RaboJet Certs Series 1
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What is it
These equity-linked certificates, listed on the Singapore Exchange, chalk up a daily return of 0.08 percent if certain conditions are met. But the maximum return is 20 percent per year. It is issued by RaboBank, a Dutch banking group. The product have a lifespan ranging from three months to a year and is scheduled to commence trading on 15 June 2007.
How it works
The certs are related to the performance of four Blue Chip Singapore stocks: DBS Group Holdings, CapitaLand, Singapore Telecommunications and Singapore Airlines.
There are three reference levels for the four stocks.
- The initial price level: Taken as at June 7 2007, the launch date.
- The Knock-out level: 95 percent of the initial level.
- The Strike level: 88 percent of the initial level.
For you to earn a daily return of 0.08 percent on these certs, the "worst" performer among the four stocks must finish at or above 88 percent of the initial price level at the end of the trading day.
The worst performer on any trading day is the stock whose closing price shows the smallest percentage increase, or the largest percentage decrease, compared with its initial level.
The daily return of 0.08 percent means that for every $1000 invested, the investor earns 80 cents each trading day. The sum is "locked in" and accumulated over time.
In addition, there is a termination event, which occurs when the worst performer exceeds the 95 percent mark on an "observation date" which occurs every three months after the launch date: on Sept 7, Dec 7, and March 7.
When that happens, the certificate will be redeemed by RaboBank and payout will be issue price plus any locked-in amount.
If a termination event does not occur, the cert will be redeemed on the expiry date, that is, on June 7 next year.
At this point, if the worst performer is at more than 88 percent of its initial level, the investor will get the issue price and any locked-in amount.
However, if the worst performer closes below 88 percent threshold, say at 85 percent, then the payout will be a fraction of the issue price (85 divided by 88) plus any locked in amount.
Minimum Invesment
$1000
Risks
The certs are not a principal-protected investment, and the return to the investor is very much linked to the share-price performance of the underlying four shares.
Going by the mechanics of the investment, the investor is betting on the performance of four stocks instead of one stock.
All four need to maintain their value over time for the investor to make any money. If the closing price of any one of the underlying shares, on any of the trading days, during the life of the certs, fall below 88 percent of its initial level, no lock-in amount will accrue on that trading day.
But if all four stocks maintain at between 88 percent and 95 percent of their initial level, the investor should be on track to register a relatively handsome 20 percent return.
- Taken from Sunday Times 10 June 2007
