Look for:

Tutorial: Cash or Share bonds

What are cash or share bonds?

Cash or share bonds are debentures with a very attractive interest rate. Given that the bond is linked to a share (underlying), coupons are substantially above market rates. In return for the high coupon, the investor also bears the risk from the share: at the end of maturity, the redemption of the share bond is based on the price of the underlying instrument. If at the end of maturity the share price is above the initial value, the coupon and the nominal value are redeemed. If the share price at the end of maturity is below the initial value, the initially agreed on number of shares per nominal value are transferred (usually physical delivery) on top of the coupon.

In addition to share bonds with one underlying instrument, there are also share bonds with more shares as underlying instruments. These multi-cash or multi-share bonds tend to pay a higher coupon. Their redemption is based on the share with the worst performance at the end of maturity. A fixed coupon is paid out here as well, regardless of the way of redemption.

How do cash or share bonds work?

Cash or share bonds come with an initially set fixed coupon at the end of maturity that pays substantially higher interest rates than the market. If at the end of maturity the market price of the underlying is above the strike price fixed at the beginning of the term, the share bond is redeemed at its nominal value plus coupon. If the share price is below the initial value, the investor receives a physical delivery of the share plus the payment of the coupon. The number of shares to be delivered per nominal value is set at the beginning of the term.

In the case of the multi-cash or multi-share bond which has more than one shares as underlying, redemption is based on the share with the worst performance. If at the end of maturity the price of this share is above its initial value, the bond is redeemed at its nominal value plus its coupon.

If at the end of maturity the price of the share with the worst performance is below its initial value, the investor receives the share by means of physical delivery, plus the payment of the coupon. The number of shares to be delivered per nominal value is also set at the beginning of the term.

Your benefits

nvestors who do not expect any strong movements in a share can receive a high, fixed coupon when investing in a cash or share bond. In return, the upward potential is limited to the value of the coupon. This form of investment is highly interesting in an environment of attractively valued equity markets.

Your advantages

  • You get a high, fixed coupon that is above the market interest rate
  • Cash or share bonds tend to have short maturities.
  • The fixed coupon offers you a risk buffer.

Details you should be aware of

  • In the case of redemption by physical delivery of shares, you may incur losses.
  • Between issue date and maturity, price fluctuations are possible, which means that the sale of the cash or share bonds prior to maturity may result in a loss.
  • The potential return is limited to the coupon.

How do cash or share bonds react to…

… rising imarkets?
If the price of the underlying share rises, the price of the bond rises as well because the redemption of the nominal value is becoming more likely.

… stable markets?
In stable markets, the investor benefits from the fixed coupon and the redemption at nominal value at the end of maturity. The stable price has very little influence on the value of the bond, but the value of the certificate rises as the remaining period to maturity shortens.

… falling markets?
If the price of the underlying share falls, the price of the bond falls as well because the redemption of the nominal value by means of physical delivery of the share is becoming more likely. The fixed coupon is paid out in any case.


Payoff-Chart




Information

Any information, material and services regarding financial instruments and securities provided by Erste Group Bank AG or any of its affiliates (collectively “Erste Group“) on this and any linked website hereafter (jointly the “Websites”) shall be exclusively to investors who are not subject to any legal sale or purchase restrictions (the “Interested Party“).

The publication and distribution of information as well as offering and selling of products and services described on the Websites is prohibited by law in some jurisdictions. For this reason, persons in countries in which the publication as well as the offering and selling of products and services described on the Websites are not permitted by law, must not enter the Websites and/or acquire the products displayed on the Websites.

Neither Erste Group nor any third party shall offer access to the Websites or offer the products to especially, but not limited to citizen/residents of the United States and “U.S. person” (as defined in Regulation S under the US Securities Act 1933 as amended), citizen/resident of Australia, Canada, Great Britain and Japan. For this reason, the distribution or redistribution of the information, materials and products into United States, Australia, Canada, Great Britain and Japan or into any other jurisdiction where it is not permitted under the applicable law, as well as to the citizens/residents of these countries shall be prohibited.

The securities displayed on the Websites have not been and will not be registered under the US Securities Act of 1933 and trading in the securities has not been approved for purposes of the US Commodities Exchange Act of 1936. For this reason the securities may, inter alia, not be offered, sold or delivered within the United States or, for the account and benefit of U.S. persons.

The Interested Party is solely responsible to examine, whether he may enter the Websites under the law applicable to it. Erste Group shall not be responsible for the distribution of content of any of the Websites to individuals or entities which provide false information about their right to enter the Websites. For this reason Erste Group shall not be liable for any legal claims or damages which may result from the unauthorized entering or reading of the Websites.

By agreeing to this hereto, the Interested Party confirms that
(i) It has read, understood and accepted this Information and the Disclaimer;
(ii) It informed itself about any possible legal restriction and warrants that it is not restricted or prohibited to enter the Websites according to any law applicable; and
(iii) It does not make available the contents of the Websites to any person who is not qualified by law to enter the Websites.