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Index-linked Bond Nordic Countries

„Basic“ ir „Extra“

On the global scale, the Nordic equity markets belong to the markets of the fringe countries which easily fluctuate according to the market trend expectations. The sales run on Nordic equities in the autumn has depressed the share prices drastically. The equity markets have been ruffled especially by the risk of being infected by the financial problems of the debt-laden countries in Southern Europe and of the problems spreading to the rest of Europe and thereby to the world economy. Nordea does not, however, regard a recession as probable although risks have arisen from last summer. Thus it could be justified to consider the Nordic equity markets now, after a steep market correction, when unreasonable amounts of uncertainty have still been priced in shares.

The selection of shares is increasingly important in a turbulent economic environment. The share basket of Index-linked Bond Nordic Countries includes a selection of top-class Nordic companies recommended by Nordea. These companies offer a good chance for price appreciation in the long term. The investment also offers a one-off diversification into ten companies and several different industries.

But it cannot be ruled out that the financial picture would not become gloomier still. If the financial data starts to predict a recession, the share prices are likely to fall in the Nordic countries as well. In the present market situation investors can benefit from the good return potential of Nordic high-quality companies by investing in Index-linked Bond Nordic Countries. If share prices rise, the investor receives a yield. On the other hand, even if share prices fell, the nominal capital invested will be returned to the investor.

Index-linked Bond Nordic Countries

Index-linked Bond Nordic Countries is a bond issued by Nordea Bank Finland Plc. Its maturity is about three years and its yield is based on the performance of ten Nordic shares forming a share basket. In the yield calculation the change in the share price value of the four best performing companies in the share basket is replaced by 18% 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 tranches: 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 tolerate a capital risk of about 10% and seek a higher return. Its yield at maturity is 260% of the rise in the value of the share basket in accordance with the terms of issue.

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, 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 loan 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 also sell Index-linked Bond Nordic Countries 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.

Share basket

The share basket consists of ten shares in which Nordea sees long-term potential. All companies in the share basket have equal weights (1/10). Read more about the companies and the observations of Nordea Equities Finland on pages x–x. In the table below are the recommendations of Nordea Equities Finland for the companies. The recommendations were checked on 4 November 2011.

Pasiskirstymas pagal šalis

Weight	Company	Country	Sector	Recommendation
10%	Fortum OYJ	Finland	Energy	Buy
10%	Kesko OYJ	Finland	Consumer staples	Hold
10%	LM Ericsson AB	Sweden	Telecom.	Buy
10%	Metso OYJ	Finland	Industrials	Buy
10%	Neste Oil OYJ	Finland	Energy	Strong Buy
10%	Novo Nordisk A/S	Denmark	Pharmaceuticals	Strong Buy
10%	Statoil ASA	Norway	Energy	Buy
10%	Telenor ASA	Norway	Telecom.	Buy
10%	UPM-Kymmene OYJ	Finland	Materials	Buy
10%	Volvo AB	Sweden	Transport	Buy

Distribution by country of the share basket:

Share basket, Finnish stock market (HEX) and global stock market (MSCI World) performance November 2006 – November 2011

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 performance in accordance with the issue terms can deviate significantly from the share basket performance.

Yield calculation

In yield calculation the change in the value of the four best performing shares is replaced by 18% 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 individual 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 27 December 2011. The final price is the average of the monthly closing values of the share from 9 June 2014 to 9 December 2014. In the alternative Basic the positive change in value of the share basket is multiplied by 70 % and in the alternative Extra by 260 %. If the share basket value falls or remains unchanged, no yield is paid. The bond's smallest possible maturity value is 100%. See the yield calculation examples below.

Example 1: Sharp rise

Share	Initial price	Final price	Change (%)	Change (%) according to loan terms
Share 1	100	200	100	18
Share 2	100	190	90	18
Share 3	100	185	85	18
Share 4	100	180	80	75
Share 5	100	175	75	75
Share 6	100	170	70	70
Share 7	100	160	60	60
Share 8	100	155	55	55
Share 9	100	150	50	50
Share 10	100	145	45	45
	Share basket change on average = 71 %			Share basket change (%) according to loan terms = 43 %

Value at maturityvertė	Share basket change	x	pParticipation rate	+	Return of capital	=	Maturity value	Return p.a.
Basic	43 %		70 %		100 %		129,9 %	9,1 %
Extra	43 %		260 %		100 %		211,0 %	24,3 %*

Example 2: Moderate rise

Share	Initial price	Final price	Change (%)	Change (%) according to loan terms
#1	100	140	40	18
#2	100	135	35	18
#3	100	130	30	18
#4	100	125	25	18
#5	100	120	20	20
#6	100	120	20	20
#7	100	115	15	15
#8	100	110	10	10
#9	100	105	5	5
#10	100	100	0	0
	Share basket change on average = 71 %			Share basket change (%) according to loan terms = 43 %

Value at maturityvertė	Share basket change	x	pParticipation rate	+	Return of capital	=	Maturity value	Return p.a.
Basic	14 %		70 %		100 %		109,9 %	3,2 %
Extra	14 %		260 %		100 %		136,9,0 %	7,6 %

Example 3: Bear market

Share	Initial price	Final price	Change (%)	Change (%) according to loan terms
#1	100	100	0	18
#2	100	95	-5	18
#3	100	90	-10	18
#4	100	85	-15	18
#5	100	80	-20	-20
#6	100	75	-25	-25
#7	100	70	-30	-30
#8	100	65	-35	-35
#9	100	60	-40	-40
#10	100	55	-45	-45
	Share basket change on average = 71 %			Share basket change (%) according to loan terms = 43 %

Value at maturityvertė	Share basket change	x	pParticipation rate	+	Return of capital	=	Maturity value	Return p.a.
Basic	-12%		70 %		100 %		100,0 %	0,0 %
Extra	-12 %		260 %		100 %		100,0 %	-3,1 %

Simulated performance history

The graph shows the historical value of a three-year investment at maturity from June 2004 to October 2011 (weekly observations), had the investment been made in accordance with the issue terms in June 2001–October 2008. The yield on a direct investment has been calculated using one initial and final value without averaging the initial and final values. The share price performance of Neste Oil Corporation has been replaced with the share price performance of Fortum Corporation in June 2001–April 2005.

	Redemption amount on average	Annual yeld on average
Basic	118,0 %	5,7 %
Extra	166,8 %	14,9 %*
Direct investment	159,6 %	16,9 %

Issue terms in brief

Issuer	Nordea Bank Finland Plc; credit ratings Aa2 (Moody’s) and AA- (Standard & Poor’s)
Loan number and ISIN	Nordic Countries Basic 4585A FI4000032966 Nordic Countries Extra 4585B FI4000032974
Issue date	14 November 2011
Maturity	23 December 2014
Subscription period	14 November - 23 December 2011
Subscription places	Nordea Bank Finland Plc and its branches in the Baltics
Subscription price	Basic 4585A: variable, about 100% Extra 4585B: variable, about 110%
Minimum subscription	1,000 euros
Yield at maturity	Basic 4585A: 70% of the rise of the share basket value in accordance with the issue terms Extra 4585B: 260% of the rise of the share basket value in accordance with the issue terms
Share basket	The reference assets of the index-linked bond comprise the shares of ten Nordic companies, together forming a share basket. Company Bloomberg Fortum OYJ FUM1V FH Kesko OYJ KESB FH LM Ericsson AB ERICB SS Metso OYJ MEO1V FH Neste Oil OYJ NES1V FH Novo Nordisk A/S NOVOB DC Statoil ASA STL NO Telenor ASA TEL NO UPM-Kymmene OYJ UPM1V FH Volvo AB VOLVB SS
Initial price	The closing values of the reference assets on 27 December 2011.
Final price	Average of the reference assets' monthly closing prices from 9 June 2014 to 9 December 2014.
Yield calculation	The change in the value of the four best performing shares in the share basket is replaced by 18 %.
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 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	No tax is deducted at source for non-residents in Finland
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 4585A (Index-linked Bond Nordic Countries Basic) and 4585B (Index-linked Bond Nordic Countries) 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.

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.

Shares of the Nordic countries in a good position

The global fall of the equity markets has also hit the Nordic shares this year. The crisis in the euro area and fears of a new recession in the global economy have burdened the prices in the Nordic countries, too. In future, the global economy continues to rock the Nordic prices, but the good financial situation in the states and the strong earnings power of the companies support the shares in the region.

In the Nordic countries shares are traditionally doing well during upturns, but correspondingly fall more sharply during downturns than other markets. One reason for the strong fluctuation is the peripheral market location of the stock exchanges in which situation foreign investors quickly transmit their assets to the Nordic stock exchanges and out of them, and another reason is the structure of the stock exchanges because they comprise many companies whose earnings fluctuate considerably along with the world economy. When investing in the Nordic countries, it must also be kept in mind that there are individual large companies in this region, which results in a situation where the success or problems of one single company can sway the whole market more strongly than in the bigger international equity markets.

In the long term, Nordic shares have coped well in international comparisons. Even at this very moment the basic factors support the markets in the region. What is more, the Nordic state economies are in good shape compared to many countries located towards the south of Europe. This is why the euro crisis is not directly reflected in the general government finances of these countries. At the same time, companies in the Nordic countries have strongly invigorated their operations in recent years after the financial crisis. The indebtness of the companies has reduced and their earnings power has improved.

Due to their strong background, share prices in the Nordic countries have mostly been valued higher than in other regions. Early this year, too, the valuation was high, but along with the price drop during the year it has moderated close to the global levels.

The international equity markets will continue to determine the trend of the Nordic shares. With the sharp fall in the past few months, the equity markets have already been prepared for distinct weakening of the economy, which in future will reduce disappointments. The Nordic countries again are placed well thanks to their sound economic and corporate foundations when the markets will turn for the better.

Nordea Investment Strategy & Advice (2 November 2011)

Share basket of the Index-linked Bond Nordic Countries

The reference assets of the Index-linked Bond Nordic Countries comprise the shares of ten 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.

Fortum

Fortum is among the leading energy companies in the Nordic countries and the Baltic Sea region, and it also operates in Russia. The company's operations include particularly the production, sales and distribution of power and heat. The company’s long-term earnings potential is supported by the rise of electricity prices and the Russian electricity market opening up for competition. During 2012 - 2014, the company expects power consumption to reach the level of the year 2008 in the Nordic countries. Finland's new Government Programme has burdened Fortum's shares. The most individual significant disappointments in the Government Programme for the company were the decision not to grant new power plant licences and the introduction of the windfall tax in the future. In our view the pricing of the Fortum share does not fully reflect the growth potential of the eastern markets. The company's attractiveness as an investment is further enhanced by its fairly low cyclical sensitivity, steady cash and dividend flow, strong balance sheet and carbon dioxide-free production offering relative competitive edge.

Kesko

Kesko in engaged in the food, home and specialty goods, building and home improvement, car and machinery trade. The company's chain operations comprise around 2,000 retail outlets in Finland, Sweden, Norway, Estonia, Latvia, Lithuania, Russia and Belarus. Finland's proportion of its total business volume is, however, over 80%. In fact, the company has good potential for increasing its business abroad, in Russia in particular. Kesko has abundant cash reserves which it has said to use for expanding internationally. We expect these growth investments to support Kesko's share in the long term.

The valuation of Kesko's share is quite moderate. The P/E ratio of the share calculated with this year's earnings guidance is below 13, which is clearly below Kesko's historical average (14 - 15). The company's owner-friendly profit distribution also supports the attractiveness of its share.

LM Ericsson

Ericsson, founded in 1876, has long traditions in the telecommunications market. Ericsson's telephone networks are used in over 180 countries and, according to the company, 40% of the world's mobile phone calls travel via its networks. The Swedish company employs approximately 100,000 people. In the financial period 2010 its net sales exceeded SEK 200 billion.

In October 2011, Ericsson announced it will abandon its mobile phone business when Sony purchased Ericsson's share of the joint venture the companies had established ten years ago.

Ericsson's Q3 report shows that the debt crisis in Europe has not yet had any impact on the activity of its customers. Nevertheless, the company estimates that the uncertain economic outlook may lead to reductions in the investments of some telecom operators. The company's financial standing is stable, and merely the company's cash reserves account for about one fifth of Ericsson's market value. The moderate valuation of the Ericsson's share also supports our positive view of the company.

Metso

Metso is a global technology group, which supplies technology and service solutions for the mining, earthwork, power generation, oil and gas, recycling, and pulp and paper industries.

The largest customer segments are the mining and paper industries. The business environment of Metso is good on the emerging markets in particular, and the number of new orders has increased markedly.

In view of the Metso business operations' capability of tolerating recession, it is positive that the company's business is evenly distributed among the customer segments, which levels out the operational risks. Moreover, about half of Metso's net sales comes from its service business, which is more stable in nature. This, combined with a record-high order accrual, will support the share going forward.

Neste Oil Corporation

Neste Oil is a refining company focusing in fuels, and its main markets are in Europe and North America. It is a leading north-European supplier of clean traffic fuels and the world's leading supplier of diesel manufactured from renewable raw material. The company is also engaged in retail sales of oil, its main markets being Finland and the Baltic Sea region.

Neste Oil has suffered from overcapacity, which has strained the entire industry, and from a high level of inventories. The high storage volumes have burdened the refining margins, although demand has revived from a low level. The result of Neste Oil's second quarter was clearly weaker than expected. The company's greatest worry is the profitability of the NExBTL biodiesel plants. These plants, which have required large investments, have not been able to measure up to the expectations, and thus this year the company expects the plants to be loss-making. The share is all the more burdened by the uncertainty of the future of the plants refining renewable raw material. The valuation of the share seems reasonable, but uncertainty is high, as the future of bio diesel products largely lies in the hands of politicians.

Novo Norsk

Novo Nordisk is the world leader in the treatment of diabetes with a market share of more than 50%. The share of the products used in the treatment of diabetes is about 75%. The company has the largest product portfolio in the sector and is the only supplier of the full spectrum of insulin products. Among other Novo's key products are NovoSeven used for treating hemophilia and the human growth hormones.

The company's business outlook is favourable and sales of the new high-margin insulin products are growing.

Several arguments support the view that earnings growth will be higher than the sector average: the company's unique product portfolio without patent expiries in the near future, strong operations in the new growth markets, in China, for example, and high operational gearing that will support the company's profitability and earnings trend.

Statoil

Statoil is a Norwegian globally operating oil and gas company. Last year its turnover amounted to around NOK 530 billion. Statoil has over 30,000 employees in 40 countries. About a year ago Statoil focused its business more towards oil and gas production when its service station business was divested as a separate listed company.

The company's business is firmly based on oil production in the North Sea, but the group has expanded globally to ensure the preconditions for future growth.

Typical of oil producers, Statoil's earnings depend on oil price performance. Traditionally, the income-based valuation of Statoil's share has been slightly higher than the average in the sector, but at present the P/E ratio of the share is in fact more advantageous than that of the competitors. That is why we consider the current pricing of the share attractive. Our positive view of the share is also supported by the major production expansions planned by Statoil.

Telenor

Telenor is one of the world's largest mobile phone operators, and it provides data communications and Internet connection services in the Nordic countries, in Central and Eastern Europe and in Asia.

Telenor is an attractive investment alternative, as its cash flow from the operations in Norway and in the Nordic countries is strong. This has enable the deduction of the company's indebtness since 2008. As a result, the company's dividend payment capacity has improved, and it has also been able to buy its own shares. Telenor's investments in the emerging markets have been quite profitable earlier, but the company's expansion to the Indian markets has proved challenging. Competition in the Indian markets is tight, the competitors' operations are well-established and regulation is unstable.

Telenor's share has a discount of over 20 per cent in relation to the peer group, even if its growth prospects are better. The company's balance sheet is strong, which provides possibilities to buy its own shares during the whole of 2011. This raises the share price and protects from a fall.

UPM-Kymmene

UPM-Kymmene's operations are founded on fibre and biomass-based businesses as well as on renewable raw materials and products. The company is composed of six independent business areas: Energy, Pulp, Forests and Wood Sourcing, Paper, Label Materials, and Plywood. Last year UPM's net sales increased to nearly EUR 9 billion, and the company has over 22,000 employees.

In recent years, the profitability of the forest products companies has improved as a result of drastic restructuring, the pick-up of demand and the rise in the price of pulp. As deliveries picked up, UPM benefited from the restructuring measures that were implemented in time and the company's profitability returned to the level preceding the recession. In August the company reported major restructuring measures after the Myllykoski deal was ascertained. The purpose of the measures is to reduce over-capacity especially in the production of magazine paper. UPM expects the measures to lead to an annual improvement of about EUR 200 million in the earnings.

In our view, the valuation of UPM's share is attractive, given the company's earning power, the pricing power that is getting better after the restructuring measures and the asset items outside the manufacture of forest industry products.

Volvo

Volvo is a globally operating group providing transportation-related products and services. It manufactures trucks, buses, earth-moving machinery and boat motors, among others. Trucks account for nearly two thirds of the company's turnover. Last year the group's net sales totalled approximately SEK 265 billion.

Naturally, the situation of the world economy affects the demand for Volvo's products. However, much weakness has already been calculated in the current price of Volvo's share, and in the past few months it has clearly been more downgraded compared to the general equity market trend. In fact, we regard the current price level as attractive, given the long-term growth prospects of the emerging markets and the measures the company has taken to improve its profitability.

Possible restructuring arrangements and abandoning the company's considerable fixed assets may also support the share.