What is a Bonus Enhanced Note?
A Bonus Enhanced Note (“BEN”) is a participation-type structured product which aims to offer investors an opportunity to receive the higher of a Bonus Coupon or the positive performance of the worst-performing underlying asset (“Worst Performer”) in the underlying basket.

 

Key Features
▪ The tenor period is at least 1 month or above (negotiable with issuer).
▪ The note is normally issued at par. There is no coupon payment during the life of the transaction.
▪ Investors will receive 100% of notional amount plus the higher of the bonus coupon or the positive performance achieved by the Worst Performer if the price of Worst Performer closes at or above the strike price on the final valuation date.
▪ If the price of Worst Performer closes below the strike price on the final valuation date, investors will receive physical delivery of the Worst Performer at the strike price where physical settlement is applicable to the Worst Performer. No Bonus Coupon will be paid in this situation.

 

Payoff Illustration
Investor should note that the below example is prepared for illustrative purposes only and do not constitute an offer or solicitation of any investment.

Sample Product Terms
Notional amount	$1,000,000
Tenor	6 months
Currency	USD
Bonus coupon	20% flat
Underlying assets	Stock A; Stock B
Initial fixings	$100; $200
Strike prices (80% of initial fixing level)	$80; $160

 

Scenario 1: Positive Performance of the Worst Performer > Bonus Coupon (At Final Valuation Date):

Performance of the Underlying assets
	Final Fixings	Performance
Stock A	$125	($125 / $100 = 125%)
Stock B	$260	($260 / $200 = 130%)

 

For Cash Settlement
The investor shall receive in cash the notional amount plus the upside return of the Worst Performer on the maturity date:
Notional amount x {100% + Max[Bonus Coupon, (Worst Performer Final Fixing / Initial Fixing) -100%)]}
= $1,000,000 x {100% + Max[20%, (125% - 100%)]}
= $1,250,000

 

Scenario 2: Bonus Coupon > Performance of the Worst Performer and Closing Price of the Worst Performer >= Strike Price (At Final Valuation Date):

Performance of the Underlying assets
	Final Fixings	Performance
Stock A	$105	($105 / $100 = 105%)
Stock B	$180	($180 / $200 = 90%)

 

For Cash Settlement
The investor shall receive in cash the Notional Amount plus the Bonus Coupon on the maturity date:
Notional amount x {100% + Max[Bonus Coupon, (Worst Performer Final Fixing / Initial Fixing) -100%)]}
= $1,000,000 x {100% + Max[20%, (90% - 100%)]}
= $1,200,000

 

Scenario 3: Closing Price of the Worst Performer < Strike Price (At Final Valuation Date):

Performance of the Underlying assets
	Final Fixings	Performance
Stock A	$85	($85 / $100 = 85%)
Stock B	$140	($140 / $200 = 70%)

 

For Physical Delivery Settlement
Given the Worst Performer is Stock B, the number shares of Stock B to be delivered:
= Notional amount / strike price
= $1,000,000 / $160
= 6,250 shares

 

For Cash Settlement
Given the Worst Performer Stock B is closed at $140, the cash amount to be received:
= Notional amount x (final fixing / strike price)
= $1,000,000 x ($140 / $160)
= $875,000 (a realized capital loss would be $125,000 against the notional amount)

 

Scenario 4: Worst Case Scenario
Under the worst-case scenario, the investor may lose all of his/her initial invested amount in the event of the issuer’s default,or the value of the underlying asset(s) drops to zero.

 

Disclosure of Risk Factors
BEN may involve some or all of the following risks:
• Issuer’s credit risk
• Market risk
• Interest rate risk
• Foreign exchange risk
• Reinvestment risk
• Liquidity risk
• Limited secondary market

 

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Important Notice and Disclaimer:

We have based this article on our internal research and information available to the public from sources we believe to be reliable. While we have taken all reasonable care in preparing this article, we do not represent the information contained in this article is accurate or complete and we accept no responsibility for errors of fact or for any opinion expressed in this article. Opinions, projections and estimates reflect our assessments as of the article date and are subject to change. We have no obligation to notify you or anyone of any such change. You must make your own independent judgment with respect to any matter contained in this article. Neither we or our respective directors, officers or employees will be responsible for any losses or damages which any person may suffer or incur as a result of relying upon anything stated or omitted from this article.

This document should not be construed in any jurisdiction as constituting an offer, solicitation, recommendation, inducement, endorsement, opinion, or guarantee to purchase, sell, or trade any securities, financial products, or instruments or to engage in any investment or any transaction of any kind, nor is there any intention to solicit or invite the purchase or sale of any securities.

The value of these securities and the income from them may fall or rise. Your investment is subject to investment risk, including loss of income and capital invested. Past performance figures as well as any projection or forecast used in this article is not indicative of its future performance.

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