10 August 2023: Wealth Product Ideas
Dual Range Accrual (DRA)
Reference Rate and Index Linked Notes
*The quotes are indicative only and are subject to change. For an up-to-date quotation and the most current terms, please contact us directly.
Product mechanics:
- These are USD denominated structured notes with tenors ranging from 1 year to 1.5 years.
- The notes pay a quarterly coupon ranging from 6.75% to 7.75% per annum, depending on the tenor.
- The coupon has two components:
- A fixed coupon is paid for the first one or two quarters, depending on the tenor.
- For subsequent quarters, the actual coupon depends on the daily range accrual calculation based on the S&P 500 Index staying between 3800 and 4800 and the USD exchange rate (either USD/SGD or USD/CHF) staying above certain limits. If they stay within the ranges for the entire quarter, the full coupon is paid. If only some days, a partial coupon is paid based on the in-range days.
- At maturity, investors get back 100% of their principal if the issuer does not default. There is no principal protection during the tenor.
- Investors face credit risk from the issuer. They can lose some or all of their investment if the issuer defaults.
Payoff Illustration
*The quotes are indicative only and are subject to change. For an up-to-date quotation and the most current terms, please contact us directly.
Scenario 1: Coupon accrues in full
- The underlying index and exchange rate stay within range for the entire 1-year tenor.
- The full coupon rate of 6.75% per annum is accrued and paid quarterly.
- Total coupon payments are 6.75% over the 1-year tenor, equivalent to an annualized return of 6.75%.
- The investor receives 100% of their principal at maturity unless the note is called or the issuer defaults.
Scenario 2: Partial coupon accrued
- After the initial fixed coupon period, the underlying levels only stay in range for some days each quarter.
- Only a partial coupon is accrued based on the in-range days, resulting in an average coupon of around 3.375% for these quarters.
- Total coupon payments are around 4.25% over the 1-year tenor, equivalent to an annualized return of 4.25%.
- The investor receives 100% of their principal at maturity unless the note is called or the issuer defaults.
Scenario 3: Only fixed coupon accrued
- The underlying levels move out of range after the initial fixed coupon period.
- No floating coupon is accrued for the remaining quarters.
- The investor only receives the fixed coupon of 1.6875% for the first quarter.
- Total coupon payments are 1.6875% over the 1-year tenor, equivalent to an annualized return of 1.6875%.
- The investor receives 100% of their principal at maturity unless the note is called or the issuer defaults.
Scenario 4: Note called back before maturity
- After the initial 3-month non-callable period, the issuer exercises their option to call the note back before the 1-year maturity date.
- The investor has received the fixed coupon payment for Q1, amounting to 1.6875% of their investment.
- They have also received a pro-rated portion of the floating coupon payment(s) for the period(s) until the early call date.
- At the early call date before maturity, the investor receives 100% of their initial principal back from the issuer.
- In summary, the total payoff for the investor until the note is called is:
- Coupon payments received: Between 1.6875% and 6.75%
- Principal repaid: 100%