CitiFirst Instalment MINIs => The New Generation in Instalments

Transcription

1 INSTALMENT MINIS INSTALMENTS SELF FUNDING INSTALMENTS MINIS TURBOS TRADING WARRANTS CitiFirst Instalment MINIs => The New Generation in Instalments INVESTMENT PRODUCT: NOT A DEPOSIT NOT INSURED NO BANK GUARANTEE MAY LOSE VALUE Citigroup Global Markets Australia Pty Limited ABN and AFSL

2 CitiFirst Instalment MINIs CitiFirst Instalment MINIs are the latest generation of Instalments, designed for Individuals and Self Managed Super Funds seeking leveraged exposure to Australia s leading companies and Exchange Traded Funds. Investors gain the benefits of share ownership, including dividends and franking credits, for a small portion of the cost of purchasing the shares outright. CitiFirst Instalment MINIs are listed and traded on the Australian Stock Exchange. There are no margin calls, no credit checks, no loan documents and importantly investors are unable to lose more than their original investment amount. 1

3 CitiFirst Instalment MINIs Contents Features Case Studies How to Purchase? Risks 2

4 Introducing CitiFirst Instalment MINIs Background 3

5 CitiFirst Instalment MINIs - background Heightened Levels of Volatility impact pricing of traditional Instalments For illustrative purposes only. Past performance is not indicative of future performance. New Instalment MINI structure decreases the impact of volatility in pricing (as volatility is no longer an input). This makes Instalment MINIs more cost effective than traditional Instalment / SFI structures. 4

6 Introducing CitiFirst Instalment MINIs I want a product with transparent pricing Structure Pricing 5

7 CitiFirst Instalment MINIs Structure Buy Shares in Two Payments First Instalment Final Instalment Instalment MINI Price - confers benefits of share ownership including dividends, franking credits and capital appreciation. Equals the investors equity. Loan Amount optional payment at maturity. Investors are not obliged to pay this amount - unless you want to own the shares. 6

8 CitiFirst Instalment MINIs Structure Value of Instalment MINI Share Price Final Instalment Share Price $10.00 First Instalment $4.00 Final Instalment $6.00 Stop Loss Feature ensures investment is non-recourse Stop Loss Trigger $6.60 Citi funds the loan amount. Interest capitalised to loan daily. Share Instalment MINI For illustrative purposes only The product does NOT contain overall protection of an investor s Total Investment Amount 7

9 Instalment MINI Tracks Underlying Share Price $12.00 Instalment MINI value tracks the underlying share price one for one. $10.00 Instalment MINI Value $4.00 Instalment MINI Value $6.00 $9.00 Instalment MINI Value $3.00 Loan Amount $6.00 Loan Amount $6.00 Loan Amount $6.00 For illustrative purposes only. Past performance is not indicative of future performance. 8

10 Introducing CitiFirst Instalment MINIs I want enhanced dividend yield and franking credits Dividends Contribution Shelter 9

11 Dividends and Franking Credits Holders Receive Dividends and Franking Credits Potential yield on Instalment MINI may be significantly higher than direct investment (due to leverage), hence enhanced dividend yield Excess franking credits assist earnings contribution shelter for SMSF Gross Dividend Yield T L S G r o s s D iv id e n d Y ie ld p.a 21% 18% 15% 12% 9% 6% 3% 0% TLS Shares TLS Instalment MINI TLS Shares TLS Instalment MINI Past performance is not indicative of future performance. For illustrative purposes only Source: Citi 10

12 Introducing CitiFirst Instalment MINIs I want to manage my exposure Stop Loss 11

13 Managing your exposure Stop Loss Feature ensures value of Instalment MINI cannot be less than the initial investment Set approximately 10% above the Loan Amount Stop Loss reset every month to original distance from Loan Amount Stop loss and strike announced to the market daily via ASX announcement board and available on Citi website: or via registering to our Instalment MINI distribution If Stop Loss is reached, trading in Instalment MINI is halted & Citi sells stock sitting in trust account and determines a remaining value The remaining value is placed on the bid at 2:00pm the following trading day to effect the close out of any trades If the position is not closed out, any remaining funds are reimbursed to the client off market T+10 12

14 Instalment MINI Stop Loss Feature Value of Instalment MINI Share Price Final Instalment IM Price $4.00 Stop Loss level $6.60 Share Price $10.00 Share Loan Amount $6.00 Instalment MINI Share Price Time For illustrative purposes only. Past performance is not indicative of future performance. 13

15 Instalment MINI Tracks Underlying Share Price $12.00 $10.00 Instalment MINI Value $4.00 Instalment MINI Value $6.00 $9.00 Instalment MINI Value $3.00 Citi covers the gap risk beyond the Loan Amount. Loan Amount $6.00 Loan Amount $6.00 Loan Amount $6.00 $5.00 Loan Amount $6.00 For illustrative purposes only. Past performance is not indicative of future performance. 14

16 Introducing CitiFirst Instalment MINIs I want to keep my funding costs to a minimum Interest 15

17 Funding Costs added to the Final Instalment If Bought and Sold on same day no funding costs Funding is the cost associated with borrowing the Final Instalment from Citi and holding the stock overnight. Funding is calculated and added to the Final Instalment daily. Interest Rate = 7.95% p.a.* *Current as at April Funding costs are subject to change 16

18 Instalment MINI Funding How does it work IM Value $4.00 IM Value $ IM Value $ IM Value $ IM Value $ Share Price $10.00 Final Instalment $6.00 Final Instalment $ Final Instalment $ Final Instalment $ Final Instalment $ Day 0 Day 1 Day 2 Day 3 Day 4 Assuming Share Price constant at $10.00 and the (current) interest rate of 7.95% p.a. 17 For illustrative purposes only. Past performance is not indicative of future performance.

19 Case Study 1: Cash Extraction Convert your existing shares into CitiFirst Instalment MINIs An investor is overweight BHP They d like to free up cash whilst retaining exposure to the company The investor does not want to sell his shares & realise any potential capital gain By converting the 5,000 BHP shares into 5,000 BHPJOC Instalment MINIs, the investor is able to extract $84,735 without realizing a tax event Security Shares Purchase Current Price Unrealised Price Gain BHP 5,000 $ % For illustrative purposes only. Past performance is not indicative of future performance. 18

20 Case Study 1: Cash Extraction Convert your existing shares into CitiFirst Instalment MINIs BHP $33.50 Shareholder Application Investor Issuer Instalment MINI BHP shares held in trust Re-invest into; Shares Bonds Listed Managed Investments Other Instalments $16.55 Loan Amount $16.95 For illustrative purposes only. Past performance is not indicative of future performance. 19

21 Case Study 1: Cash Extraction Convert your existing shares into CitiFirst Instalment MINIs Currently: 5,000 BHP shares are worth $167,500^ Option 1 Sell half of holding and use proceeds to diversify Security No. of Units sold Sale price Proceeds After tax cash amount available for investment BHP 2, $83,750 $58,184* *Assumptions: Individual investor on the highest Marginal Tax Rate, taxed at the concessional rate as holding exceeds 1 year Option 2 Convert your existing shares into CitiFirst Instalment MINIs and use proceeds to diversify Security No. of Units Instalment MINI Price Final Instalment Total Value Investor cashback amount available for investment BHPJOC 5,000 $16.55 $ $167,500 $84,735 For illustrative purposes only. Past performance is not indicative of future performance. 20

22 Case Study 2: Enhancing Total Returns Enhanced Income & Capital Gains - Moderately Geared Instalment MINIs An individual investor on the highest marginal tax rate expects CBA shares to appreciate by ~5% over the next 6 months from $68.50 to $71.92 The market expects CBA to pay a fully-franked Final Dividend in August 2013 of $1.92* - the grossed up amount thus comes to $2.74 CBA Shares CBAJOF Instalments Purchase Price $68.50 $30.02 Sale Price $71.92 $31.88 Gain/Loss on Trade $3.42 $1.86 Grossed up Dividend Received $2.74 $2.74 Total Return Per Unit $6.16 $4.60 Total Post Tax % Return 5.96% 10.73% For illustrative purposes only. Past performance is not indicative of future performance. *Source: Datacentral and IBES 21

23 Case Study 2: Enhancing Total Returns Dividend Yield Play - Preparation Plan ahead - Research Estimated dividends Ex-dividend dates Understand the impact of the 45 day rule To be eligible for franking credits you must Hold the share (or instalment) for a period of 45 days plus 2 (day of acquisition and disposal); or If claiming less than a total of $5,000 of franking credits, no holding period is required Bought 45 days plus 2 Last Cum Div Day Sold Div Announced - Cum Div Status - Ex Div 22

24 Case Study 2: Enhancing Total Returns Enhanced Income & Capital Gains with Moderately Geared Instalment MINIs 1) Investor Specifications 3) Portfolio 5) Tax Analysis Instalment MINI Loan Amount $ Initial Outlay Year 1 Year 1 Investment Amount $43,834 Portfolio Value $100,011 $104,997 Deductible Interest $2,087 Underlying Share Price $68.50 Underlying Reference Price $68.50 $71.92 Non Deductible Interest Amt $185 Quantity 1,460 Final Instalment Price $ $40.03 Deductible Est. Fee $0 First Instalment Price $30.02 $31.88 Tax Paid/Received -$804 Leverage 56.17% Required # of Instalment MINIs Post-Tax Return ($) $4,704 Gross Portfolio Value $100,011 Initial Final Instalment $56,177 $56,177 Post-Tax Return (%) 10.73% Loan Amount $56,177 Year End Final Instalment - $58,448 Post Tax Breakeven Underlying Price $67.72 First Instalment Market Value $43,834 $46,549 Tax Entity Individual Redemption Value $43,834 $46,549 Investor Tax Rate 46.50% Tax Rate Discount 50.00% 4) Adjustments 6) Direct Investment Comparison Calendar Days 365 Initial Outlay Year 1 Direct Investment Instalment MINI Days Instalment MINI Held For 182 Dividend - $2,793 Equity Value $43,834 $43,834 Establishment Fee 0.00% Franking - $1,197 Dividend $1,224 $2,793 Total Daily Funding Amounts - $2,271 Franking $525 $1,197 Interest Rate 7.95% Establishment Fee $0 $0 Redemption Value $46,020 $46,549 Capital Growth 4.99% Total Adjustments $0 $2,271 After Tax Profit $2,613 $4,704 Dividend Yield 2.79% Pre-Tax Return % Franking Percentage % Pre-Tax Breakeven Underlying Price $68.14 Return on Direct Investment CGT Cost Base $100,011 $100,195 Return on Instalment MINI 2) Rates CGT Sales Proceeds $100,011 $104,997 Outperformance of Instalment MINI Variable Home Indicator Rate 6.45% Dividend Yield pa 5.60% Capital Growth pa 10.00% Interest Rate 7.95% Deductible Rate 7.45% 5.96% 10.73% 4.77% Assumptions 1. The Daily Funding Amount is compounded daily for the number of days that the Instalment MINI is held for, reflecting a 365 day year. 2. The Deductible Rate is equal to the Variable Home Loan Indicator Rate plus 1% and is constant. 3. The Redemption Value is the difference between the Portfolio Value and the Final Instalment. 4. The Total Adjustment is the sum of the Daily Funding Amount over the year and the Fees paid. 5. The Deductible Interest is the lesser of the Interest Payment and the Indicator Rate multiplied by the Final Instalment. 6. The Non Deductible Interest is, if any, the difference between the Interest Payment and the Deductible Interest. 7. Where the term of the warrant exceeds 1 year the establishment Fee is all deducted in year 1 instead of pro rata over the life of the warrant. 8. For company's, sufficient income exists in each respective year to absorb the non-refundable franking offset amounts. 9. A Trust is not a tax paying entity, and the underlying interest, dividends, franking, capital gains/losses will flow through to the beneficiaries. For ease of use, we have assumed these flow through to an individual and the individual will be subject to tax at their marginal rate and that a CGT discount is applicable. Please check with your accountant for further clarification on the treatment of trusts. As at 26 th March 2013 For illustrative purposes only. Past performance is not indicative of future performance. 23

25 Introducing CitiFirst Instalment MINIs I want a Tax Efficient Investment Deductibility 24

26 A tax efficient investment Interest Deductibility Interest costs deductible up to the deductible rate - i.e. the relevant RBA benchmark rate (7.45% as at Feb 2013). Annual tax statements and dividend / franking credits sent to holders detailing deductible portion of investment. For illustrative purposes only. Investors should seek advice based on your particular circumstances from an independent tax advisor. 25

27 Introducing CitiFirst Instalment MINIs I want to invest in a way that suits me ASX listed Off Market applications 26

28 How to Purchase On Market Investors can buy and sell Instalment MINIs in the same way as they buy and sell ordinary shares (subject to signing a Warrant Client Agreement Form with their broker). Primary Market Cash Application via the Product Disclosure Statement by completing the cash application form via wrap provider Shareholder Application via the Product Disclosure Statement. Convert prior shareholding in to Instalment MINI without crystallising a tax event. (This option is not available to Self Managed Super Funds.) 27

29 What Happens at Maturity Roll in to Another Series At maturity investors can roll in to alternate Instalment MINI either on-market (Capital Gains Tax (CGT) event crystallised) or off-market (no CGT event) Pay Loan Amount and Receive Shares Loan amount can be repaid any time prior to and including the maturity date in order to take delivery of the underlying shares. Sell on market or let investment expire Sell on market any time until maturity Let expire = investor receives back any remaining equity in the investment (i.e., share price loan amount) as a cash payout 28

30 Identifying CitiFirst MINI BHPJOC BHP: first three letters indicate the underlying share or Index J: fourth letter indicates the warrant is an Instalment MINI O: fifth letter indicates the MINI is issued by CGMA C: final letter indicates the series 29

31 ASX Listed I want to know who I m dealing with CitiFirst Instalment MINIs are issued by Citigroup Global Markets Australia Pty Limited (CGMA) (AFSL , Participant of ASX Group) Obligations guaranteed by Citigroup Inc Stock sits in trust account on behalf of investors 30

32 Risks As with any investment that offers the potential for profit, there is a corresponding potential for loss. Risks include, but are not limited to: CitiFirst MINIs are a speculative investment. You could lose all of your investment amount. CitiFirst Instalment MINIs are leveraged products and may decrease in value at a greater rate than an investment in the underlying. Leverage has the potential to magnify gains as well as losses, and may give rise to leverage costs. Performance of the obligations by Citi and the Guarantor. The value of an Instalment MINI depends on the ability of Citi and the Guarantor to fulfill their obligations to you. If a stop loss is reached, the Instalment MINI will automatically terminate and investors may receive significantly less than their original investment or they may expire worthless The possibility of market illiquidity in the CitiFirst MINI or the underlying. In addition, trading may be halted or suspended by the ASX in certain circumstances, and there is no guarantee that a Holder s request under an Off Market Redemption Notice will be accepted, or will cause the investor to receive more than the on market price. Market factors including severe market volatility, will impact upon the value of a MINI and may impact the ability of CGMA to provide liquid markets in the CitiFirst Instalment MINI. In particular, CitiFirst Instalment MINIs may decrease in value at a greater rate than an investment in the underlying shares. The Interest Rate for different CitiFirst Instalment MINIs may be different, and may vary daily. 31

33 Risks (cont d) There are a number of discretions conferred on Citi under the Instalment MINI terms which may adversely affect you, such as the power to nominate an extraordinary event, causing an Instalment MINI to terminate early. Legislative changes (including law changes) may affect your investment. The ASX may half or suspending trading in Instalment MINIs if it deems appropriate, which may adversely affect your investment. Citi and its related companies may buy and sell Instalment MINIs or the underlying, either as principal or agent, and this trading may impact the Instalment MINI price. Before making an investment, investors should read the Product Disclosure Statement which details all risks associated with CitiFirst Instalment MINIs. Investors should also consult their broker or financial adviser to ascertain the suitability of investing in CitiFirst Instalment MINIs. 32

34 Suitability CitiFirst Instalment MINIs may appeal to investors if one or more of the following apply to you: looking to leverage your medium to long-term view of the Underlying Shares seeking a leveraged investment offering gearing of 50% to 80% seek enhanced dividend yields and franking credits reluctant to sell Securities and crystallize capital gains an existing shareholder wishing to unlock equity but retain exposure to the Underlying Share experienced in investing in instalment warrant products an SMSF seeking enhanced capital appreciation, dividend yields and franking credits able to accept the embedded fees. SMSF Investors should seek independent advice to confirm whether this is an eligible investment. 33

35 Conclusion I want an investment that works for me CitiFirst Instalment MINIs Offer Leveraged exposure to Underlying Shares and ETFs Enhanced dividend yield and franking credits Straightforward and transparent pricing Potential tax benefits Tracks underlying share price one for one Eligible for Self Managed Super Funds Exposure managed via a Stop Loss Feature No margin calls or collateral requirements No optionality pricing not affected by time decay and volatility ASX listed 34

36 Find out more 1. Visit us online - Investment Guide / Daily Pricing Sheet 2. Call the CitiFirst Sales Desk Subscribe to the CitiFirst Newsletter Daily / weekly commentary Trade Ideas 35

37 Disclaimer This material is made available by Citigroup Global Markets Australia Pty Limited ABN and AFSL , Participant of the ASX Group. The Financial Products referred to in this document are issued by Citigroup Global Markets Australia Pty Limited. This information does not take into account the investment objectives or financial situation of any particular person. Investors should be aware that there are risks of investing and that prices both rise and fall. Investors should obtain a copy of the PDS and seek their own independent financial advice based on their own circumstances before making a decision. The terms set forth herein are intended for discussion purposes only and subject to the final expression of the terms of a transaction as set forth in a definitive agreement and/or confirmation. Although the information contained herein is based upon generally available information and has been obtained from sources believed to be reliable, we do not guarantee its accuracy, and such information may be incomplete or condensed. Any prices used herein are historic and may not be available when any order is entered. All opinions and estimates included in this document constitute our judgment as of this date and are subject to change without notice. This material does not purport to identify the nature of the specific market or other risks associated with a particular transaction. Before entering into a derivative transaction, you should ensure that you fully understand the terms of the transaction, relevant risk factors, the nature and extent of your risk of loss and the nature of the contractual relationship into which you are entering. You should also carefully evaluate whether the transaction is appropriate for you in light of your experience, objectives, financial resources, and other relevant circumstances and whether you have the operational resources in place to monitor the associated risks and contractual obligations over the term of the transaction. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor or agent. Therefore prior to entering into the proposed transaction you should determine, without reliance upon us or our affiliates, the economic risks and merits, as well as the legal, tax and accounting characterizations and consequences of the transaction, and independently determine that you are able to assume these risks. In this regard, by acceptance of these materials, you acknowledge that you have been advised that (a) we are not in the business of providing legal, tax or accounting advice, (b) you understand that there may be legal, tax or accounting risks associated with the transaction, (c) you should receive legal tax and accounting advice from advisors with appropriate expertise to assess relevant risks, and (d) you should apprise senior management in your organization as to the legal, tax and accounting advice (and, if acceptable, risks) associated with this transaction and our disclaimers as to these maters. If you are acting as a financial adviser or agent, you should evaluate these considerations in light of the circumstances applicable to your principal and the scope of your authority. If you believe you need assistance in evaluating and understanding the terms or risks of a particular derivative transaction, you should consult appropriate advisers before entering into the transaction. We and/or our affiliates (together, the Firm ) may from time to time take proprietary positions and/or make a market in instruments identical or economically related to derivative transactions entered into with you, or may have an investment banking or other commercial relationship with and access to information from the issuer(s) of financial products underlying derivative transactions entered into with you. We may also undertake proprietary activities, including hedging transactions related to the initiation or termination of a derivative transaction with you, that may adversely affect the market price, rate, index or other market factors(s) underlying a derivative transaction entered into with you and consequently the value of the transaction. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. Citigroup All Rights Reserved. Citi and the Red Arc Device are trademarks and service marks of Citigroup Inc. or its affiliates and are used and registered throughout the world. Any unauthorized use, duplication, redistribution or disclosure is prohibited by law and will result in prosecution. 36