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Credit Rating & Investment Example
Information
Credit Rating
“Bond Rating” is a rating system whereby the credit standing and the possibility of default of the issuers are rated. Examples are the S&P and Moody’s ratings where the financial capacity of the issuers is subject to evaluation. The rating ranges along a scale from AAA (default is very unlikely) to D (already defaulted).
S&P Credit Rating
Bonds rated as BBB or below (BB, B, CCC, CC, C) are considered highly speculative, and are commonly known as junk bonds. BB rating stands for the lowest degree of speculation while C rating is the highest. This type of bond may still have certain degree of security and quality, but is vulnerable to uncertainties and unfavorable situations.
Example of investment in “Offshore Bonds”
Mr. Wang invested in a 3-year corporate bond with coupon rate 5.3% per annum at face value of USD50,000 through the Non-Discretionary Trust account. If Mr. Wang holds the bond until maturity, he is entitled to a fixed amount of interest at regular intervals demonstrated as follows:
- From the 1st to the 5th semi-annual period (interest) USD 50,000 x 5.3%/2 =USD1,325
- In the 6th semi-annual period (interest plus principal) USD 50,000 + 1,325 = USD 51,325
Note: The tenors vary for different bonds. You may choose to hold a particular bond to maturity or sell the bond in the secondary market depending on the market price (market price may be higher, equal to, or lower than the face value depending on market situation) before maturity.
Offshore Bond Related Information
Disclaimers
- The investment amount in Offshore Bond through Non-Discretionary Trust account is for investment not deposit. Therefore, the investment amount is not inclusive of the extent of deposit insurance of Central Deposit Insurance Corporation (CDIC). The trustee banks disclaim responsibility on the management the performance of the trust account. Investors shall assume as their own responsibility any risks that may arise from investment and possible loss thereof.
- Bond price may and will fluctuate. The price of any type of bond may fall and may have no market value. Investors shall make judgment on participation in any of the investment cautiously with reference to their own capacity to assume risks, investment experience, investment objectives, financial positions and related conditions (effects on legal, taxation and accounting aspects).
