HotEDS Hot Enhanced Dividend Securities HotEDS 2013 ipad size.indd a1 2013/09/10 2:27 PM
Hot Enhanced Dividend Securities (HotEDS), another innovative investment available exclusively from Investec, give you exposure to the dividends and price movements of a share for a fraction of the cost of a share. HotEDS also have a higher gearing than traditional Enhanced Dividend Securities (EDS). This gives you the benefits of a significantly increased dividend yield and greater potential for higher returns. Investec HotEDS are listed on the JSE Securities Exchange (JSE) and can be purchased through any stockbroker. How do HotEDS work? Benefits A higher gearing level than regular EDS Choose from some of the JSE s top shares Pay a fraction of the share price upfront Receive an even further enhanced dividend yield Leverage your exposure to share price movements Limit your exposure to the downside Traded on the JSE, with liquidity provided by Investec Guaranteed stop loss Who should invest? Yield investors - by outlaying a fraction of the share price but receiving the same dividends, they will significantly increase their yield Share investors - with a strong view on an underlying share can use HotEDS as a form of leveraging their upside exposure without margin calls Warrant traders - can take a longer-term view and receive dividends Existing shareholders - by switching into HotEDS, they can free up cash, continue to receive the same dividends and continue to participate in share appreciation on a geared basis HotEDS 2013 ipad size.indd 1 HotEDS are a listed share-linked investment that trade on the JSE You can buy them through a stockbroker just like an ordinary share The JSE coding for Investec s HotEDS products is as follows: ABCIHA, where ABC is the underlying JSE share code, IH shows an Investec HotEDS security, and A indicates the first in a series of HotEDS for that share (the next tranche listed over the company ABC will be B ) You benefit by paying a fraction of the share price now, while, over the life of the HotEDS, you: Have geared exposure to movements in the price of an underlying share Receive the full dividends declared by the underlying share Can choose to convert your HotEDS into physical shares by exercising them Can sell your HotEDS at any time on the JSE Cannot be asked to pay any more money if the price of the share drops 2013/09/10 2:27 PM
Protection from stop loss feature Our unique stop loss feature will protect you if the underlying share falls signifi cantly. In the event that the stop loss is triggered, your HotEDS terminate immediately and you may be entitled to a cash rebate. Dividend payments As a holder of HotEDS, you are entitled to the same dividends that would normally accrue to holders of the underlying share. Dividend payments work as follows: The last date to trade, the ex-dividend date and the dividend payment date of HotEDS are identical to those of the underlying share To be entitled to the next dividend payment, you must purchase the HotEDS before the close of business on the last date to trade STRATE, the electronic settlement system of the JSE, will ensure that all dividend payments are paid directly into your brokerage account Scrip dividends, special dividends and other accruals declared by the underlying company may be dealt with differently to that of ordinary cash dividends Potential Dividend Yield What happens at maturity? Each series of HotEDS will have its own expiration date. At the close of business on this date, the HotEDS series will mature. As the holder of the HotEDS, you can choose one of the following prior to this date: Exercise your HotEDS for physical shares by having your broker notify Investec of your intentions before 12pm one day prior to the expiration date Do nothing and Investec will automatically roll the existing position into a new warrant, on an optimal ratio basis, with a cash payment to holders if necessary, to compensate for any difference in value due to roll If holders wish to expire their positions, then they should notify the Investec Equity Derivatives Desk before 5pm fi ve days prior to the expiry date. Their position will be set aside and expired with payment due defi ned by arithmetic average of the two day volume weighted average price of the underlying on the two days post expiry less strike. HotEDS in practice Hot enhanced dividend yields 12% 10% 8% 11.3% Since HotEDS cost signifi cantly less than the underlying share but pay the same dividends, they offer a substantially higher dividend yield. The example below shows how. 6% 4% 2% 0% 3.5% ABC Share ABC EDS ABC HOTEDS 6.2% Ordinary share Company ABC share price R100.00 Expected dividends for the 12-month period R3.50 Expected dividend yield 3.5% (R3.50 / R100.00) Investec EDS Company ABC EDS (ABCIDA) R56.45 Expected dividends for the 12-month period R3.50 Expected dividend yield 6.20%% (R3.50 / R56.45) HotEDS Company ABC HotEDS (ABCIHA) R31.42 Expected dividends for the 12-month period R3.50 Expected dividend yield 11.13% (R3.50 / R31.42)
Share price exposure HotEDS directly track the performance of an underlying share. They are, however, geared to movements in the share price, even more so than the moderately geared EDS. This means that the price of the HotEDS will move up and down with the price of the underlying share, all other things being equal. The example below shows how. ABC share price R100.00 ABC EDS price R56.45 ABC HotEDS price R31.42 Two months later Share price drops to Stop loss is triggered Two day VWAP Cash rebate R85.00 R84.75 R9.75 (R84.75 - R75.00) There is, however, no guarantee that the price of the HotEDS will move exactly with the price of the underlying share. Other factors, including interest rates, time to maturity and the level of the stop loss, may influence the price of the HotEDS. Unique stop loss feature After one month ABC share price increases to R112.00 ABC EDS price increases to R68.39 ABC HotEDS price increases to R43.32 You receive an effective protection feature through a stop loss that is placed above the exercise price. This aims to limit your potential losses and works as follows: Percentage increase in the ABC share price 12.00% Percentage increase in the ABC EDS price 21.15% Percentage increase in the ABC HotEDS price 37.87% Potential Gearing 80% 60% If the share price falls substantially and the stop loss is triggered, the HotEDS will terminate immediately and you will be entitled to a cash rebate of any intrinsic value The cash rebate will be equal to the excess (if any) of the share price over the exercise price when the HotEDS terminate. The share price used for the calculation will be the arithmetic average of the daily volume weighted average share price for the two days following the termination date 40% 20% 0% ABC Share ABC EDS HOTEDS The example below shows the stop loss in practice. Example ABC share price ABC HotEDS purchase price Exercise price Stop loss level HotEDS 2013 ipad size.indd 3 R100.00 R31.42 R75.00 R85.00 2013/09/10 2:27 PM
Exercising physical shares HotEDS are American options and are exercised as follows: You may exercise them at any time up to 12pm of business on the day prior to expiry To exercise them, inform your stockbroker who will arrange for the transfer of the physical shares in return for the payment of the cash exercise price HotEDS may still be exercised if the stop loss is triggered, provided that your stockbroker notifi es Investec by 12:00 (South African time). If no exercise notice is received, your HotEDS will terminate and you may be entitled to a cash rebate Who may participate? Since Investec HotEDS are listed on the JSE, you can buy and sell them freely through your stockbroker To maintain the liquidity of the market, Investec will provide buy and sell quotations for all Investec HotEDS HotEDS are not eligible for purchase by non-residents and South African emigrants Risks The value at which Investec HotEDS can be bought or sold on the JSE depends on factors like the exercise price, stop loss level, underlying share price, expiration date, interest rates, and other factors and general risks that are applicable to stock markets. Investec HotEDS may become signifi cantly less valuable during their term and, in certain circumstances, lapse automatically or expire worthless. Dividends paid, if any, are at the discretion of the underlying company and cannot be assured by Investec. Copies of the master listing document and supplementary listing documents containing fi nancial and other information on Investec and HotEDS are available from the JSE. Taxation considerations Investec does not provide tax advice or guarantee how an investment will be treated for tax purposes. The taxation profi le of each investor is different and it is advisable that you seek independent tax advice. Contact details Investec Corporate & Institutional Banking Richard Swain Telephone (011) 286 4742 (021) 416 3332 Email equityderivatives@investec.co.za Web www.investec.co.za/ed
Corporate & Institutional Banking, a division of Investec Bank Limited. Reg.No.1969/004763/06. An authorised Financial Services Provider. A registered credit provider registration number NCRCP9. A member of the Investec Group. Confidentiality This communication is confi dential and may not be disclosed to any third party without the written consent of Investec. Disclaimer The value at which Investec HotEDS may be bought or sold depends on factors such as the exercise price, stop loss level, underlying share price, interest rates and other factors generally applicable to stock markets on which the relevant underlying share is traded. Investec HotEDS may become signifi cantly less valuable during their currency and, in certain circumstances, automatically lapse or expire worthless. Dividends paid, if any, are at the discretion of the underlying company and cannot be assured by Investec. Investec does not provide tax advice. As the taxation profi le of each investor is different, potential investors should seek independent tax advice. The securities being issued pursuant to this Supplement are not eligible for sale to South African emigrants and non-residents; South African emigrants and non-residents are not permitted to receive any distribution from the securities. This material is for your private information, and we are not soliciting any action based upon it. Terms and conditions contained herein are indicative only. Final terms and conditions are subject to further negotiation. The information contained in this communication does not constitute an offer or solicitation for investment, fi nancial or banking services. It is for informative purposes only and is not intended to constitute advice in any form, including but not limited to investment, accounting, tax, legal or regulatory advice. The information therefore has no regard to the specifi c investment objectives, fi nancial situation or particular needs of any specifi c recipient. Investec Bank Limited accepts no liability whatsoever for any loss or damage of any kind arising out of the use of all or any part of this communication. Clients should be fully aware of the risks involved in trading stock market related products.