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Offshore Bonds
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Overseas bonds offer benefits of guarantee of principal at maturity* and fixed income.
Overseas bonds are issued by foreign governments, government agencies, corporations or other institutions (the issuer). The issuer promise to pay the agreed interest (coupons) at regular intervals before the maturity of the bonds, and the principal (face value of the bond) upon maturity. Returns are dependent on fixed incomes and capital gains if bond prices rise. The level of security and volatility of bonds vary subject to the ratings of the issuer. Return and risk of investment also vary depending on market performance.
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Example of an overseas bond
Mr. Wang invests USD 50,000 in HSBC’s corporate bonds with a three-year term and a coupon rate of 5.0% p.a.payable semi-annually. Mr. Wang holds his position until maturity.
Below is an illustration of the interest income at regular intervals during the term of the bond:
Semi-annual coupon during the first 2.5 years:
USD 50,000 X 5% ∕ 2 = USD 1,250
Coupon plus principal at maturity:
USD 50,000+USD 1,250 = USD 51,250
Note:
The tenors of bonds are variable. You may opt to hold your positions to maturity or sell them in the secondary market before maturity at market prices. However, the market prices of bonds may be higher, equal to, or less than the face values in the secondary markets.
Characteristics of offshore bonds
- Fixed coupon at interest rates higher than term deposits of the same currency in most cases
During the holding period, the bond holders receive interest incomes regularly. Generally speaking, the coupon rates of bonds are usually higher than the interest rate of fixed-term deposits of the same currency and are of comparable tenors. - Commitment by the issuer to return the principal upon maturity
Unless otherwise agreed, the issuers of fixed rate bonds, floating rate bonds or zero coupon bonds are committed to return the principle (face value) in full upon maturity. - Potential capital gains
Offshore bonds are actively traded in the secondary market. If the market prices are higher than the purchase prices, bond holders may choose to sell the bonds in the secondary market to realize capital gains. - High liquidity
The secondary market of offshore bonds is large in scale. In addition, HSBC selects offshore bonds with investment grades (good credit ratings). Such overseas bonds are usually highly liquid.
Suitable investors
Investors who wish to receive fixed incomes and are not willing to bear the risks of high volatility.
Why choose HSBC?
- One of the top 20 global companies. The biggest financial group in Europe and one of the biggest in the world.
- One of the top five bond underwriters in the world. A reputable bond brokerage firm.
- Extensive experience in global investments and in-depth understanding of local market enables us to provide you with a comprehensive choice of investment-grade offshore bonds and investment services.
Major risks of offshore bonds
- Credit Risks
Investors should bear the credit risks of the issuer. In case of a downgrade in the credit rating of the issuer or a default by the issuer, the principal that investors receive may be lower than the original investment. - Interest Rates Risks
Market price of bonds is sensitive to changes in interest rates of the denominated currencies. When the interest rates rise, the market prices of the bonds may drop, or even fall below the face values. - Liquidity Risks
If the liquidity is insufficient or the trading volume is slim, it is possible that bond holders cannot dispose their positions or have to sell at the price below the face value. - Risks Associated with Disposal of Bonds prior to Maturity
If investors choose to sell bonds before maturity, the prices of the bonds may be subject to market fluctuations and it is possible that investors are unable to retrieve 100% of their original investment. - Currency Risks
If investors wish to invest in a bond with a currency different from its denominated currency, they should be aware of the potential currency risks upon maturity when they convert the principal and interests into the other currency.
Types of overseas bonds
| ssuing organization | Governments/government agencies/corporations/multi-national institutions |
| Coupons | Fixed, floating, zero coupons |
| Frequency of coupon payments | Monthly, quarterly, semi-annually or annually |
| Terms | From 1 year to 30 years. More flexibility in money management. |
| Currencies | Such as USD, EUR, GBP, NZD and AUD, etc. |
Subscription amounts and relevant fees
| Subscription amount | Unless otherwise specified in respective prospectuses, the minimum subscription is USD 50,000 or its equivalent in any other currency. Each incremental unit is USD 10,000 or its equivalent in any other currency. |
| Subscription fees | Additional costs for the purchase of the bonds. Different in accordance with the underlying assets and tenors. The maximum is 1.75%. |
| Transaction fees of early disposals prior to maturity | Bond holders may sell their positions before maturity in the markets when such sales are allowed. However, they need to pay 1.25% transaction fees for such sales. However, this does not apply to cases where the issuers exercise their call options. |
| Custodian fees | None |
| Coupon distribution fee | None |
Should you have any questions regarding overseas bonds, please contact any of HSBC’s branches island-wide.
Notes
- The above explanation is for reference only and does not constitute any offer or solicitation to any customers to enter into transactions. The detailed contents of the product and associated risks, rights and obligations shall be based on the agreement entered into between HSBC and the customers, the terms and conditions of Product Information and letters of confirmation.
- The payments made by investors to HSBC to invest in offshore bonds are under “Trust” business. They are not deposits and therefore are not protected under the deposit insurance scheme of the Central Deposit Insurance Corporation. HSBC (as the Trustee) does not guarantee the performance of the Trust businesses. Investors should bear the investment risks, profits or losses.
- Bond prices may and will fluctuate. The prices of any bonds may rise or fall, or even lose their market values. There are risks associated with investments. Investors are advised to carefully and independently (as opposed to relying on HSBC or its affiliates) evaluate whether any investments are suitable for themselves based on their risk appetite, investment experience, investment objectives, financial standing and other factors (such as implications in law, taxation and accounting).
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