Reverse Convertible Deposits

A Reverse Convertible Deposit (RCD) is an investment instrument that pays a relatively high coupon and whose payoff depends on the equity market. The RCD, also called a reverse exchangeable, thus has characteristics of both a deposit and a share.

A combination that offers a variety of different ways in which to achieve the balance between risk and return that suits you.

The RCD has a face value and a fixed expiry date. The underlying securities are usually shares. The RCD pays an annual coupon until it expires. This coupon is relatively high in comparison with the interest paid on a savings account, for example. The high coupon compensates for the risk of a payoff in shares. Upon expiry, the issuer decides whether to redeem the notes in shares or in cash. This decision depends on the shares current market price. The issuer will, in principle, not exercise its right to sell unless the share price has fallen below the conversion price. If it has, then the shares will be delivered at the conversion price. If the issuer does not exercise the right to make the payoff in shares, then the RCD will be redeemed in cash at face value. In that scenario, you gain the optimum benefit of the high coupon. The Knock-in Reverse Convertible Deposit (KIRCD) is a more defensive version of the RCD. The KIRCD is initially the same as a normal bond with a relatively high coupon. But when the price of the underlying security reaches or falls below the knock-in level, the KIRCD changes from a normal bond into an RCD. The risk of a payoff in shares thus only arises if the price reaches or falls below a given floor. If it does not, then the notes will always be redeemed in cash. Because of the lower risk, the coupon of a KIRCD is not as high as that of a standard RCD. There are a number of other variations of the RCD besides the KIRCD. Variations that allow you to increase or reduce your risk as you wish. There is, for example, a Step-up RCD, where the coupon rises as time progresses. A Knock-out RCD starts off as an ordinary RCD but turns into a bond once the price reaches or surpasses a predetermined ceiling. The coupon is initially lower than that of an ordinary RCD because of the smaller risk. Then there is a Double RCD where the payoff is in one of two underlying shares at the issuers discretion. This increases the overall risk and so the coupon is higher.

Range Accumulators

Range accumulator is a range dependent deposit that pays substantially higher returns than the plain vanilla money market deposit of similar maturity provided certain conditions are met. The range accumulators return is dependent on the fluctuations of the underlying. For example; a currency linked range accumulator would accrue a certain amount for days when the selected currency stays between or outside a certain selected range. The accumulator will not accumulate any amount for days the underlying is outside the selected range.  

Currency Linked Enhanced Yield Deposit

An ideal short term deposit product for institutional / corporate clients who require alternative currency on a regular basis. The product is also suitable for customers willing to accept alternative currency at maturity in order to earn a higher return.   For example, XYZ Co. requires 10 Million Euros 3 months in the future and their base currency is US$. By selling a promise to buy at maturity (3 months) Euros from ABC at a predetermined rate (usually better than the current rate) say 0.85 in case the Euro is below 0.85, the yield on the US$ amount would increase substantially.

Commodity Linked Deposits

Commodity linked deposits are designed for speculative as well as hedging purposes. Generally these deposits are 100 % capital guaranteed, however, 75% - 90% Guaranteed structures are also available. These deposits could be structured both directly or inversely proportionate to the underlying commodity. Gold, Silver, Sugar and Oil are some commodities that are extensively linked to these deposits.

Callable Reverse Floaters

An ideal product for investors who believe that the interest rates will not rise for the selected investment horizon. These floating rate deposit pay X - Libor rates on a 3 / 6 monthly basis and are callable/cancelable by the issuer. The effective yield on these deposits is substantially higher than the plain vanilla fixed deposits.

Callable Corridor Deposits

This deposit structure pays a very attractive return (usually incremental) as long as the market interest rate (Libor) stays in a predefined range. The coupon is paid every 3 / 6 months and the issuer has the right to call/cancel the deposit at every coupon payment date.

Equity Linked Notes (ELN)

ELNs are notes that pay investors a high yield, against the risk of put option short on an underlying equity. For example, suppose an investor buys a one month ELN for IBM stock that pays a yield of 25%, with a strike of $100, with IBM at $120. At the expiry of the ELN in one month, if IBM closes above the strike of $100, then the investor will receive the quoted annualized yield (25%) on his investment. If on the other hand IBM closes at or below the strike price, then the investor will be delivered a predetermined number of IBM shares at the strike price. Therefore, the investor runs the risk of owning IBM shares at an above-the-market price of $100 in one month, against the reward of a high return for his investment. This product is primarily suited for off-shore clients who are looking for a high yield, or look to own shares of a particular stock at a lower level.

Callable CDs

These are simply CDs that are callable by the Bank, at predetermined call dates set on the initial trade. When the CD is called, the investor simply receives principal back, plus accrued interest. This product is primarily suited for clients who are looking to enhance the yield of normal CDs, without risking principal or interest. The only risk to the client is the early retirement of the CD. Treasury provides competitive pricing on callable CDs to 3 years maturity on regular basis. Any call schedule or coupon structure may be accommodated. The minimum size of a transaction is US$ 1 million.

Principal Protected CDs

Principal protected CDs offer investors the assurance of principal protection, and the chance of an enhanced coupon based upon the performance of an underlying index. The underlying index may be a foreign exchange rate, a commodity price, interest rate, or equity index level. The coupon may be set as a simple function of the rise or fall of the underlying index, or may be constructed as a more complex function, such as the averaging of a set of index points over time.

This product is primarily suited for clients who are looking for the safety of principal protection, but need a higher yield than that offered by normal CDs, and have a view on the performance of a particular underlying market index.

Structured Products Unit or New Products Unit (NPU) provides pricing on CDs linked to the S&P and NASDAQ index, the major foreign exchange rates, U.S. interest rates, and selected commodities. The minimum size of a transaction is US$ 1 million.

Double No Touch Currency Linked Deposit

A range binary option based structure that pays usually a multiple of conventional plain vanilla deposit yield provided the selected currency stays between a predetermined range for the entire tenure of the deposit. The investor loses the interest income component if the currency breaches any of the range barriers. Capital, nevertheless, is guaranteed at maturity.

NPU is able to provide Structured Notes tailored to the performance of an underlying variable, or a combination of variables. Principal may be at risk, but returns are typically higher than those provided by Principal Protected CDs. For example, Leveraged Notes that pay a multiple of the underlying indexs return would fall under this category. Again, the Notes return may be tailored very specifically as a simple or complex function of the underlying variable. Minimum size of transaction is US$ 1 million.

Principal Protected Deposits

NPU currently offers principal protected deposits mimicking the bond and equity returns for the G3 currencies. The deposit tenure typically starts from 2 years and could go as long as 10 years. Various combinations can be devised depending on client’s risk appetite.

A range of innovative financial instruments

In addition to standard financial offerings, our multi-disciplinary expertise also enables us to create more unusual approaches that integrate tools and techniques from different areas. These hybrid instruments provide exposure to different kinds of markets and sectors while seeking innovative ways to manage risks.

Capital Guaranteed Products allow the investor to gain exposure to a broad variety of underlying markets while maintaining the principal value of the clients capital. We issue Capital Guaranteed Structures on a regular basis but can also provide them as a tailor made product given a minimum investment amount.

For active investors looking for ways to enhance investment performance, ABC is able to provide a variety of unlisted products with varying risk-reward profiles. A structured product is a financial instrument designed to meet specific investor needs by incorporating special, non-standard features, including capital protection, warrant and traditional loan gearing, exposure to overseas equities, commodity hedge arbitrage, and "share index" style investment.

Each structured product has its own distinct features which are outlined in ABCs Structured Products service, both on a "product by product" basis, as well as in our "at a glance sheet" which covers all products currently available through this service.

Full investment details on each structured product are available in the Term Sheet. Prior to making an investment in any structured product, you should consider whether it is suitable for your specific investment needs, preferably in consultation with your financial adviser.

Structured Products are innovative and flexible investment products designed to respond to modern investor needs, be it for yield enhancement or risk reduction. The Financial Engineering team of ABC offers a complete range of structured products, which is continuously updated in respect of the latest developments in financial markets. On request, the team readily shares its well-developed expertise in structuring tailor-made financial solutions.

Target Redemption Note

This product is very similar to the callable reverse floater but the product gets terminated if a predetermined accumulated return is reached.  These notes pay x-libor on 3/6 monthly basis and the note is terminated if the return reaches y%.  The effective yield on the note is very high compared to plain deposits.

Callable Accumulator

This product is similar to the callable reverse floater but instead of paying x%-libor, the product pays x% at the beginning and the previous coupon – libor in arrears thereafter.  The effective yield on these products is higher than callable reverse floater.

Al Muwa'ama

A Shari’a-compliant alternative to the conventional outright forward exchange contract.
(Outright forward Currency: In currency forward contracts, the contract holders are obligated to buy or sell the currency at a specified price, at a specified quantity, and on a specified future date).

Tabdeel

A Shari’a-compliant alternative to the conventional Interest Rate Swap contract.
(Interest Rate Swap:  An agreement between two parties (known as counterparties) where one stream of future interest payments is exchanged for another based on a specified principal amount. Often, interest rate swaps exchange a fixed payment for a payment that is not fixed, but rather linked to an interest rate (most often the LIBOR).