Equity-linked Bond Global 2012
Subscription period till the 3rd of May, 2012
Final terms
Basic and Extra
Equity-linked Bond Global 2012 in brief
- A bond issued by Nordea Bank Finland Plc. The maturity of the bond is about 4 years.
- The yield is based on the performance of a share basket consisting of 12 shares recommended by Nordea.
- In the yield calculation the change in the share price of the four best performing companies in the share basket is replaced by 32% irrespective of the performance of these shares during the investment period.
- Participation rate: tranche Basic 70%, tranche Extra 200%.
- Subscription price variable: tranche Basic, about 100%; tranche Extra, about 110%.
- Minimum subscription: 1,000 euros.
- Subscription period: 19 March–3 May 2012.
- 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 potential yield.
- The bond involves a risk of the issuer’s repayment ability.
- Any premium related to the subscription is not repaid to the investor.
The world economy has picked up from last autumn, especially in the US, but China and Germany have also performed better than expected. Compared to the rest of Europe, the northern European economies are in a good shape, although Europe as a whole is expected to fall into a recession in 2012 with the debt-burdened countries weighing down on growth. Despite this, the world economy is on a growth track.
With the improved economic outlook, the investor sentiment has also turned positive from the gloom seen in the autumn. With hopefulness growing, investors have increased equity weights, which has lifted share prices. The share price rise has also been supported by the quantitative easing of the world's major central banks.
However, there are still many risks related to the world economy. The problems of the euro area are not 100% solved and the dawning growth in the US is still partly on volatile ground. Another major risk is the high crude oil price, which is already weighing the consumption outlook.
As the risks and opportunities are now equally big, investors should select their investments with care. In an uncertain market situation the role of share selection becomes increasingly important. Equity-linked Bond Global 2012 is a capital-protected way to invest in high-quality equities selected by Nordea with a view on good return potential. The investment also offers diversification into 12 companies across several industries and geographical areas.
Equity-linked Bond Global 2012
Equity-linked Bond Global 2012 is a bond issued by Nordea Bank Finland Plc. Its maturity is about four years and its yield is based on the performance of a share basket consisting of twelve shares recommended by Nordea. In the yield calculation the change in the share price of the four best performing companies in the share basket is replaced by 32% irrespective of the performance of these shares during the investment period. If the value of the share basket falls, no yield is paid and the investors will receive the nominal capital of the bond at maturity.
The bond comes with two alternatives: Basic and Extra. The tranche 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. The tranche Extra suits investors who seek a higher return and tolerate higher volatility and a premium risk of about 10%. Its yield at maturity is 200% of the rise in the value of the share basket in accordance with the terms of issue.
Risks of the investment
The equity-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 in a bankruptcy etc. The investor can lose the invested capital and the potential 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 tranche Extra the premium is about 10%.
The investor can sell Equity-linked Bond Global 2012 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.
Global 2012 share basket
The share basket consists of 12 shares in which Nordea sees long-term potential. All companies in the share basket have equal weights (1/12). The recommendations are compiled by either Nordea or Standard & Poor's.
| Company | Recommendation | Sector | Country |
|---|---|---|---|
| Barrick Gold Corp. | Strong Buy | Materials | Canada |
| Bayer AG | Buy | Healthcare | Germany |
| Caterpillar Inc. | Buy | Industrials | USA |
| ExxonMobil Corp. | Strong Buy | Energy | USA |
| Heineken NV | Buy | Consumer Staples | Holland |
| IBM Corp. | Strong Buy/td> | Information Technology | USA |
| McDonald‘s Corp. | Strong Buy | Consumer Discretionary | USA |
| Novo Nordisk A/S | Strong Buy | Healthcare | Denmark |
| Sampo Oyj | Buy | Financials | Finland |
| Telenor ASA | Buy | Telecommunications | Norway |
| Wal-Mart Stores Inc | Strong Buy | Consumer Staples | USA |
| Volvo AB | Buy | Industrials | Sweden |
Share basket performance March 2002–March 2012
Starting level indexed at 100%. The premium, if any, the averaging of the final price in accordance with the issue terms and the participation rates are not taken into account in calculating the share basket performance. The yields in accordance with the issue terms can deviate significantly from the share basket performance. Source: Bloomberg.
The presented figures describe previous yield or value, 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 is replaced by 32% irrespective of the actual performance of the shares during the investment period. The rise in the value of the share basket is calculated as the average of the rise in the value of the shares. The rise in the value of a share is calculated as the difference between its initial price and final price. The initial price is the closing price of the share on 9 May 2012. The final price is the average of the monthly closing values of the share from 20 April 2015 to 20 April 2016. In the tranche Basic the positive change in the value of the share basket is multiplied by 70% and in the tranche Extra by 200%. If the share basket value falls or remains unchanged, no yield is paid. The bond's smallest possible value at maturity is 100%. See the yield calculation examples below.
Example 1: Strong rise
| Share | Start Value | Final Value | Change % | Change to be observed in yeld calculation | |
|---|---|---|---|---|---|
| Share 1 | 100 | 300 | 200 % | 32 % | |
| Share 2 | 100 | 270 | 170 % | 32 % | |
| Share 3 | 100 | 260 | 160 % | 32 % | |
| Share 4 | 100 | 250 | 150 % | 32 % | |
| 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 | 160 | 60 % | 60 % | |
| Share 11 | 100 | 150 | 50 % | 50 % | |
| Share 12 | 100 | 140 | 40 % | 40 % | |
| Average change in reference asset = 116 % | Change in reference asset in acc. with bond terms = 70 % | ||||
| Change in reference asset acc. with issue terms | Participation rate | Refund of capital | Value at maturity | yeld p.a. | |
| x | + | = | |||
| Basic | 70 % | 70 % | 100 % | 148.9 % | 10.5 % |
| Extra | 70 % | 200 % | 100 % | 239.7 % | 21.5 % |
Example 2: Moderate rise
| Share | Start Value | Final Value | Change % | Change to be observed in yeld calculation | |
|---|---|---|---|---|---|
| Share 1 | 100 | 160 | 60 % | 32 % | |
| Share 2 | 100 | 150 | 50 % | 32 % | |
| Share 3 | 100 | 145 | 45 % | 32 % | |
| Share 4 | 100 | 130 | 30 % | 32 % | |
| Share 5 | 100 | 130 | 30 % | 30 % | |
| Share 6 | 100 | 125 | 25 % | 25 % | |
| Share 7 | 100 | 120 | 20 % | 20 % | |
| Share 8 | 100 | 120 | 20 % | 20 % | |
| Share 9 | 100 | 115 | 15 % | 15 % | |
| Share 10 | 100 | 110 | 10 % | 10 % | |
| Share 11 | 100 | 100 | 0 % | 0 % | |
| Share 12 | 100 | 90 | -10 % | -10 % | |
| Average change in reference asset = 25 % | Change in reference asset in acc. with bond terms = 20 % | ||||
| Change in reference asset acc. with issue terms | Participation rate | Refund of capital | Value at maturity | yeld p.a. | |
| x | + | = | |||
| Basic | 20 % | 70 % | 100 % | 113.9 % | 3.3 % |
| Extra | 20 % | 200 % | 100 % | 139.7 % | 6.2 % * |
Example 3: Bear market
| Share | Start Value | Final Value | Change % | Change to be observed in yeld calculation | |
|---|---|---|---|---|---|
| Share 1 | 100 | 100 | 0 % | 32 % | |
| Share 2 | 100 | 90 | -10 % | 32 % | |
| Share 3 | 100 | 80 | -20 % | 32 % | |
| Share 4 | 100 | 75 | -25 % | -25 % | |
| Share 5 | 100 | 75 | -25 % | -30 % | |
| Share 6 | 100 | 70 | -30 % | -30 % | |
| Share 7 | 100 | 65 | -35 % | -35 % | |
| Share 8 | 100 | 60 | -40 % | -40 % | |
| Share 9 | 100 | 55 | -45 % | -45 % | |
| Share 10 | 100 | 50 | -50 % | -50 % | |
| Share 11 | 100 | 45 | -55 % | -55 % | |
| Share 12 | 100 | 40 | -60 % | -60 % | |
| Average change in reference asset = -33 % | Change in reference asset in acc. with bond terms = -18 % | ||||
| Change in reference asset acc. with issue terms | Participation rate | Refund of capital | Value at maturity | yeld p.a. | |
| x | + | = | |||
| Basic | -18 % | 70 % | 100 % | 100.0 % | 0.0 % |
| Extra | -18 % | 200 % | 100 % | 100.0 % | -2.4 % * |
Simulated performance history
The graph shows the historical value of a four-year investment at maturity from December 2004 to March 2012 (weekly observations), had the investment been made in accordance with the issue terms in December 2000–March 2008. The yield on a direct investment has been calculated using one initial and final value without averaging the initial and final values and without replacing the yield on the four best performing shares by 32%.
| Redemption amount on average | Annual yield on average | |
|---|---|---|
| Basic | 119.4 % | 4.5 % |
| Extra | 155.5 % | 9.0 % |
| Direct investment | 157.1 % | 12 % * |
The presented figures describe previous yield or value, and no reliable assumptions on future yield or value can be made based on them.
Issue terms in brief
| Issuer | Nordea Bank Finland Plc; credit ratings Aa2 (Moody’s) and AA- (Standard & Poor’s). |
| Loan number and ISIN | Global 2012 Basic 4652A FI4000040340 Global 2012 Extra 4652B FI4000040357 |
| Issue date | 19 March 2012 |
| Maturity | 4 May 2016 |
| Subscription period | 19 March–4 May 2012 |
| 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 4652A: variable, about 100% Extra 4652B: variable, about 110% |
| Minimum subscription | 1,000 euros |
| Yield at maturity | Basic 4652A: 70% of the rise of the share basket value in accordance with the issue terms Extra 4652B: 200% of the rise of the share basket value in accordance with the issue terms |
| Share basket | The reference assets of the investment comprise the shares of twelve different companies, together forming a share basket..  |
| Initial price | The closing values of the reference assets on 9 May 2012. |
| Final price | Average of the monthly closing prices of the reference assets from 20 April 2015 to 20 April 2016. |
| Yield calculation | The change in the value of the four best performing shares in the share basket is replaced by 32%. |
| 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 capacity. The premium, if any, is not returned (about 10% in Extra tranche). |
| 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 | Potential 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 4652A (Equity-linked Bond Global 2012 Basic) and 4652B (Equity-linked Bond Global 2012 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.
Selected equities attract
The global equity market has yielded mixed returns in the past few years with significant differences between markets and companies. Last year was difficult for equity investors, but there were some winners. This year, on the other hand, last year's weak performers have had a strong start. The importance of company selection has become emphasised in terms of individual markets as well as globally.
Economic growth supports equities
Now that the euro crisis has subsided somewhat and China is on its way towards a moderate slowdown of growth, the risks related to global growth have diminished. In addition, the US is still on a growth track and the improving situation in employment and the housing market in the country lends support to the earnings potential of globally operating companies.
We expect the world economy to continue to grow. Going forward, growth will still focus on emerging countries and the economies benefitting from their growth, such as Germany. Companies operating in the emerging markets will reap benefits from their growth in the long term.
Strong corporate earnings
On the global scale, companies have made new earnings records quarter after quarter. Even though earnings growth may pause for a while, earnings are still top level. However, going forward it will become more important to select companies based on their earnings outlook. Valuation levels are still moderate and will not prevent share prices from rising in the long term.
Nordea Investment Strategy & Advice (9 March 2012)
Global 2012 share basket
The reference assets of Equity-linked Bond Global 2012 are twelve shares, together forming a share basket. Below you will find Nordea Equities Finland’s view of the companies in the basket and of their future outlook.