in reference asset in acc. with bond terms = 77% | ||||
| Change in reference asset in acc. with issue x | Participation rate + | Refund of capital = | Value at maturity | yield p.a. | |
| Basic | 77% | 70% | 100% | 153.9% | 9.0% |
| Extra | 77% | 160% | 100% | 223.2% | 15.2% |
Example 2: Moderate rise
| Share | Start Value | Final Value | Change % | Change to be observed in yield calculation | |
|---|---|---|---|---|---|
| Share 1 | 100 | 150 | 50% | 40% | |
| Share 2 | 100 | 140 | 40% | 40% | |
| Share 3 | 100 | 130 | 30% | 40% | |
| Share 4 | 100 | 125 | 25% | 40% | |
| Share 5 | 100 | 120 | 20% | 20% | |
| Share 6 | 100 | 115 | 15% | 15% | |
| Share 7 | 100 | 110 | 10% | 10% | |
| Share 8 | 100 | 100 | 0% | 0% | |
| Share 9 | 100 | 90 | -10% | -10% | |
| Share 10 | 100 | 80 | -20% | -20% | |
| Average change in reference asset = 16% | Change in reference asset in acc. with bond terms = 18% | ||||
| Change in reference asset in acc. with issue x | Participation rate + | Refund of capital = | Value at maturity | yield p.a. | |
| Basic | 18% | 70% | 100% | 112.6% | 2.3% |
| Extra | 18% | 160% | 100% | 128.8% | 3.2% |
Example 3: Decline
| Share | Start Value | Final Value | Change % | Change to be observed in yield calculation | |
|---|---|---|---|---|---|
| Share 1 | 100 | 100 | 0% | 40% | |
| Share 2 | 100 | 90 | -10% | 40% | |
| Share 3 | 100 | 80 | -20% | 40% | |
| Share 4 | 100 | 75 | -25% | 40% | |
| Share 5 | 100 | 75 | -25% | 140% | |
| Share 6 | 100 | 70 | -30% | 130% | |
| Share 7 | 100 | 65 | -35% | 120% | |
| Share 8 | 100 | 60 | -40% | 100% | |
| Share 9 | 100 | 55 | -45% | 70% | |
| Share 10 | 100 | 50 | -50% | -50% | |
| Average change in reference asset = -28% | Change in reference asset in acc. with bond terms = -7% | ||||
| Change in reference asset in acc. with issue x | Participation rate + | Refund of capital = | Value at maturity | yield p.a. | |
| Basic | -7% | 70% | 100% | 100.0% | 0.0% |
| Extra | -7% | 160% | 100% | 100.0% | -1.9% |
Issue terms in brief
| Issuer | Nordea Bank Finland Plc; credit ratings Aa2 (Moody’s) and AA- (Standard & Poor’s). | |
| Issue date | 27 September 2010 | |
| Maturity date | 5 November 2015 | |
| Subscription period | 27 September –5 November 2010 | |
| Places of subscription | Nordea Bank Finland Plc branches, Nordea Private Banking and Nordea Customer Service with access codes, tel 0200 70 000, Mon–Fri 10.00–16.30 (local network charge/mobile call charge), and Netbank at nordea.fi. | |
| Subscription price | Basic 4425A: variable, approximately 100% Extra 4425B: variable, approximately 110% |
|
| Minimum subscription | 1,000 euros | |
| Yield at maturity | Basic 4425A: 70 % of the rise of the share basket in accordance with the terms of issue Extra 4425B: 160 % of the rise of the share basket in accordance with the terms of issue |
|
| Reference assets | The shares of the following companies form the reference assets. Together they form a share basket. | |
| Weight | Company | Bloomberg |
|---|---|---|
| 1/10 | Cargotec Oyj | CGCBV FH |
| 1/10 | Kesko Oyj | KESBV FH |
| 1/10 | Metso Oyj | MEO1V FH |
| 1/10 | Nokia Oyj | NOK1V FH |
| 1/10 | Nokian Renkaat Oyj | NRE1V FH |
| 1/10 | Outokumpu Oyj | OUT1V FH |
| 1/10 | Rautaruukki Oyj | RTRKS FH |
| 1/10 | Sampo Oyj | SAMAS FH |
| 1/10 | TeliaSonera AB | TLSN SS |
| 1/10 | Tieto Oyj | TIE1V FH |
| Starting price | The closing values of the reference assets on 10 November 2010 | |
| Final price | The closing values of the reference assets on 29 October 2015 | |
| Yield calculation | In the yield calculation the change in the value of the four best performing shares in the share basket is always 40%. | |
| 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 share basket. The bonds involve a risk of the issuer’s repayment ability and of losing the premium (in Extra bond about 10%). | |
| Security | The bonds are unsecured. | |
| Structuring cost | The subscription price includes a structuring cost of about 0.7% 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 | If the total amount of subscriptions is sufficient, an application will be made for the bonds to be listed on NASDAQ OMX Helsinki. |
Loans 4425A (Index-linked bond Finland) and 4425B (Index-linked bond Finland 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 2010. The bond-specific terms and the base prospectus are available at the places of subscription. Read the issue terms and the 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.
Finnish economy and equity market in tailwind
In Q2 the Finnish export-driven economy picked up strongly as the global economy is continuing to recover. Economic growth is expected to further gain momentum near the year-end, and the growth peak at an annual level will be witnessed during Q1 of next year. After that the rise in the economy is expected to stabilise, but the long-term growth outlook will remain positive.
At present, there are several factors lending support to the Finnish economy. Low interest rates give a strong boost to the economic activity of both companies and households. This also helps revive the public finances. Throughout the recession the Finnish public deficit was maintained under the 3 per cent target set by EU, and next year it will again be close to the balance. The unemployment rate has remained lower than anticipated and consumption is expected to grow as a result of low interest rates and strong confidence in the economy.
The trend of the global economy plays a crucial role in Finland's future economic growth. Undeniably, it is important for the Finnish export-driven economy that the global recovery continues, even though the pace will slow down somewhat.
Strong earnings growth in the Helsinki stock exchange
On the whole, the earnings reporting season of this summer in the Helsinki stock exchange clearly beat the market expectations. Positive earnings surprises were received from several sectors. What was particularly positive in the half-year earnings results of listed companies was that there were signs of increased demand and an improved business environment. In the preceding quarters the improvement in earnings has mainly been due to successful streamlining measures, but in Q2 the stronger-than-expected trend in net sales also supported earnings growth. As already anticipated in the spring, the cost-cutting and streamlining measures during the recession are giving leverage to earnings as there is now more evidence that sales are getting back to the growth track. Another sign of the improved situation of Finnish companies is that the number of new orders increased clearly more robustly than forecast.
In the wake of the earnings season the earnings forecasts of Finnish companies for 2010 have been further upgraded. According to the consensus estimate at the beginning of September, the earnings based valuation level of the companies listed on the Helsinki stock exchange is below the long-term average. In addition to the improved earnings outlook for Finnish companies, the relative attractiveness of Finnish equities is also boosted by the expectations of good dividends.
Sources: Nordea Bank Finland Plc and Nordea Savings & Asset Management Equity Advice
Key indicators of Finnish economy (% change, unless stated otherwise), 2010–2012 figures are Nordea's forecasts
Source: Nordea Bank Finland Plc
| 2008 | 2009 | 2010E | 2011F | 2012F | |
|---|---|---|---|---|---|
| GDP | 0.9 | -8.0 | 3.5 | 3.0 | 3.5 |
| Private consumption | 1.7 | -1.9 | 2.4 | 2.6 | 3.0 |
| Government consumption | 2.4 | 1.2 | 0.5 | 0.5 | 1.0 |
| Investments | -0.4 | -14.7 | 0.7 | 4.1 | 5.0 |
| Export | 6.3 | -20.3 | 10.0 | 6.9 | 8.0 |
| Import | 6.5 | -18.1 | 7.5 | 6.3 | 7.8 |
| Unemployment, % | 6.4 | 8.2 | 8.5 | 8.1 | 7.7 |
| Industrial production | -0.3 | -17.8 | 10.0 | 5 | 6.0 |
Share basket of index-linked bond Finland
The reference assets of the index-linked bond Finland comprise the shares of ten Finnish companies. Together the shares form a share basket. Read more about Nordea Equities Finland’s view on the companies in the basket and their future outlook.
Cargotec Plc
Cargotec is a provider of cargo and load handling solutions and maintenance services for ships, ports and local distributors. Cargotec's solutions are used wherever cargo is on the move. Through its global network Cargotec offers its services close to customers and the strategic target of the company is to be the global market leader in cargo handling. Cargotec's daughter brands are Hiab, Kalmar and MacGregor. The positive trend of Cargotec has continued and investors' faith in the company has rebounded. Demand and order book for load handling solutions for vehicles and cargo handling solutions for ships have grown strongly. However, demand for container handling equipment in ports has not been as good as hoped for.
Kesko Plc
Kesko is the leading provider of trading sector services whose operations are divided into the segments of food trade, home and speciality goods trade, building and home improvement trade, and car and machinery trade. The first half of 2010 was positive for the company. The outlook for consumer demand has improved, especially as a result of higher consumer confidence and continuously low interest rates. The trend in the grocery trade is expected to continue steadily, and in the home and speciality trade, the building and home trade and the car trade the market situation is expected to recover strongly. Kesko's attractiveness as an investment is supported by the company's shareholder-friendly profit distribution policy, possible news concerning corporate restructuring and the company's sizeable net assets of over EUR 220 million.
Metso Plc
Metso is a global technology group which supplies technology and services for the mining, construction, power generation, oil and gas, recycling, and pulp and paper industries. The business environment of Metso has improved especially in the emerging markets. Its competitive position has strengthened and its profitability has improved in the paper and fibre technology segment in particular. In the mining industry, too, the customer base outlook has strengthened during 2010 due to, among other factors, the rise in metal prices. Metso's H1 results were very strong, and the company reported that the number of orders received exceeded expectations.
Nokia Plc
Nokia is the world’s leading manufacturer of mobile phones. Due to the share price drop in the last few months the valuation of the Nokia share is already rather low, considering the company’s position as the market leader in the mobile phone market and the growth potential in emerging markets in particular. In the long term, we believe Nokia will further benefit from the economies of scale brought by the high volumes, strong brand, wide distribution network and strong balance sheet. We expect Nokia’s new smartphone launches to support the average prices of Nokia phones and the increase of the company’s market share towards the end of this year. In the future, other share price boosters might be strategic company adjustments or changes in management.
Nokian Tyres Plc
Nokian Tyres is a manufacturer in the rubber industry. The company was established after the tyre segment was split from the Nokia Corporation. In addition to tyres for passenger cars, Nokian Tyres manufactures heavy tyres for machinery used in ports, mining, agriculture and forestry and for trucks. We consider the world’s leading winter tyre manufacturer an attractive investment thanks to the company’s sizeable long-term growth potential in the Eastern markets. Demand in the tyre market has picked up considerably in 2010 and growth, especially in Russia, is expected to be strong in the future, too. We believe that the company’s profitability will continue to improve when the proportion of the tyre manufacture in Russia of the company’s overall production increases further. Due to the company’s size, market position and ownership structure, we also see Nokian Tyres as a potential target for corporate restructuring.
Outokumpu Plc
Outokumpu is a materials company engaged in the production of stainless steel. In the first half of the year, deliveries of stainless steel have picked up, the demand outlook has strengthened and the order book has continued to grow. Rising base prices and the streamlined cost structure will improve Outokumpu’s profitability and the plants’ utilisation rates. In May, the company announced that it will establish a new service centre in China with the aim to support expanding operations in Asia. In the long term, we consider Outokumpu's competitive edge excellent on the basis of, among other things, the company's own ferrochrome mine and ferrochrome refining at the Tornio plants. In our view the valuation of the Outokumpu share is very attractive.
Rautaruukki Plc
Steel manufacturer Rautaruukki supplies metal-based components, systems and integrated systems to the construction and engineering industries. Even though investments in Rautaruukki's target market in Q2 did not pick up quite in line with expectations, delivery volumes and prices saw a clear rise and the company was able to turn its results positive. Signs of demand picking up were seen especially in sales of special steel products in the new markets. Accordingly, the order book in this sector grew significantly. The capacity utilisation rate was still low, but as it rises profitability is also expected to improve. Rautaruukki has actively improved its cost efficiency and will continue to do so. Due to the positive trend, Rautaruukki raised considerably its full year outlook.
Sampo Plc
Sampo is a financial group whose main business areas are P&C insurance and life insurance. Sampo’s profitability has been good despite the challenging market conditions. Particularly the company’s P&C insurance unit If, profiled as the group’s more defensive section, is performing well operatively. We expect Sampo’s insurance technical result to remain stable thanks to investment income and the affiliated share of Nordea’s profit. In addition to its solid earnings, Sampo's attractiveness as an investment is supported by the extensive track record of its management in generating shareholder value through corporate restructuring. Due to its holdings (Nordea, Topdanmark), the company will have a key position in a potential Nordic restructuring of the financial sector. Furthermore, the valuation of the Sampo share is still moderate and the company’s future outlook promising.
TeliaSonera AB
TeliaSonera is a Nordic teleoperator providing fixed and mobile network telecommunications services to its customers. TeliaSonera's earnings-power has remained strong and through streamlining measures, among others, the company has managed to improve its profitability significantly. TeliaSonera's earnings outlook in the Nordic capital markets is stable, and the company has long-term potential in the emerging markets of Eurasia. We believe that speculations on corporate restructuring that emerge in the teleoperator sector from time to time keep up the investors' interest in the companies in the sector. Furthermore, TeliaSonera's strong cash flow enables a shareholder-friendly profit distribution policy also in future.
Tieto Plc
Tieto is an IT service company providing information technology, product development and consultancy services. Tieto's Q2 earnings fell slightly short of expectations mainly due to non-recurring items, but the company believes that the markets have already returned to a growth track. Most of the streamlining measures have already been implemented, and in future, the company's strategy will again focus on growth. Tieto maintains a strong market position in Finland, and we believe that the company has good opportunities for expansion, for example, in the Swedish and Russian markets where the company has invested heavily. We also believe that the implemented streamlining measures will strengthen the company's profit margins this year. Looking at consensus estimates, the share valuation is at present very attractive.