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Foreign Bonds
Foreign Bonds
- Foreign bonds are issued by foreign governments, government institutions, companies or other organizations outside the jurisdiction of R.O.C. and are valued in foreign currencies, and the issuance institutions guarantee to periodically pay the coupon interest agreed in advance before the maturity. In addition, upon the maturity, the foreign bonds of the couple value indicated will be paid.
Product Characteristics:
- The probability of the issuance institution returning the bond par value upon maturity is high: Except where the product terms and conditions specify otherwise, if the issuance institution is not subject to any breach, the issuance institution guarantees to return the bond par value in full upon the maturity of the bond
- Fixed income source: During the bond holding period, investors can have a fixed interest income according to the terms and conditions of the product issuance.
- Long-term investment target product asset allocation: Investors can invest in different foreign bonds issued by issuance institutions, and can further choose bonds structures of different period, different credit rating and different interest distribution frequency according to personal financial needs and long-term investment goals in order to satisfy personal investment portfolio and to increase the customer asset allocation flexibility.
Hours for accepting applications
- The hours for accepting applications of our bank is from 9:00AM to 3:00PM. In case of non-business day or closing day for overseas market of the investment subject matter, then it is deferred to the next business day.
Applicable Group
- Investors with long-term investment plan and holding foreign currency idle funds.
- Investors demanding fixed cash flow and stable return.
- Investors seeking to diversify asset investment risk, to invest in foreign currency products with fluctuation level lower than stocks.
Pre-owner Interest
- Settlor purchases the bond between to interest payment days, and the interest accrued between the previous interest payment day and the bond settlement day is enjoyed by the holder (seller) previously owning the bond. At this time, the settlor (buyer) needs to pay such interest to the seller upon the settlement, and such interest is referred to as the interest payable or pre-owner interest, and it is paid to the seller by the issuance institution when the note interest payment day is reached.
- Pre-owner interest calculation equation = Subscription par value x Par value interest distribution rate x Ratio of number of days the seller (previous owner) not yet collecting the interest before the settlement day.
Yield to Maturity
- Yield to maturity refers to the interest rate gained when the bonds held reached the maturity, and such interest rate is often considered as an important reference for the bond traders to determine the return rate.
Possible required fees for investment of foreign bonds are disclosed in the following:
- Subscription charge: Trust amount (excluding the pre-owner interest) multiplying by a maximum of 1.5%.
- Trust management fee: This fee is calculated by multiplying the trust amount with an annual rate of 0.2% according to the actual number of management days, and such fee is deducted from the redemption amount when the settlor makes early redemption or upon maturity. The trustee may also choose to settle and accumulate the outstanding trust management fees not yet collected at the end of December of each year, and then deduct such accumulated amount from the account designated by the settlor in January of next year. However, in case of redemption of investment subject matter before the deduction by the trustee, the trustee may deduct such fee from the redemption price amount.
- Channel service fee: This fee will be reflected in the subscription price of the settlor, and no separate payment is collected from the settlor. The annual collection fee rate range does not exceed 0.5% of the total amount of the product accepted for investment. The fee rate collected for the entire period of years does not exceed 5% of the total amount of the product accepted for investment.
Tax Payment Method
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Product TypeInterest income (issuance institution registration place)Income from trading (product issuance place)Primary market foreign bondsOverseas incomeOverseas incomeSecondary market foreign bondsDim-sum bonds issued by companies in Mainland ChinaIncome from Mainland ChinaOverseas incomeDim-sum bonds or bonds in CNY issued by foreign companies
Overseas incomeOverseas incomeForeign bonds not valued in CNYOverseas incomeOverseas income
Possible Potential Risks of Investment
- Minimum gain risk/Maximum loss risk: Under the condition where the issuance institution is not subject to any credit risk, during the investment period, fixed interest is distributed at the annual interest rate based on the bond par value, and upon the maturity of the product, the issuance institution then returns the principle according to 100% of the bond par value in the valuation currency of the product. However, in case the issuance institution is subject to credit risk, then under the worst scenario, the settlor will lose all of the investment principle and interest.
- Legal risk: Overseas investment subject matter at the overseas securities market exchange shall be handled according to the laws and exchange market regulations. The regulations for the investment subject matter issued by the trading counterparty may be governed by the foreign laws, and the English version of prospectus, investor instructions or product brochure are used as the primary basis for the criteria of issuance. Settlors shall carefully read and sufficiently understand the content of such documents in order to determine whether to make investment and to bear the investment risk.
- Issuance risk:During the funding period of the investment subject matter, in case where the target funding amount is not reached such that it cannot be issued, or the trading counterparty cannot issue the investment subject matter according to the prospectus, investor instructions or product brochure due to severe market fluctuation, then the trading counterparty may not issue the investment subject matter and the trustee will return the trust fund and service charge to the settlor without interest.
- Operation risk: The issuance criteria, including the issuance date, valuation date, interest distribution date, participation rate, interest distribution calculation equation and early redemption etc., described in the prospectus, investor instructions and product brochure may not be performed completely due to fault of the trading counterparty or sub-trusted third party such that damage may occur.
- Credit risk: The settlor needs to bear the credit risk of the issuance institution. The trading counterparty and the securities in the investment subject asset portfolio may be unlisted or the issuance company may be merged, become state-owned, restructuring due to bankruptcy, dissolution or liquidation etc., such that it may not return the principle and gains for the investment of the settlor in full. Consequently, despite that the investment subject asset or issuance company is of high credit rating at the present time, it cannot guarantee that price or credit risk will not occur in the future.
- Settlor's early redemption/liquidity risk: When the settlor redeems the holding unit early before the maturity date, it may be subject to the risk of deduction of principle due to market fluctuation or other factors. In addition, there is a liquidity risk that it cannot be redeemed or timely redeemed. Consequently, settlor shall carefully evaluate one’s own financial needs and status.
- Currency exchange risk: When the investment subject matter is valued in foreign currencies, the subscription, redemption and conversion may be subject to currency exchange risk due to exchange rate fluctuation. However, domestic and overseas investment subject matters cannot be converted among each other; in addition, overseas trust fund and NTD trust fund cannot be converted among each other.
- Market risk: Securities investment market may be subject to environmental factors of major political events, economic great recession or insufficient society confidence etc., causing the overall market price to drop significantly, resulting in loss of investment assets.
- Country risk: In case where the registration country or the issuance institution is subject to events of political, economy, riot or other force majeure events, it will cause settlors to suffer loss.
- Interest rate risk: After investment subject matter is officially settled and issued, the market to market value during its period of existence will be affected by the fluctuation of the valuation currency interest rate. When such currency interest rate increases, the market price of the investment subject matter may drop, and its price may be lower than the couple price such that the original investment amount may be damaged. When the currency interest rate is decreased, the market price of the investment subject matter may increase, and it may be higher than the couple price such that extra gain can be earned.
- Principle conversion risk: According to different product design or criteria, investment principle conversion into securities linked to subject matter, sale of all holding equity assets for liquidation may occur, then the settlor will need to bear the risk of the profit or loss from disposition of the securities.
- Issuance institution exercising early redemption risk: If the issuance institution exercises the early product redemption right, it will shorten the expected investment period and the expected investment return.
- Inflation risk: Inflation will cause the substantial gain of the investment subject matter to decrease.
- Settlement risk: If the registration country of the product issuance or guarantee institution or the Exchange linked with the subject matter or the location of the securities settlement and liquidation institution encounters emergency special conditions or market change etc., it will cause suspension of settlement or delay of settlement.
- Reinvestment risk: If the issuance institution exercise the early product redemption right, the settlor will face reinvestment risk.
- Event risk: The investment subject matter may be adjusted due to (but not limited) merger or sale, quote source interruption, suspension of trading and change of tax laws or other major events. In case of restructuring of the issuance institution or other major events, it can cause bond downgrade.
- Tax risk: The investment subject matter profit can be affected by the tax applicable to the issuance institution, country, Exchange and settlor. In case of change of relevant tax laws, the investment profit may not be the same as the expectation at the time of investment.
- Network trading risk: In case of malfunction of computer system, computer network, mobile device network or telecommunication lines, power outage, conducts of third party or other force majeure factors, causing the trustee to be unable to perform trading according to the instructions, settlors may then be subject to loss.
English Version of Product Prospectus of Foreign Bonds Sold by Our Bank
- Download Link
- Shall you have any questions, please contact our Customer Service Center or operating counters at each branch or please contact Trust Division at (02)2536-2951, Ext. 2214~2219
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