Payment of 100% Principal in MYR if Held to Maturity

Transcription

1 Risk Disclosure Statement and Illustrations 2-Year MYR Participation Equity Linked FRINI (Not Protected by PIDM) Payment of 100% principal only if held to maturity To be read together with the Indicative Terms and Conditions Payment of 100% Principal in MYR if Held to Maturity Scenario Analysis The following worked examples will provide clients with illustrations of potential return under different scenarios. Figures and underlying used in the scenarios below are for illustrative purposes only and may not be identical with the launch parameters as per Indicative Terms and Conditions: Assumptions Principal MYR 100,000 Tenor s and Payment s 2 years (held to maturity) ly, as per the Indicative Terms and Conditions s In respect of each s (i) (i) Principal x MIN [CAP, Participation Rate x MAX (0%, s (i))] x / Initial Participation Rate 120% Year 1: 7.50% Year 2: 7.50% Total return for 2-year: 15.00% XYZ Holdings Ltd Initial Level Initial For ease of understanding, calculations in the following scenario analysis are shown up to two decimal places. Actual performance payout of the FRINI would be as per Indicative Terms and Conditions.. PUBLIC

2 Scenario 1 (Best Case Scenario) Market is bullish throughout the investment tenor, where the was above its Initial Level and USD appreciates against MYR from initial level at the end of all s. The is breached on both s. Hence, profit amount paid will be based on s [( / = [( / ) -1] / 2 = % % ) * / = MYR 7, ) * / = MYR 8, , , = 108, The total return under this scenario would be 15.84%% over the 2-year investment tenure. Under this scenario, an investment of MYR 100,000 would generate a return of MYR 15, (equal to simple annualized return of 7.92% p.a.) and 100% of the Principal will be paid to the client if held till the end of the investment tenure. Scenario 2a (Mid Case Scenario) Market is mildly bullish throughout the investment tenor, where the was above its Initial Level and USD depreciates against MYR from initial level on both s. The is also breached on the first s [( / = [( / ) -1] / 2 = ) * / = MYR 7, ) * / = MYR 7, , , = 107, The total return under this scenario would be 14.64% over the 2-year investment tenure. Under this scenario, an investment of MYR 100,000 would generate a return of MYR 14, (equal to simple annualized return of 7.32% p.a.) and 100% of the Principal will be paid to the client if held till the end of the investment tenure. Scenario 2b (Mid Case Scenario) Market is mildly bullish throughout the investment tenor, where the was above its Initial Level on only the final and USD depreciates against MYR from initial level on both s. The is also breached on the final s [( / = [( / ) -1] / 2 = ) * / ) * / = MYR 7, , , = 107, The total return under this scenario would be 7.46% over the 2-year investment tenure. Under this scenario, an investment of MYR 100,000 would generate a return of MYR 7, (equal to simple annualized return of 3.73% p.a.) and 100% of the Principal will be paid to the client if held till the end of the investment tenure. PUBLIC 2

3 Scenario 2c (Mid Case Scenario) Market is mildly bullish throughout the investment tenor, where the was above its Initial Level on only the first and USD depreciates against MYR from initial level on both s. The is also breached on the first s [( / = 0.08 [( / ) 1] / 2 = ) * / = MYR 7, ) * / , = 100,000 The total return under this scenario would be 7.46% over the 2-year investment tenure. Under this scenario, an investment of MYR 100,000 would generate a return of MYR 7, (equal to simple annualized return of 3.73% p.a.) and 100% of the Principal will be paid to the client if held till the end of the investment tenure. Scenario 3 (Worst Case Scenario) Market is bearish throughout the investment tenor, where the was at or below its Initial Level and USD depreciates against MYR from initial level at the end of all s s [( / = [( / ) 1] / 2 = ) * / ) * / , = 100,000 The total return under this scenario would be 0.00% over the 2-year investment tenure. Under this scenario, an investment of MYR 100,000 would not generate a return and 100% of the Principal will be paid to the client if held till the end of the investment tenure. Scenario 4 (Early Redemption) Scenario A: Client redeems the FRINI before the maturity date, and the Early Redemption value is below 100% of Principal. Early Redemption value = 98.75% Early Redemption = Principal x Early Redemption value = MYR 100,000 x 98.75% = MYR 98,750 In this scenario, the client will incur a loss of MYR 1,250 against the Principal of MYR100,000. Scenario B: Client redeems the FRINI before the maturity date, and the Early Redemption value is above 100% of the Principal. Early Redemption value = % Early Redemption = Principal x Early Redemption value = MYR 100,000 x % = MYR 100,100 PUBLIC 3

4 In this scenario, the client will receive a gain of MYR 100, against the Principal of MYR100,000. Please note that the Early Redemption value reflects market value on all future expected returns, and other related charges (please refer to Early Redemption Conditions and Early Redemption by Client Risk). Scenario Analysis Disclaimer The foregoing analysis is produced for illustrative purposes only, and does not reflect a complete analysis of all possible gain and loss scenarios that may arise under any actual investment. No representation or warranty is made by the Bank that any scenario described above can be duplicated under any actual investment. Actual results may vary from the results shown above, and variations may be material. Clients should not project the future performance of the based on these illustrations. Risk Disclosure Statement This FRINI is based on the Shariah concept of Wakalah and Tawarruq and should not be treated as similar to a term deposit-i or any other similar deposit products, or a substitute thereof. You must be prepared to take the following risks. If you have any queries on this FRINI, you are advised to consult your professional investment adviser before making a commitment to invest in this FRINI. In the event that you choose not to seek advice from a professional investment adviser, you should consider whether the FRINI is suitable based on your risk appetite, investment experience and objectives. The risks present in investing in the FRINI include the following: Principal Risk Principal is fully payable by the Bank only if the FRINI is held to maturity. Full payment of principal does not apply if the FRINI is early terminated by the Bank or redeemed by the Client prior to maturity. Credit Risk of the Bank Clients are placing funds with the Bank and are therefore relying on the ability of the Bank to pay the Principal at maturity and any return on investment on profit payment date(s). In this regard, it should be noted that the FRINI is not deemed to be a deposit of the Bank. Instead, the FRINI is an unsecured liability with the Bank and is not protected by Perbadanan Insurans Deposit Malaysia (also known as Malaysia Deposit Insurance Corporation ). Prospective Clients should be aware that receipt of any sums due at maturity (or on profit payment date(s)) is subject to the credit risk of the Bank. Clients bear the risk of the Bank not being able to satisfy its obligations under the FRINI. Except where specifically provided otherwise, the FRINI will constitute general and unsecured contractual obligations of the Bank and will rank equally with all other unsecured contractual obligations of the Bank including subsequent unsecured obligations of the Bank. In the case of the Bank s insolvency, preferred liabilities of the Bank will have priority over unsecured obligations such as the FRINI. Any stated credit rating of the Bank reflects the independent opinion of the referenced Rating Agency as to the Bank s creditworthiness but is not a guarantee of credit quality of the Bank. Any downgrading of the credit ratings of the Bank or its parent or affiliates, by any rating agency could result in a reduction in the value of the FRINI. In the event that bankruptcy proceedings or composition, scheme of arrangement or similar proceedings to avert bankruptcy are instituted by or against the Bank, the payment of sums due on the FRINI may be substantially reduced or delayed. Legal Risk This FRINI is subject to the applicable laws and regulations that regulate such instruments. At this time, these are issued by Bank Negara Malaysia (BNM). If these rules are amended or BNM issues a directive to the Bank, whether pursuant to applicable laws and regulations or otherwise, so as to require the cancellation of such products, the Bank may be obliged to repurchase and cancel the FRINI in line with such directive. In such situations, the amount that would be returned to the client will be determined solely by the Bank acting in good faith. Such amount may be lower than the Principal. PUBLIC 4

5 Liquidity Risk This FRINI is intended to be held by the client to maturity. Client should regard this FRINI as a 2-year investment and ensure he/she has sufficient liquid emergency funds to meet any unforeseen circumstances. If Clients need to redeem the FRINI prior to maturity, the Early Redemption By Client Risk section will apply. While the FRINI is a transferable instrument and may be sold to potential buyers, due to its nature, and because the FRINI is not listed on any securities exchange, there is not likely to be a liquid secondary market to allow the client to readily trade or sell the FRINI, thus it should be regarded as a hold-to-maturity and not a short-term trading instrument. Market Risk Many factors can affect the movement of the level of the against their Initial Levels, including the political and economic environment, business conditions, client sentiment and confidence. Return Risk Clients may receive low or no return on investment. No return on investment would be paid, for example, if the the on the respective is at or below the Initial. Furthermore, the level of the and profit rates fluctuate; as such there is no guarantee that the FRINI will produce yields in excess of those available on other investments or savings products linked to current market variable profit rates. Return on investment (if any) shall only be paid on profit payment date(s) in accordance with the terms and conditions of this FRINI. Operational Risk These investments depend on the smooth functioning of myriad component parts. Any disruption to any of these parts, caused by, for example, market disruption or system interruption may cause delays in settlement beyond the control of the Bank. In addition, the Client should be aware of the need for them to monitor their investments and to take any follow-up action they may deem necessary when the FRINI matures, or when they receive their return on investment (if any). Early Redemption by Client Risk The investment, being in the form of negotiable instrument(s) may sought to be sold to a third party or presented for buy-back/early redemption by the Bank. If clients wish to sell the FRINI to a third party buyer/client, they must recognise that if the proposed buyer/client is another retail client, the Bank will be required to conduct an assessment on the client/buyer s suitability for this type of product prior to permitting the transfer of the FRINI. The Bank has the right to refuse transfer if the assessment indicates the FRINI is not suitable to be sold to the potential buyer. If clients wish the Bank to buy back/redeem the FRINI prior to maturity, they may only do so by submitting a request to the Bank before 12:00pm on any Friday of the calendar month or if such a day is not a Kuala Lumpur Business Day, the preceding Kuala Lumpur Business Day (see terms of Early Redemption Conditions ). It is the Bank s sole and absolute discretion whether to agree to such requests and, if so agreed, the Bank will, acting in good faith, calculate the sum to be returned to the client. The early redemption amount will depend on the early redemption value, which factors in costs, losses and damages which the Bank incurred in discharging the related hedging or other arrangement related to the FRINI. Should the FRINI be redeemed early by the client, it is possible they will not receive 100% of the Principal due to early break costs incurred and market movements. These early termination costs may be substantial and so it is important that client/ clients are prepared to hold this investment until maturity or early call by the Issuer (where applicable) or alternatively be prepared to incur these costs in the event of early redemption. Early Termination/Redemption by Bank Risk If the FRINI has to be terminated early due to any of the applicable terms of the FRINI allowing for early termination, or due to the winding up of the Bank, a similar result would occur as detailed in the Early Redemption By Client Risk section above. Clients are advised to study and understand specifically the events which may cause the Bank to early terminate the FRINI as these events are not within the control of the Bank and such risk is effectually borne by the Clients. These events include Additional Disruption Event, Merger Event and Tender Offer detailed in the Indicative Terms and Conditions, Force Majeure Event referred to in the Force Majeure Event Risk below and the situations described under the Legal Risk. PUBLIC 5

6 Options Risk The FRINI may incorporate one or more types of embedded financial derivatives and these include the use of various types of financial options. The value of such financial options is subject to a wide variety of market forces. Additionally, financial options are by their nature wasting assets in that the value of the option declines as the maturity of the option draws closer. The option type used in the design of this FRINI has been permitted by the Bank s Shariah Committee for the purposes of hedging. Tax Risk Tax burden, if any, imposed by Malaysian tax law or regulatory requirements or arising from Malaysian tax law or regulatory requirement changes, for any amount payable by the Bank to the Clients under the FRINI will be borne by the Clients. Inflation Risk Although 100% of the Principal is payable at maturity, Clients need to consider the effect which inflation during the tenor of the FRINI may have on the real value of the investment at maturity. Settlement Risk Upon purchasing the FRINI, the client assumes all settlement risks relating to the Bank failing to settle for the FRINI on the settlement date(s), unless otherwise provided for. Market Disruption Risk If a Market Disruption takes place (see terms of Consequences of Disrupted Days, and Consequences of Additional Disruption Events), the Bank has the sole and absolute discretion to determine in good faith the level of the affected (s) and/or any other relevant amount payable under this FRINI. Adjustment/Substitution Risk Upon the occurrence of certain events as specified in the Terms and Conditions governing this Investment (e.g. Correction of an Equity Value, or Reference Value/Equity Basket Adjustment event), the Bank has the sole discretion to determine or adjust the level and/or price of the (including the substituted ) and/or to substitute the. Re-investment Risk Clients need to consider their ability to re-invest the Principal plus return on investment (if any) in other suitable products with similar returns and tenors. Interbank Rate Risk Clients are exposed to the movement of Islamic interbank rates whenever their FRINIs are redeemed or sold prior to maturity. From an economic perspective, the FRINIs portfolio typically comprise of a fixed-income component (e.g. Islamic money market instruments) and a hedging component referencing the performance of the. Movements in Islamic interbank rates will have an impact on the value of the fixed-income component and also possibly the hedging component. The fixed income component may fall in value if Islamic interbank rates change, thus affecting the value of the FRINIs overall. Shariah Non-Compliance Risk The Shariah compliant nature of this FRINI is dependent upon the underlying Islamic money market instruments and related hedging arrangements. The Clients shall be responsible for assessing the Shariah compliant status of the FRINI for the Client s own purposes and if necessary, should seek independent Shariah advice on the same. Force Majeure Event Risk If on any day the Bank determines that there has been any change in law, regulation or taxation, or its respective practice, policy or administration, or there exists or has occurred any state of facts caused by circumstances not within the control of the Bank, including, without limitation, the failed performance of any third party hedge providers, affecting the Bank or its affiliate s obligations under any hedging transaction established in respect of the FRINI, as a result of which it would be illegal, unlawful or financially disadvantageous, or disadvantageous from a regulatory or operational perspective, or impracticable in whole or in part to, among others, the Bank or its affiliates, to allow the FRINI to remain outstanding on its original terms (each, a Force Majeure Event ), then the Bank may PUBLIC 6

7 at its sole and absolute discretion, upon giving notice to the Client that such Force Majeure Event has occurred, elect to terminate the FRINI and repay an amount reflecting the fair value of the FRINI immediately prior to such early termination, adjusted to account fully for any expenses and costs of unwinding any underlying and/or related hedging or other arrangements (including, without limitation, any swaps or other instruments of any type whatsoever hedging the Bank s obligations under the FRINI) made in the design of the FRINI, which amount could be less than the Principal. Counterparty Risk As the Bank is the counterparty, this risk is reflected by all the risks stipulated above (including but not limited to Credit and Legal Risks) affecting its ability to perform its obligations under the FRINI. Compound of Risks More than one risk factor stated above may have simultaneous effects with regard to the FRINI such that the effect of a particular risk factor may not be predictable. In addition, more than one risk factor may have a compounding effect which may not be predictable. No assurance can be given as to the effect that any combination of risk factors may have on the value of the FRINI. Issued by HSBC Amanah Malaysia Berhad (Co No X) (HSBC) PUBLIC 7