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Index-linked bond Food

Basic and Extra

Inflation has peaked both in Finland and in the euro area partly due to the higher price of food. There are a number of reasons for the high price level of food, the most important probably being the increasing demand for food raw materials and the change in people’s nutrition habits, especially in emerging economies. A significant factor increasing prices is also the use of food raw materials as an alternative source of energy. As a result, supply has become insufficient, which has pushed up raw material prices and thereby the price of the end product, ie food.

The advantages of the index-linked bond Food are good yield potential, an excellent inflation hedge (against rising food prices) as well as diversification compared to a conventional equities/fixed income portfolio. The index-linked bond Food provides cost-effective and capital-protected exposure to the raw material markets. When prices go up, the yield increases, but if prices drop, you will get the invested nominal principal back at maturity.

The index-linked bond has two alternatives: Basic and Extra. The Basic version is suitable for cautious investors. At maturity, its yield is 80% of the rise of the underlying asset in accordance with the issue terms. The Extra version suits investors who tolerate limited risk and seek a higher return. The yield on the investment at maturity is 125% of the rise of the underlying asset in accordance with the issue terms. In both alternatives the nominal principal is repaid at maturity in full regardless of the performance of the underlying asset. When the underlying asset falls or remains unchanged, no yield is paid and the investor loses the amount paid above par value (in the Extra index-linked bond about 10%).

The maturity is five years, but the investment can also be sold before maturity, in which case the repurchase price may be above or below the nominal value depending on market performance. Sales (or purchases) are possible on the secondary market on the first business day of every month. The secondary market value is affected by the underlying asset performance, liquidity, the strength of fluctuations in the underlying asset value and the remaining time to maturity.

Prduct summary

Maturity	Short	Medium		Long
Capital guarantee	Full*	Partial**		None
Asset class	Interest rate	Credit	FX	Commodity	Equity

* Food Basic
** Food Extra has a limited capital risk (price above par ca. 10%)

The underlying asset is a comprehensive food basket

The underlying asset is a food basket consisting of corn, wheat, soybean, sugar, coffee, cocoa, beef and pork. The components are equally weighted (1/8). These raw materials are traded on the commodities exchanges of New York and Chicago. To monitor the price performance and for further information go to: www.cbot.com (corn, wheat and soybean), www.theice.com (sugar, coffee and cocoa) and www.cme.com (meat).

Performance of underlying asset 8’2003 – 8’2008
(Starting level indexed at 100)

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

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 as of the date of this document and are subject to change without notice. This notice 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 reproduced, distributed or published for any purpose without the prior written consent from Nordea Markets.

Terms of issue in brief

Issuer	Nordea Bank Finland Plc
Issue date	1 September 2008
Maturity	29 October 2013
Subscription period	1 September - 9 October 2008
Places of subscription	Nordea Bank Finland Plc and its branches in the Baltics
Subscription price	Basic 4168A: variable, about 100% Extra 4168B: variable, about 110%
Minimum subscription	EUR 1,000
Yield at maturity	Basic 4168A: 80% of the rise of the underlying asset in accordance with the issue terms Extra 4168B: 125% of the rise of the underlying asset in accordance with the issue terms
Underlying asset	The underlying asset is a food basket consisting of corn, wheat, soybean, sugar, coffee, cocoa, beef and pork. The components are equally weighted (1/8).
Starting value	The official closing values of commodities included in the underlying asset on 17 October 2008
Closing value	The average of the quarterly closing values of the underlying asset from 17 October 2011 to 15 October 2013.
Repayment of the principal	The issuer Nordea Bank Finland Plc will repay the nominal principal of the index-linked bonds in full at maturity irrespective of the performance of the underlying asset. The index-linked bonds involve a risk of the issuer’s repayment ability.
Early redemption	Early redemption is possible only if a hedging instrument has to be dissolved due to amendments to law or legal praxis.
Security	The index-linked bonds are unsecured.
Structuring cost	The subscription price includes a structuring cost, which is about 0.9% p.a. (see the terms of issue). No separate subscription or management fee is charged on the index-linked bonds.
Secondary market	The issuer Nordea Bank Finland Plc quotes a monthly repurchase price for the index-linked 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 which the issuer considers might endanger the issue.

An application will be made for the index-linked bonds to be listed on OMX Helsinki.

Yield table for the index-linked bonds Food Basic and Extra

Change in under- lying asset in acc. with issue terms	Food Basic		Food Extra
	Issue price approx	100 %	Issue price approx	110 %
	Participation rate	80 %	Participation rate	125 %
	Value at maturity	Yield pa	Value at maturity	Yield pa
-50 %	100 %	0.0 %	100 %	-1.9 %
-25 %	100 %	0.0 %	100 %	-1.9 %
0 %	100 %	0.0 %	100 %	-1.9 %
25 %	120 %	3.7 %	131 %	3.6 %
50 %	140 %	7.0 %	163 %	8.1 %
75 %	160 %	9.9 %	194 %	12.0 %
100 %	180 %	12.5 %	225 %	15.4 %

Loans 4168A and 4168B under the MTN programme (a medium term note programme reported to the Finnish Financial Supervision Authority from Sweden in accordance with the Prospectus Directive) of Nordea Bank AB (publ) and Nordea Bank Finland Plc dated 4 June 2008. The loan-specific terms are available at the places of subscription.

Market review

Food price pressure – the sum of many factors

It is said that the time of cheap food is over. The strong economic growth of emerging economies, combined with growing demand for biofuels, has created upward pressure on the prices of food raw materials. The increased popularity of biofuels is based on both the recent rise in energy prices and the global need to reduce the use of fossil fuels.

The robust economic growth in China, India and other emerging economies has resulted in intense urbanisation and expansion of the middle class. Consequently, there has been a transition in the food circle towards food products containing more meat. As a result of the increasing demand for meat, the meat production in, say, China swelled by over 60% from 1994 to 2004. This is basically the main reason why global total production of soybean used primarily as feedstuff has doubled. If the forecasts on economic growth in the emerging economies are accurate, use of agricultural products as feedstuff will continue increasing in the future.

Due to the popularity of biofuels in the Western countries, farmers are motivated to produce grain and sugar as raw material for bioenergy instead of producing food. In the US alone, the amount of corn used for ethanol production was approximately 30 million tons in 2007. At the same time, the global grain storage has shrunk by 53 million tons. The ethanol programme launched in the US in 2005 explains over half of the deficit. According to estimates, the price of food would not rise at the pace we have recently witnessed, were it not for the programme in question.

The expensiveness of agricultural commodities also reflects the general energy price rise. The intensive agricultural production in developed economies consumes a lot of energy. It has been calculated that to produce one ton of corn in the US, an amount of energy corresponding to 165 litres of oil is used. In comparison, a ton of corn produced in Mexico with natural processes and without intensive fertilisers only requires 4.8 litres of oil. World market prices are determined in the US, and as a result, the higher price of energy pushes prices up globally.

There is too much inflexibility on the supply side because of the shortage of arable land and the expensiveness of infrastructure investments. In addition, differing national agricultural subsidies and extra duties on foreign commodities create a situation where prices are no longer determined normally.

Source: Nordea Economic Research, World Bank.