Introducing the mbank Polish Corporate Bond Index (mbank PCBI) Rules and Methodology

Transcription

1 Introducing the mbank Polish Corporate Bond Index (mbank PCBI) Rules and Methodology Release date: 17 th October 2013 Overview The mbank Polish Corporate Bond Index has been designed to track the performance of corporate bonds in Poland. The Index represents performance on a total-return basis and is based only on liquid and semiliquid bonds which trade on the Catalyst market. Like most corporate bond indices globally, the mbank PCBI is a market-value weighted Index subject to monthly rebalancing. Daily historical levels are available from 1 st October mbank PCBI is the first index of corporate bonds in Poland. Polish Corporate Bonds on the Catalyst Market The Polish corporate bond universe, as measured through the perspective of the Catalyst market, has grown rapidly since the beginning of 2011 in both primary issuance and secondary volumes. Notional of corporate bonds outstanding has grown from PLN 4.6bn at the beginning of 2011 to PLN 24.2bn at the end of September 2013 (excl. BGK, covered bonds, debt of cooperative banks). In the same time period, the number of issuers placing bonds in this market has increased more than five-fold, from 25 to 134. Liquidity, as measured by volume and number of trades has increased in a similar manner. In Q1 2011, there were on average 804 trades per month totalling 11mm PLN notional. By Q3 2013, number of trades has increased to 4024 per month, with an average monthly volume of 67mm PLN. Though still low in absolute terms, it should be noted that this is an increase in excess of 400% in both the number and notional of monthly trades, over a period of 33 months. Please see appendix 2 for details. Further, it shall be noted that this excludes all OTC trades, which are not captured in publicly available data. There are 34 bonds in the mbank PCBI. Four of these trade exclusively on the BondSpot platform. The remaining 30 bonds trade either exclusively on GPW or both on GPW and BondSpot. Bonds trading outside of the Catalyst market have been excluded as a result of challenges with obtaining secondary market prices for these bonds. Karol Prażmo, CFA Index Administrator [email protected] Łukasz Gula Index Administrator [email protected] Ernest Pytlarczyk, CFA Director Department of Economic Analysis [email protected] General Index Questions Monthly Report Requests [email protected] Data Source Department of Economic Analysis BRE Bank website brebank.pl/mbankpcbi Bloomberg MBANKPCB Index <Go> Sąd Rejonowy dla m. st. Warszawy XII Wydział Gospodarczy Krajowego Rejestru Sądowego, nr rejestru przedsiębiorców KRS , NIP: mbank.pl 1

2 Index eligibility criteria & constraints Corporate bonds denominated in PLN and from issuers incorporated in Poland are eligible for inclusion in the Index, provided that they fulfil the criteria outlined below. 1. Currency The Index only includes bonds denominated in PLN. 2. Instrument Type The Index includes both fixed and floating rate corporate bonds according to the Catalyst classification. Bonds with embedded options (i.e. call options and put options) are included. Senior unsecured and subordinated bonds of financial institutions are included. The following types of bonds are excluded: convertibles, perpetual, asset backed, covered bonds, zero-coupon bonds, and inflation linked. Debt of governments (including municipals) as well as government guaranteed debt is excluded. 3. Market Bonds need to be listed on the Catalyst market (Warsaw Stock Exchange (GPW) or BondSpot platforms) to be eligible for inclusion. Bonds on both the regulated market and alternative trading system (ASO) will be considered. 4. Minimum Size of Bond Issue In order for a bond to be included in the Index, the outstanding balance must be at least PLN 10mm. 5. Maximum Issuer Exposure In order to ensure that the Index is properly diversified, the total outstanding balance of all bonds from one issuer is capped at PLN 100mm, for the purposes of calculating bond weights on a Rebalancing Date. Where there are several bonds from one issuer eligible for the Index, the Index Administrator will have sole discretion over which bonds are included as well as the weight of their relative contribution. The determination will be based on: (i) relative liquidity of the eligible bonds (ii) remaining time to maturity and (iii) outstanding amount. 6. Maturity In order to be eligible for inclusion, the original term to maturity (from issue date to legal final) must be at least 2 years. Further, the remaining time to maturity (from rebalancing date to legal final) must be at least 6 months and not longer than 10 years. 7. Domicile The issuer of the bond must be incorporated or have its principal place of business in the Republic of Poland. 8. Ratings & Treatment of Defaulted Instruments There are few corporate bonds in Poland with ratings from internationally recognized rating agencies. Therefore, unlike most international indices, the mbank PCBI will not have rating constraints (for example minimum rating of BBB-). However, the Index does not aim to include bonds from distressed or defaulted issuers. In established international indices, these bonds would often be removed through minimum rating requirements. In the mbank PCBI, the Index Administrator will have the discretion to remove distressed and defaulted bonds from the Index. Further, bonds from Issuers Sąd Rejonowy dla m. st. Warszawy XII Wydział Gospodarczy Krajowego Rejestru Sądowego, nr rejestru przedsiębiorców KRS , NIP: mbank.pl 2

3 which had an event of default or potential default in the two years prior to a rebalancing date may also be excluded. 9. Price Availability Bonds which are deemed as sufficiently liquid by the Administrator are eligible for inclusion. The Index Administrator may also accept other bonds, which are deemed as important from market representation perspective. The Index valuation process will be similar to the valuation process followed by TFI managed corporate bonds funds. The Index will utilize the last trade price, which is the Closing Price. If the Index Administrator determines that the Closing Price for a particular bond is not representative of the market, then the level will be established on the basis of: (1) mid-price established on the basis of bid, or bid and offer prices (2) pricing of comparable instruments and (3) alternative means or judgement of the Index Administrator. If a bond is listed on both GPW and BondSpot, the Index Administrator will use pricing from the platform where the bond is more liquid. 10. Addition / Removal of Bonds to and from the Index In order to establish that there is sufficient liquidity, a bond must be listed for at least one full calendar month in order to be eligible for addition to the Index. It is important to highlight that the addition and removal of bonds is not automatic, upon satisfaction (or absence thereof) of Index eligibility criteria and constrains. Addition and removal of bonds will involve the subjective judgment of the Index Administrator. This is driven by the short history of the Catalyst market and material volatility in the liquidity of bonds. Sąd Rejonowy dla m. st. Warszawy XII Wydział Gospodarczy Krajowego Rejestru Sądowego, nr rejestru przedsiębiorców KRS , NIP: mbank.pl 3

4 Index Maintenance Rebalancing Date: The universe of potentially qualifying fixed income securities will be evaluated monthly. The rebalancing will occur after the close of the last trading date of the month on the Warsaw Stock Exchange. All criteria must be satisfied at every Rebalancing Date. Additions to the Index: will occur at Rebalancing Dates. Removals from the Index: will occur at Rebalancing Dates. If the price of a bond becomes unavailable, the last available price is used for Index calculations. Frequency of Index Calculations: Daily Coupon and Principal Payments: Intra-month money from principal and coupon proceeds is held as cash until the next rebalancing date. At the Rebalancing Date, allocation of the proceeds into the index constituents. Other assumptions: Effect of taxes (for example, as a result of coupon payments) is ignored. For the purposes of Index calculations bonds are assumed to trade T+0. Further, bonds are assumed to trade with accrued interest at all times. Index Values exclude transaction costs, including bid-offer costs. Base Date: The Index Base Date is September 28 th, The base value on that date is 100. Index Construction Notional P i,t AI i,t C i,t PRIN i,t P i,t-1 AI i,t-1 N MTD Total Return (TR i,t ) w i MTD Index Total Return (TR i,t ) Index Level Calculation Date Index Level Rebalancing Date Description Clean Price, closing price for the Calculation Date Accrued Interest, up to and including the Calculation Date Coupon Payments received during the month, from the last trading date of the previous month to the closing on the Calculation Date (inclusive) Principal Payments received during the month, from the last trading date of the previous month to the closing on the Calculation Date (inclusive) Clean Price, closing price on the last trading day of the previous month (last Rebalancing Date) Accrued Interest, up to and including the last trading date of the previous month (last Rebalancing Date) Nominal Outstanding of the bond included in the Index Month-to-Date return for a given bond, calculated from the close of business of the last trading day of the previous month to the close of business of the trading date on which the calculation is made (inclusive) Weight of a given bond in the Index Month-to-Date return for the Index, calculated from the close of business of the last trading day of the previous month to the close of business of the trading date on which the calculation is made (inclusive) Index level, as of the close of business on the date on which the calculation is made Index level, as of the close of business on the last Rebalancing Date Sąd Rejonowy dla m. st. Warszawy XII Wydział Gospodarczy Krajowego Rejestru Sądowego, nr rejestru przedsiębiorców KRS , NIP: mbank.pl 4

5 MTD (month-to-date) bond returns are calculated daily for each of the Index constituents on the basis of the following equation: The weight of each bond in the Index is based on the market capitalization of each bond, relative to the market cap of all bonds in the Index, based on prices including accrued interest. The weights are calculated on the first trading day of each month, based on the closing prices for the previous month. The month-to-date Index total return is then calculated from the equation below. The Index is set at 100 at its inception date of September 28 th, The Index Level represents the cumulative performance of the bonds in the Index since the date of inception. Index Publication The Index will be published in the following manner: 1. Bloomberg: under the ticker: MBANKPCB Index <Go> (updated daily) 2. BRE Bank Website: (updated weekly) 3. Distributed weekly as a PDF report via please send an to [email protected] or contact your sales representative to be added to the distribution list. Sąd Rejonowy dla m. st. Warszawy XII Wydział Gospodarczy Krajowego Rejestru Sądowego, nr rejestru przedsiębiorców KRS , NIP: mbank.pl 5

6 Index Constituents (as the Rebalancing Date on September 30, 2013) This table illustrates the frequency of available prices for each of the Index constituents as well as the weight of each bond in the Index. Issuer Ticker Bond Notional (PLN mm) Base Rate Spread / Coupon % of days with trades executed 1 Bank Ochrony Środowiska BOE ,00 Wibor 6M % 2 Best BST ,00 Wibor 3M % 3 Capital Park CAP ,00 Wibor 6M % 4 Czerwona Torebka CZT ,61 Wibor 6M % 5 Energa ENG ,00 Wibor 3M 150 2% 6 Fast Finance FFI ,00 Wibor 6M % 7 Ferratum Capital Poland FRR ,00 Wibor 6M % 8 Ferro FRO ,00 Wibor 6M % 9 Getin Noble Bank GNB ,64 Wibor 6M % 10 Giełda Papierów Wartościowych GPW ,00 Wibor 6M % 11 Kredyt Inkaso KRI ,00 Wibor 6M % 12 Kruk SA KRU ,00 Wibor 3M % 13 Kruk SA KRU ,00 Wibor 3M % 14 Meritum Bank MRT ,20 Wibor 6M % 15 Mo-Bruk MBR ,00 Wibor 6M % 16 Multimedia Polska MMP ,00 Wibor 6M 325 8% 17 MW Trade MWT ,00 Wibor 6M % 18 OT Logistics ODR ,00 Wibor 6M % 19 PCC Rokita PCR ,00 Fixed % 20 PCC Rokita PCR ,00 Fixed % 21 PCC Rokita PCR ,00 Fixed % 22 PCC Rokita PCR ,00 Fixed % 23 PCZ PCZ ,69 Fixed % 24 PCZ PCZ ,00 Fixed % 25 PGE PGE ,00 Wibor 6M PGNIG PGN ,00 Wibor 6M 125 5% 27 PKN Orlen PKN ,00 Wibor 6M 160 2% 28 PKN Orlen PKN ,00 Wibor 6M % 29 PKO Bank Polski PKO ,70 Wibor 6M 164 4% 30 Polnord PND ,50 Wibor 3M % 31 Pragma Faktoring PRF ,00 Wibor 6M % 32 Pragma Faktoring PRF ,00 Wibor 6M % 33 Presco Group PRE ,00 Wibor 6M % 34 Robyg ROB ,00 Fixed % TOTAL 9 876,83 WAS (bps) 332 Please Note: Number of Trading Days equals the lower: (a) number of days between July 2 nd, 2012 and July 31 st, 2013 (b) number of days between Listing Date and July 31st, Further, the weighted average spread (WAS) is computed based on the notional of the relevant bond in the Index. Source: GPW - gpwcatalyst.pl and documents of issuers Sąd Rejonowy dla m. st. Warszawy XII Wydział Gospodarczy Krajowego Rejestru Sądowego, nr rejestru przedsiębiorców KRS , NIP: mbank.pl 6

7 Issuer Ticker Notional in Index (PLN mm) Date of inclusion Maturity Years to Maturity 1 Bank Ochrony Środowiska BOE , ,0 2 Best BST , ,7 3 Capital Park CAP , ,8 4 Czerwona Torebka CZT , ,5 5 Energa ENG , ,1 6 Fast Finance FFI , ,5 7 Ferratum Capital Poland FRR , ,6 8 Ferro FRO , ,5 9 Getin Noble Bank GNB , ,4 10 Giełda Papierów Wartościowych GPW , ,3 11 Kredyt Inkaso KRI , ,3 12 Kruk SA KRU , ,4 13 Kruk SA KRU , ,2 14 Meritum Bank MRT , ,6 15 Mo-Bruk MBR , ,9 16 Multimedia Polska MMP , ,6 17 MW Trade MWT , ,1 18 OT Logistics ODR , ,2 19 PCC Rokita PCR , ,5 20 PCC Rokita PCR , ,7 21 PCC Rokita PCR , ,7 22 PCC Rokita PCR , ,0 23 PCZ PCZ , ,5 24 PCZ PCZ , ,1 25 PGE PGE , ,7 26 PGNIG PGN , ,7 27 PKN Orlen PKN , ,4 28 PKN Orlen PKN , ,7 29 PKO Bank Polski PKO , ,0 30 Polnord PND , ,3 31 Pragma Faktoring PRF , ,4 32 Pragma Faktoring PRF , ,2 33 Presco Group PRE , ,9 34 Robyg ROB , ,5 Please Note: The weighted average time to maturity in years (WAL) as of September 30 th, TOTAL 1 721,49 WAL 3,65 1. KRU0317: On 31 July 2013, bond series: KP30317 (ISIN: PLKRK ) and KRU0317 (ISIN: PLKRK ) has been assimilated. Bonds are coded under one ISIN: PLKRK The current outstanding value of KRU0317 series is 60mm PLN (KDPW, Resolution No. 566/13). 2. KRU1216: On 30 April 2013, bond series: KP11216 (ISIN: PLKRK ) and KRU1216 (ISIN: PLKRK ) has been assimilated. Bonds are coded under one ISIN: PLKRK The current outstanding value of KRU1216 series is 40mm PLN (KDPW, Resolution No. 297/13). 3. FRO0416: Ferro SA repurchased bonds for redemption. The current outstanding value of FRO0416 is mm PLN. Source: GPW - gpwcatalyst.pl and documents of issuers Changes in Index Constituents Issuer Ticker Notional in Index (PLN mm) Date of inclusion Date of exclusion Notes 1 Developer 1 X 30,00 50, Distressed 2 Developer 2 X 10,00 30, Distressed 3 Multimedia Polska MMP , Replaced by MMP0520 Sąd Rejonowy dla m. st. Warszawy XII Wydział Gospodarczy Krajowego Rejestru Sądowego, nr rejestru przedsiębiorców KRS , NIP: mbank.pl 7

8 Appendix 1: Proportion of primary issuance & secondary market trades which can be attributed to Index constituents. Index Constituents Share of the Catalyst market (Corporate bonds only, excluding BGK, covered bonds and co-op banks; %) 25% 20% 15% 10% 14,2% 7,2% 15,7% 16,1% 16,0% 16,1% 17,1% 16,7% 17,6% 17,2% 18,1% 8,1% 8,2% 7,9% 8,2% 8,4% 8,6% 9,1% 9,1% 9,7% 19,4% 19,4% 11,7% 11,5% 5% 0% Issuers Bond series Source: WSE - gpwcatalyst.pl 70% 60% 50% Index Constituents Share of Electronic Order Book Trades on Catalyst (Based on volume of trades, Corporate bonds only, excluding BGK, covered bonds and co-op banks; %) 60,6% 50,0% 40% 30% 30,2% 33,7% 35,7% 36,4% 38,2% 36,5% 33,0% 37,4% 20% 21,5% 22,3% 10% 0% Source: WSE - gpwcatalyst.pl Sąd Rejonowy dla m. st. Warszawy XII Wydział Gospodarczy Krajowego Rejestru Sądowego, nr rejestru przedsiębiorców KRS , NIP: mbank.pl 8

9 Appendix 2: Polish Corporate Bond Market (Primary & Secondary Market Data) Primary market for Polish corporate bonds has increased more than 400% since Q (Polish corporate bonds on Catalyst market, excluding BGK, covered bonds, debt of co-op banks) Source: WSE - gpwcatalyst.pl Total debt issuance (mm PLN; LHS) Number of Issuers (RHS) Number of series (RHS) Secondary market volumes have also increased more than 400% since Q (Polish corporate bonds on Catalyst market, excluding BGK, covered bonds, debt of co-op banks) Turnover value (mm PLN; LHS) Number of trades (RHS) Source: WSE - gpwcatalyst.pl Sąd Rejonowy dla m. st. Warszawy XII Wydział Gospodarczy Krajowego Rejestru Sądowego, nr rejestru przedsiębiorców KRS , NIP: mbank.pl 9

10 Appendix 3: Historical Index Constituents Sąd Rejonowy dla m. st. Warszawy XII Wydział Gospodarczy Krajowego Rejestru Sądowego, nr rejestru przedsiębiorców KRS , NIP: mbank.pl 10

11 DISCLAIMER PLEASE READ CAREFULLY mbank PCBI as well as information related to the mbank PCBI are only informational and promotional purposes and do not include neither binding opinions nor advice and investment recommendation, thus are not basis for any claims or requests towards the Bank. The information presented is not a public offering in the understanding of the civil code or the Act on Public Offerings. The Bank does not accept liability for any damage arising from the usage of the information service. Investing in financial instruments carries risk and does not guarantee realization of the investment plan or expected return. Potential loss of principal and/or interest should be taken into account. A detailed description of risk factors is included in the documents determining terms and conditions of each issue, including the prospectus or the information memorandum where available. These documents are available at The Bank is active both in the field of corporate bonds issues and trading bonds on the secondary market. These bonds may be included in the Index. The Bank does not offer the mbank PCBI as an investment product, nor does the Bank offer products which use mbank PCBI as a benchmark. The Index history begins on 1 October 2012 (Index base date: 28 September 2012) as a result of low liquidity in corporate bonds prior to this date. Liquidity remains a challenge in the corporate bond market in Poland. The data presented in mbank PCBI refers to historical results and the past results do not guarantee future returns. mbank PCBI does not include fees, commissions, taxes and other burdens that may occur during the acquisition and sale of corporate bonds. The Bank does not perform credit analysis on the constituents of the Index. The Index results are a simulation only, which may not be achieved as a result of illiquidity, size and depth of the market. The Bank may trade bonds included and excluded from the mbank PCBI. The Bank is active as an arranger of corporate bonds in the primary market. The mbank PCBI does not include all corporate bonds in the market, but only those which in the opinion of the Bank are the most liquid or those which are important from the perspective of the overall market. Addition and removal of bonds from the Index is not automatic (solely on the basis of fulfilling the eligibility criteria & constraints) but requires subjective judgment of the Bank. This is the effect of the short history of the Catalyst market as well as material and frequent changes to the liquidity of bonds. Risks associated with investing in corporate bonds include but are not limited to: default risk of the issuer, low recovery in the event of default and illiquidity. The data source for the construction of the Index is gpwcatalyst.pl and the documents of the issuers. Complaints about mbank PCBI and information related to mbank PCBI can be submitted electronically via to the following address: "[email protected]". The filing should identify the person submitting the complaint (first name / last name, name of firm, address) and a description of the event giving rise to the complaint. The Bank shall deal with complaints as soon as possible, in a time frame which should not exceed 30 days from the date of its submission. In justified cases an extension beyond 30 days may occur, provided that the complaining party is notified in this time period, that an investigation is being conducted and the expected date of response. Final date for responses should be no longer than 90 days from the date when the complaint was filed with the Bank. After investigating the complaint the Bank immediately responds by to the address indicated in the complaint, with notification of the outcome of the complaint procedure. If you wish to opt out of receiving mbank PCBI and information related to mbank PCBI, please send an to the following address: "[email protected]" with your statement of resignation from this service. Your should contain your first name, last name, company name and address. Sąd Rejonowy dla m. st. Warszawy XII Wydział Gospodarczy Krajowego Rejestru Sądowego, nr rejestru przedsiębiorców KRS , NIP: mbank.pl 11