1-MONTH EUR DUAL CURRENCY DEPOSIT ( DCD )

Transcription

1 1-MONTH EUR DUAL CURRENCY DEPOSIT ( DCD ) DCD is a currency option linked deposit designed to enable Investors to potentially earn a higher coupon compared with ordinary time deposits. In exchange for this enhanced return, Investors give the Bank the right to repay the initial investment amount in either Base Currency or Linked Currency at maturity, depending on exchange rate movements in respect of the currency pair. The coupon amount will be always in the Base Currency. The DCD is denominated in EUR Potential yield in EUR, payable at maturity Tenor: 1 month Potential yield is linked to the performance of underlying currency against US Dollar (i.e. EUR/USD). The DCD provides a highest potential yield when the underlying EUR weakens against USD. The potential yields will be paid at maturity. Please refer to the Indicative Term Sheet in this document for more details. PUBLIC

2 Product Description Features 1-month tenor DCD denominated in EUR Initial Principal is not protected at maturity. Investors may receive either Base Currency or Linked Currency The DCD is not allowed to be terminated by the Investors prior to Maturity Date The DCD payment return of principal and coupon will be payable at maturity On Maturity Date, if the EUR/USD exchange rate on the Fixing Date is at or below the Conversion Rate, the Initial Principal will be paid in EUR. Otherwise, if the EUR/USD exchange rate on the Fixing Date is above the Conversion Rate, the Initial Principal will be paid in USD. In both cases, the Coupon Amount will be paid in EUR. Main Risks Investors should be prepared to place their funds in the DCD for the full 1-month period The Initial Principal is not fully protected. As such, Investors may not get back 100% of their initial investment Issuer Information Please refer to the Risk Disclosure section in this document for more details HSBC Bank (Vietnam) Ltd. The Metropolitan, 235 Dong Khoi Street, District 1 Ho Chi Minh City, Vietnam Tel:

3 Scenario Analysis The following examples are purely hypothetical. The hypothetical rates of return shown in the following scenario examples are meant for illustrative purposes only. The levels/movement/trends shown have no reference to historical data and are not actual or indicative of future performance. HSBC makes no representation or warranty (express or implied) of any nature in relation to nor is any responsibility of any accepted with respect to the completeness or accuracy of any information, projection, or omission from the below scenario analysis. (Please refer to the Indicative Term Sheet for the definition of the terms). The following examples show what an Investor s potential return on the DCD could be under 4 different scenarios based on an initial principal investment of EUR 100,000. Initial Principal: EUR 100,000 Base Currency: EUR Linked Currency: USD Trade Date: 02 Oct 2012 Start Date: 04 Oct 2012 Fixing Date: 01 Nov 2012 Maturity Date: 05 Nov 2012 Tenor: 1 month Enhanced Coupon: 4.50% p.a. Conversion Rate: Scenario 1: Assuming EUR/USD on Fixing Date is EUR weakens against USD on the Fixing Date when compared to the Conversion Rate, therefore, the Initial Principal is not converted into USD. Both Initial Principal and Coupon Amount are returned in EUR. Coupon Amount = Initial Principal x Enhanced Coupon x Number of days / 360 = EUR 100,000 x 4.50% x 32 / 360 = EUR Total redemption amount at maturity = Initial Principal + Coupon Amount = EUR 100,000 + EUR = EUR 100, In this case, a 1-month investment of EUR 100,000 would generate a return of EUR , which is 4.50% per annum. Scenario 2: Assuming EUR/USD on Fixing Date is EUR/USD remains constant on the Fixing Date when compared to the Conversion Rate, therefore, the Initial Principal is not converted into USD. Both Initial Principal and Coupon Amount are returned in EUR. Coupon Amount = Initial Principal x Enhanced Coupon x Number of days / 360 = EUR 100,000 x 4.50% x 32 / 360 = EUR Total redemption amount at maturity = Initial Principal + Coupon Amount = EUR 100,000 + EUR = EUR 100, In this case, a 1-month investment of EUR 100,000 would generate a return of EUR , which is 4.50% per annum. 2

4 Scenario 3: Assuming EUR/USD on Fixing Date is EUR slightly appreciates against USD on the Fixing Date when compared to the Conversion Rate, therefore, the Initial Principal is converted into USD. The Initial Principal will be returned in USD, whereas the Coupon Amount is returned in EUR. Converted Principal = Initial Principal x Conversion Rate = EUR 100,000 x = USD 128,260 Coupon Amount = Initial Principal x Enhanced Coupon x Number of days / 360 = EUR 100,000 x 4.50% x 32 / 360 = EUR Total redemption amount at maturity in EUR = Converted Principal / Fixing Rate + Coupon Amount = USD 128,260 / EUR = EUR 100, (assuming the Converted Principal in USD is immediately converted back into EUR at market rate which is the Fixing Rate on the Fixing Date) In this case, a 1-month investment of EUR 100,000 would generate a return of EUR , which is around 1.53% per annum. Scenario 4: Assuming EUR/USD on Fixing Date is EUR significantly appreciates against USD on the Fixing Date when compared to the Conversion Rate, therefore, the Initial Principal is converted into USD. The Initial Principal will be returned in USD, whereas the Coupon Amount is returned in EUR. Converted Principal = Initial Principal x Conversion Rate = EUR 100,000 x = USD 128,260 Coupon Amount = Initial Principal x Enhanced Coupon x Number of days / 360 = EUR 100,000 x 4.50% x 32 / 360 = EUR Total redemption amount at maturity in EUR = Converted Principal / Fixing Rate + Coupon Amount = USD 128,260 / EUR = EUR 99, (assuming the Converted Principal in USD is immediately converted back into EUR at market rate which is the Fixing Rate on the Fixing Date) In this case, a 1-month investment of EUR 100,000 would generate a loss of EUR 135,09, which is around 1.52% per annum negative. The more EUR appreciates against USD, the bigger loss Investors will incur. Scenario Analysis Disclaimer The above scenarios will provide Investors with illustrations of potential payout calculations under different scenarios. They do not reflect a complete analysis of all potential gain and loss scenarios that may arise in respect of any actual investment. Figures used in the scenarios are for illustrative purposes only. Investors should not project the future performance of the DCD based on these illustrations. 3

5 Risk Disclosure Investors should carefully consider the range of risk factors outlined in this section. These risks are not, and are not intended to be, a complete list of all risks and considerations relevant to the DCD or Investors decision to purchase the DCD. DCD is complex and an investment in a DCD may involve a high risk of loss of Investors initial investment. Prior to entering into an investment in the DCD, Investors should ensure that Investors understand the nature of all of the risks associated with the DCD in order to determine whether the investment is suitable for Investors in light of Investors investment experience, objectives, risk appetite, financial position and other relevant circumstances. This document contains general information only. Investors should consult with Investors legal, regulatory, tax, financial and/or accounting advisers to the extent Investors consider it necessary in making Investors own investment decision. In the event Investors choose not to seek advice from an independent professional adviser, Investors should carefully examine the risk profile of the DCD and consider whether it is suitable for Investors. (Please refer to the Indicative Term Sheet for definitions of the terms used below). Principal Risk The DCD is not principal protected at maturity. Investors will receive initial investment in either Base Currency or Linked Currency at maturity, depending on the exchange rate movement in respect of the currency pair. Besides, if the DCD is early terminated by the Issuer, it is possible that the redemption proceeds may also go below 100% of the initial investment amount. Furthermore, Investors should be aware that receipt of any sum due at maturity is subject to the credit risk of the Issuer. Return Risk An investment in the DCD linked to the spot price performance of EUR against the US dollar (i.e. EUR/USD) can be extremely volatile. The potential return is linked to the performance of the EUR against US Dollar. In the worst case, Investors will incur a loss as a result of depreciation in the value of the currency paid. Investors may also suffer a potential loss of principal amount invested if the DCD is redeemed by the Bank, the market maker of the DCD, prior to maturity irrespective of the underlying performance. Furthermore, interest rates fluctuate; as such, there is no guarantee that the DCD will produce yields in excess of those available on other investment or savings products linked to current market variable interest rates. Credit Risk Prospective Investors should be aware that receipt of any sums due at maturity by an Investor is subject to the credit risk of the Issuer. Investors assume the risk that the Issuer will not be able to satisfy their obligations under the DCD. Except where specifically provided otherwise, the DCD will constitute general and unsecured contractual obligations of the Issuer and such obligations will rank equally with all other unsecured contractual obligations of the Issuer. The DCD will also rank pari passu (equally without preference) with subsequent unsecured obligations of the Issuer. In the case of an insolvency of the Issuer, preferred liabilities of the Issuer will have priority over unsecured obligations such as the DCD. Any stated credit rating of the Issuer reflects the independent opinion of the referenced rating agency as to the creditworthiness of the rated entity but is not a guarantee of credit quality of the Issuer. Any downgrading of the credit ratings of the Issuer or its parent or affiliates, by any rating agency could result in a reduction in the value of the DCD. In the event that bankruptcy proceedings or composition, scheme of arrangement or similar proceedings to avert bankruptcy are instituted by or against the Issuer, the payment of sums due on the DCD may be substantially reduced or delayed. Market Risk The DCD can be volatile instruments and may be subject to considerable fluctuations in value and other risks inherent in investing in securities and/or derivatives. The value of a DCD may fall as rapidly as it may rise due to numerous factors, including, but not limited to, systemic risks, variations in the frequency and magnitude of changes in interest rates, inflation outlook and the price/level of any underlying reference to which the DCD relates (e.g. securities, commodities, funds, rates and/or shares). The value of the DCD may increase or decrease throughout its tenor. 4

6 Re-investment Risk Investors need to consider your ability to re-invest the principal investment amount plus the coupon amount (if paid) in other suitable products with similar returns and tenors, where the DCD has been allowed to early redeem. Interest Rate Risk Investors are exposed to the movement of interest rates whenever their DCD is redeemed, tendered or sold prior to maturity. From an economic perspective, the DCD is typically comprised of a deposit and an option. Movements in interest rates will have an impact upon both the value of the deposit and the option. As interest rates move upwards, the value of the DCD generally falls. Moreover, the longer the tenor of the DCD is, the more sensitive the DCD will be to interest rate changes. Settlement Risk Upon purchasing the DCD, Investors assume all settlement risks relating to Issuer failing to settle the DCD on the settlement date, and unless otherwise provided for. Correlation Risk Investors should be aware that the return they receive from investing in the DCD may be less than, or greater than, the performance of the reference underlying. Legal Risk This DCD is subject to the legal provisions that regulate such instrument. If these rules are amended so as to require the cancellation of such products, the Bank may be obliged to repurchase and cancel the DCD in line with such directive. In such situations, the amount that would be returned to the Investors will be determined solely by the Bank acting in good faith. Such amount may be lower than the initial investment. Significant risks that are not generally associated with similar investments in conventional fixed rate or floating rate debt securities An investment in the DCD entails significant risks that are not generally associated with similar investments in conventional fixed rate or floating rate debt securities. Calculation of the performance return on the DCD is linked to the change in the underlying, which may decline as well as rise. Although Investors have the opportunity to receive a high return, Investors risk a lower return than comparable instruments. As such, the investment may not be suitable for persons unfamiliar with underlying performance, or unwilling or unable to bear the risk attendant with this trade. Hedging activities may create conflicts of interest between Investors and the Issuer Hedging activities may create conflicts of interest between Investors and the Issuer. The Issuer or one or more of its affiliates may hedge their obligations under the DCD by purchasing futures or options on the underlying or by entering into other derivative instruments with returns linked or related to changes in the performance of the underlying, and the Issuer may adjust these hedges by, among other things, purchasing or selling futures or options or modifying other derivative instruments linked to the underlying at any time. Although they are not expected to, any of these hedging activities may adversely affect the level of the underlying price and, therefore, the market value of the DCD. It is possible that the Issuer or one or more of affiliates of the Issuer could receive substantial returns from these hedging activities while the market value of the DCD declines. Conflicts of Interest Various potential and actual conflicts may arise between the interests of the Investors and the Issuer, as a result of the commercial and investment banking businesses and activities of the Issuer and its affiliates. The Issuer may recommend or effect a transaction in which it or any affiliate, or one of its other clients, may have an interest, relationship or arrangement that is material. In particular, the Issuer or any affiliate may deal as principal for its own account, to hedge liabilities under the DCD or for other purposes, and may match a transaction or order with that of another client. Neither the Issuer nor any affiliate is under any duty to account for any profits, commission, remuneration, rebates or other benefits made or received as a result of such transaction or service. Further, the Issuer is the Calculation Agent with regard to the DCD. The Calculation Agent is solely responsible for making 5

7 certain determinations in the calculation of the underlying price and the redemption amount and other determinations and calculations in connection with the DCD. Because the Calculation Agent is the Issuer, and is obligated to redeem the DCD, the Calculation Agent may have economic interests adverse to those of the Investors of the DCD, including with respect to certain determinations and judgments that the Calculation Agent must make as referred to above, any of which may affect payments in respect of the DCD. In its capacity as Calculation Agent, HSBC does not act as fiduciary for or an advisor to any of the Investors in respect of any such determination or judgment or otherwise. Early Redemption by Investors Investors are not allowed to redeem the DCD prior to maturity. Early Redemption by Issuer If the DCD has to be terminated early due to the winding up of the Issuer or any of the applicable terms of the DCD allowing for early termination, Investors should understand that they will not receive any returns and the Bank will deduct any early termination costs from the principal payable to Investors. It is therefore possible that the Investor will not receive 100% of the principal amount back. Investors are advised to study and understand specifically the events which may cause or permit the Issuer or the Calculation Agent to early terminate the DCD and such risk is effectually borne by the Investors. Foreign Exchange Risk If the investment currency is not Investors base currency, and Investors choose to convert other currencies into investment currency for the purpose of subscribing for the DCD and/or Investors choose to convert the redemption amount back to your base currency at maturity, Investors actual returns could be affected negatively or positively due to exchange fluctuations. Inflation Risk Investors need to consider the effect that inflation may have on the real value of the investment during the tenor of the DCD. Derivative Risk The underlying of the DCD is subject to financial derivatives risk which is dependent on the market value of an underlying, such as options, futures, forwards and swaps. Compound of Risk More than one risk factor may have simultaneous effects with regard to the DCD 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 DCD. Limited Liquidity of the DCDs and Transfer Restrictions There is limited liquidity for the DCD; as such, Investors may not be able to liquidate or sell some or all the DCD as and when they require or at an amount equal to or more than the principal. In addition, the DCD will be subject to certain transfer restrictions. This may further limit the liquidity of the DCD. Terms are Indicative All terms are indicative and thus do not represent an offer to sell, purchase or subscribe to any investment nor a solicitation of such an offer. Prospective Investors should rely solely on the final documentation relating to the purchase of the DCD that will contain the final terms and conditions. 6

8 Investor Commitment The DCD has a product risk level of three (3) and are likely to be suitable for Investors whose attitude to risk is Balanced and who agree to the related terms and investment risks. The DCD is not likely to be suitable for inexperienced Investors. Investors should understand that Investors should hold their DCD until maturity. The DCD is likely to be suitable for Investors who are happy to hold the investment for the entire period. Investors should regard the DCD as a 1-month investment and should make sure there are sufficient liquid emergency funds to meet any unforeseen circumstances. The DCD is likely to be suitable for Investors who take a moderately bearish view or slightly bullish view on the performance of the EUR against US Dollar at maturity. The DCD is to be suitable to both Vietnamese and foreign Investors, regardless resident status, who make DCD placement in non-cash base foreign currencies. The DCD is also to be suitable to Vietnamese residents who make DCD placement in cash base foreign currencies. Investors should avoid excessive investment in a single type of investment, in respect of its total proportion of an overall portfolio, in order to guard against overexposure to any investment risks. Investors should self-assess and confirm the appropriateness and suitability of investing in the DCD and receiving the related payments. Investors should understand that investment in the DCD will not be used as pledge or guarantee for loans. The minimum investment amount is EUR 5,000 7

9 Indicative Term Sheet Base Currency EUR Linked Currency USD Initial Principal EUR 5,000 Trade Date 02 Oct 2012 Start Date 04 Oct 2012 Fixing Date 01 Nov 2012 Maturity Date 05 Nov 2012 Tenor 1 month Enhanced Coupon 4.50% p.a. Conversion Rate Spot on 02 Oct 2012 Early redemption Investors shall not be entitled to redeem the DCD prior to the Maturity Date. by Investors Definition Issuer, Calculation Agent, Bank or HSBC means HSBC Bank (Vietnam) Ltd. Dual Currency Deposit or DCD means the currency linked deposit as specified herein Base Currency means the currency in which the deposit is denominated when received by the Bank as specified herein Linked Currency means the currency other than the Base Currency as specified herein Tenor means the duration of the DCDs as specified herein Initial Principal means the initial investment in Base Currency of Investors as specified herein Trade Date means the date, 02 (two) business days before the Start Date, which the Bank provides Conversion Rate as specified herein Start Date means the date which the DCD placement begins as specified herein Fixing Date means the date, 02 (two) business days before the Maturity Date, which the Bank uses as its reference to compare the Fixing Rate and the Conversion Rate as specified herein Maturity Date means the date which the DCD matures as specified herein Enhanced Coupon means the rate of return on investment for the DCD placement as specified herein Conversion Rate means the exchange rate, which is predetermined and agreed to by Investors and the Bank, between the Base Currency and Linked Currency. This exchange rate can be the spot rate or spot rate plus or less certain points as specified herein Spot means the exchange rate, between the Base Currency and Linked Currency, quoted by the Bank as specified herein Fixing Rate means the exchange rate, between the Base Currency and Linked Currency, provided by the Bank on the Fixing Date at 1:00 p.m. Vietnam time as specified herein Converted Principal means the amount of Initial Principal in Linked Currency as specified herein Coupon Amount means the interest amount Investors receive from the DCD investment as specified herein. It is calculated as Coupon Amount = Initial Principal x Enhanced Coupon x Tenor (number of days) / 360 8

10 Investment Acknowledgement The indicative term sheet set forth above are a summary only and are subject to tranches supplemented from time to time and the final term sheet to be issued under tranches for the issuance of DCD. In issuing the DCD, the Issuer is not making, and has not made, any representation whatsoever as to the underlying. In purchasing any DCD, Investors confirm that they are not relying on either the views or advice of the Issuer or any other HSBC Group company. Investors will also confirm that they understand (i) that the Issuer and the Calculation Agent are both HSBC, and (ii) that neither the Issuer nor the Calculation Agent owes any obligations to Investors to take any action other than those prescribed by the terms and conditions of the DCD. Investors acknowledge and agree that where the Issuer is prevented from, hindered or delayed by reason of force majeure or act of the government or other circumstances beyond the control of the Issuer, in the performance of any its obligations under these terms and conditions, the Issuer will not be under any liability to the Investors for any loss, damage, cost or expense incurred by the Investors due to the inability or failure of the Issuer to perform any such obligation. Investors agree that an investment in DCD will be subject to the General Terms and Conditions of the Bank. Investors also agree that the governing law to DCD provided by the Issuer shall be the laws of Vietnam. Any dispute arising out of or in connection with a specific term sheet shall be submitted to a competent court in Vietnam for resolution. Investors acknowledge that they have read, understood and agreed to accept this document which is served as the DCD terms and conditions (as they may be amended from time to time) of the Bank and acknowledge receipt of a copy of such documents. Investor s signature and full name Date 9