Faml Eurobond Guaranteed

[donchisel]

Gurus in the house, Kindly review the attached and advice. Can't see any reason why the doc is classified.

[zainabusman]

Originally Posted by donchisel

Gurus in the house, Kindly review the attached and advice. Can't see any reason why the doc is classified.

This looks too good to be true. 19% on a $ bond?......

[hispy99]

Originally Posted by zainabusman

This looks too good to be true. 19% on a $ bond?......

Haven't read the doc yet, but they are offering 19%? Do they have a dollar printing press?

When was this offer packaged? It might be that they were counting on the naira being stable. This way they can earn the 19% in naira and concert the proceeds to dollars.

[donchisel]

Originally Posted by hispy99

Haven't read the doc yet, but they are offering 19%? Do they have a dollar printing press?

When was this offer packaged? It might be that they were counting on the naira being stable. This way they can earn the 19% in naira and concert the proceeds to dollars.

Good to know that the gurus share the same doubts with me. Was wondering why a doc from FSDH should be classified.
Could we please investigate further.

[Michael]

Originally Posted by zainabusman

This looks too good to be true. 19% on a $ bond?......

Even If it is true, why take the risk. A bond is only as good as the Issuer. If Spring bank starts offering 19% we will all run for cover and predict this as a sign of desperation and imminent collapse. Is Spring bank not stronger than FSDH?
For those who love risk. Deap capital is also doing a 19% Guaranteed Investment.

[Taipan]

Please, how exactly does this thing work? The summary - as shown below - has really gotten me confused!

Summary of the Offer
Initial Cash Outlay ($) 50,000.00
semi-annual interest payment (%) 5.51%
semi-annual interest payment ($) 2,753.23
Annual interest payment (%) 11.01%
Annual interest payment ($) 5,506.47
number of interest payments 6
Total Interest payments 16,519.41
Redemption Value 64,781.99
Total Return ($) 31,301.40
Total Return (%) 63%

If the redemption value is $64.8k, how come they're then saying that total return is $31k?

[hispy99]

Originally Posted by Taipan

Please, how exactly does this thing work? The summary - as shown below - has really gotten me confused!

Summary of the Offer
Initial Cash Outlay ($) 50,000.00
semi-annual interest payment (%) 5.51%
semi-annual interest payment ($) 2,753.23
Annual interest payment (%) 11.01%
Annual interest payment ($) 5,506.47
number of interest payments 6
Total Interest payments 16,519.41
Redemption Value 64,781.99
Total Return ($) 31,301.40
Total Return (%) 63%

If the redemption value is $64.8k, how come they're then saying that total return is $31k?

Still trying to make sense of it myself, I thought that maybe my calculator was malfunctioning

[Michael]

Originally Posted by hispy99

Still trying to make sense of it myself, I thought that maybe my calculator was malfunctioning

Maybe theirs is? Or are they convinced that Nigerians are too scared of Nigerian Naira to read between the Lines and punch their Calculators?

[knightofdelta]

Originally Posted by Taipan

Please, how exactly does this thing work? The summary - as shown below - has really gotten me confused!

Summary of the Offer
Initial Cash Outlay ($) 50,000.00
semi-annual interest payment (%) 5.51%
semi-annual interest payment ($) 2,753.23
Annual interest payment (%) 11.01%
Annual interest payment ($) 5,506.47
number of interest payments 6
Total Interest payments 16,519.41
Redemption Value 64,781.99
Total Return ($) 31,301.40
Total Return (%) 63%

If the redemption value is $64.8k, how come they're then saying that total return is $31k?

It makes sense. You pay $50,000 and receive $64,519 at the end of three years. Then add total amount of interest payments over three years in 6 monthly intervals = $16,519.41.

Everything add up to $31,301.40.

[hispy99]

Originally Posted by knightofdelta

It makes sense. You pay $50,000 and receive $64,519 at the end of three years. Then add total amount of interest payments over three years in 6 monthly intervals = $16,519.41.

Everything adds up to $31,301.40.

Ok, now I see. I have not come across a bond structured like this before, so I guess that is why I was confused.

[Taipan]

Originally Posted by hispy99

Still trying to make sense of it myself, I thought that maybe my calculator was malfunctioning

This is my take:
The 19% (yield to maturity, whatever that means) sounds nice, but on reading the memorandum, you discover that all you get is actually 11.01% and I can get better than that with a Nigerian fixed deposit account (13%pa on N1m). In addition, you'll probably have to buy the dollars at the prevailing exorbitant rates (about N150 to the dollar) and if unfortunately, the naira appreciates - as it probably would - in the next few years (say to the previous rates of about N120), you'll find that you've lost so much after the conversions to dollar and vice-versa. At the end of 3yrs, you might be looking at a total interest of about 12% (if rates drop from N150 to N130 in 3yrs) and 4%(if rates drop to N120)!
I would like to believe this is meant for people who already hold dollars as US banks don't offer such interest rates. But if I were a Nigerian with that much dollars, I'll convert it to Naira - about N7.5m for $50k - and then fix it at about 14%pa.
Ultimately, I don't see the attraction. But of course, not many people read memorandums.

PS: Maybe I'm making a big mistake somewhere. You tell me.

[Michael]

Originally Posted by Taipan

This is my take:
The 19% (yield to maturity, whatever that means) sounds nice, but on reading the memorandum, you discover that all you get is actually 11.01% and I can get better than that with a Nigerian fixed deposit account (13%pa on N1m). In addition, you'll probably have to buy the dollars at the prevailing exorbitant rates (about N150 to the dollar) and if unfortunately, the naira appreciates - as it probably would - in the next few years (say to the previous rates of about N120), you'll find that you've lost so much after the conversions to dollar and vice-versa. At the end of 3yrs, you might be looking at a total interest of about 12% (if rates drop from N150 to N130 in 3yrs) and 4%(if rates drop to N120)!
I would like to believe this is meant for people who already hold dollars as US banks don't offer such interest rates. But if I were a Nigerian with that much dollars, I'll convert it to Naira - about N7.5m for $50k - and then fix it at about 14%pa.
Ultimately, I don't see the attraction. But of course, not many people read memorandums.

PS: Maybe I'm making a big mistake somewhere. You tell me.

Anything Tied to the dollar these days is tied to breeze! I see no attraction here!

[hispy99]

Personal Finance Features and Tools
FAML Eurobond: Alternative investment projects 51.78% return

[knightofdelta]

Originally Posted by hispy99

Personal Finance Features and Tools
FAML Eurobond: Alternative investment projects 51.78% return

These GTB guys are too smart. The bond will give a bond equivalent yield to maturity of 15.98% in dollar basis by factoring in the time value of money. When they collect the money in dollars, they will convert it to Naira and make use of it and then make payment back in US $. According to the Economist Intelligence Unit report on Nigeria for May, they expect the Naira to depreciate further to N160/$ by 2012 but they also predict an upsurge in price of crude oil prices, which is likely to improve the standing of the Naira; that is what I believe GTB is betting on with these bonds and then they can pay off the capital with less Naira.

I am sure the bank will be able to make better use of the money to generate a spread over the cost of capital. I am going to increase my stake in the bank equity instead.

Smart move!

[hispy99]

Originally Posted by knightofdelta

These GTB guys are too smart. The bond will give a bond equivalent yield to maturity of 15.98% in dollar basis by factoring in the time value of money. When they collect the money in dollars, they will convert it to Naira and make use of it and then make payment back in US $. According to the Economist Intelligence Unit report on Nigeria for May, they expect the Naira to depreciate further to N160/$ by 2012 but they also predict an upsurge in price of crude oil prices, which is likely to improve the standing of the Naira; that is what I believe GTB is betting on with these bonds and then they can pay off the capital with less Naira.

I am sure the bank will be able to make better use of the money to generate a spread over the cost of capital. I am going to increase my stake in the bank equity instead.

Smart move!

I hope it is a smart move. Except they have explicitly hedged the exchange rate risk, I hope what you have outlined here does not come back to bite them. If they had told you in March 2007 that the official rate would be $1: N146 in May 2009, what would your reaction have been? What did the Economist Intelligence Unit say the exchange rate would be in 2012 at the beginning of 2007? Just curious.

[wanaj0]

Originally Posted by knightofdelta

These GTB guys are too smart. The bond will give a bond equivalent yield to maturity of 15.98% in dollar basis by factoring in the time value of money. When they collect the money in dollars, they will convert it to Naira and make use of it and then make payment back in US $. According to the Economist Intelligence Unit report on Nigeria for May, they expect the Naira to depreciate further to N160/$ by 2012 but they also predict an upsurge in price of crude oil prices, which is likely to improve the standing of the Naira; that is what I believe GTB is betting on with these bonds and then they can pay off the capital with less Naira.

I am sure the bank will be able to make better use of the money to generate a spread over the cost of capital. I am going to increase my stake in the bank equity instead.

Smart move!

Actually, GTB gives there dollar sourced loans to companies that generate their income also in dollars thats how they hedge against exchange risk. Was worried about the Eurobond until I discovered that.

[hispy99]

Originally Posted by wanaj0

Actually, GTB gives there dollar sourced loans to companies that generate their income also in dollars thats how they hedge against exchange risk. Was worried about the Eurobond until I discovered that.

ok, this makes sense

[blanka]

Got a mail yesterday from FSDH w.r.t. this Eurobond issue. Not a bad deal at all... They are offering 16%/annum payable twice a year. Only drawback in my view's that the minimum entry amount at $50,000 is quite high. Otherwise looks good.