The note offers a potential annualised return of 11% if the valuation price on all four commodities is at or above its limit price on the four automatic valuation dates. These are expected to fall on July 31, 2007; January 31, 2008; July 31, 2008; and February 2, 2009. There is a final enhanced redemption at maturity on July 31, 2009, if there is no early redemption.
Investors have a choice of two tranches, which determine the payoff if there is no redemption at maturity. The payoff in tranche one will be calculated by reference to a participation of 70% on upside (if any) of basket performance. The investor will get back the principal amount if the valuation price of at least one commodity in the basket is below its limit price on each valuation date. Investors choosing tranche two will get a 5% return over three years.
Connie Leung, managing director for fixed income and derivatives at SG, said tranche one caters to investors who are more bullish on commodities, while the second tranche suits those who want more certainty in coupon payment. Theoretically, she added, investors choosing tranche one could stand to gain more than the 11% return a year. The note is available from 12 distributors, including Bank of America and Bank of China (Hong Kong).