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sinkable bond

Gilts, bonds, and interest-bearing shares
passedout
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Joined: May 16th, 2022, 10:29 am

sinkable bond

#500715

Postby passedout » May 16th, 2022, 10:36 am

Hi guys, nice forum you have here! Just a quick question if I may. I'm looking at buying a government sovereign sinkable bond and I'm trying to find out exactly the pros and cons. Investopedia is a good site for info but it's still not clear in my mind whether a gov that emits a sinkable bond have the option to change the percentage of the coupon at any time during the life of the bond or not. A video I've watched in investopedia also says a sinkable bond can be callable as well. I'm trying to determine whether those two points are true or not.
Thanks for your comments in advance.

Alaric
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Re: sinkable bond

#500730

Postby Alaric » May 16th, 2022, 11:04 am

passedout wrote:I'm looking at buying a government sovereign sinkable bond and I'm trying to find out exactly the pros and cons. Investopedia is a good site for info but it's still not clear in my mind whether a gov that emits a sinkable bond have the option to change the percentage of the coupon at any time during the life of the bond or not..


You should probably name the bond, so that the exact conditions under which it operates can be established.

At a guess an investor's return from the bond will be a coupon payment as interest and a capital repayment every so often. If capital is being reapid, then the interest may reduce as the nominal holding reduces, but it may have conditions that increase the repayment to keep the aggregate level.

passedout
Posts: 7
Joined: May 16th, 2022, 10:29 am

Re: sinkable bond

#500788

Postby passedout » May 16th, 2022, 1:30 pm

Hi Alaric thanks for your reply.
The bond I"m looking at is XS2325747637.
Capital repayment in any bond should be only on expire date unless is callable and unless is sinkable and that's if I understand the meaning of sinkable properly.
Thanks

Alaric
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Re: sinkable bond

#500790

Postby Alaric » May 16th, 2022, 1:37 pm

passedout wrote:The bond I"m looking at is XS2325747637.


Unless one is privy to where to look that up and turn it into a narrative etc. , the raw code doesn't tell us very much.

XFool
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Re: sinkable bond

#500794

Postby XFool » May 16th, 2022, 2:16 pm

International bonds: Ghana, 8.875% 7may2042, USD
XS2325747637

https://cbonds.com/bonds/976439/

GoSeigen
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Re: sinkable bond

#500797

Postby GoSeigen » May 16th, 2022, 2:39 pm

passedout wrote:Hi Alaric thanks for your reply.
The bond I"m looking at is XS2325747637.
Capital repayment in any bond should be only on expire date unless is callable and unless is sinkable and that's if I understand the meaning of sinkable properly.
Thanks


Hello passedout and welcome to The Lemon Fool.


A quick google search turns up the final terms for this bond, they are here:

http://www.rns-pdf.londonstockexchange.com/rns/4713U_1-2021-4-6.pdf


Taking a brief look at the terms there appears to be no call but the bond amortises in three equal tranches payable in 2040, 2041 and 2042. Sinkable means that it is backed by a sinking fund from which the amortisation payments will be drawn. More info here:

https://www.investopedia.com/terms/s/sinkablebond.asp


GS

passedout
Posts: 7
Joined: May 16th, 2022, 10:29 am

Re: sinkable bond

#500911

Postby passedout » May 17th, 2022, 10:04 am

Alaric wrote:
passedout wrote:The bond I"m looking at is XS2325747637.


Unless one is privy to where to look that up and turn it into a narrative etc. , the raw code doesn't tell us very much.


Hi Alaric thanks for your reply.
Not sure what you mean by a place where to look that bond up. Free info on government bonds is pretty scarse on the internet. The best place it's probably CBonds but with a minimum price tag of $200 a month for a very basic subscription, it's out of my budget! And with that "light" subscription I'm not even sure if you can download a prospectus for any bond you like which would probably shed light on my doubts!
My doubts are about what a sinkable bond really is. I'm trying to understand it fully prior to buying one.

As I said Investopedia it's pretty good in giving free info but not entirely clear to me. Probably just me though.
Example in this link investopedia.com/ask/answers/sinking-fund-bonds/
there is a video saying that a gov that emits a sinkable bond has the option to recall some of it or even all of it at some point. If the basic interest rate drops the gov can buy back the old bonds and issue new ones at a lower interest rate saving money in the process. The video does not talk about changing the coupon percentage at any time of the life of the bond and it's not clear which bonds the emitter it will buy back I mean from which investors, private investors, banks or hedge fund etc. Also I read somewhere still in Investopedia that the price paid by the emitter for the sinkable bond when recalled, it's either par or market price whichever the lowest. So a private investor could incur hefty losses if the bond drops in value considerably.

In another section still in Investopedia investopedia.com/terms/s/sinkablebond.asp
I read that "because the sinking fund adds stability to the repayment process, the ratings agencies can lower the interest rate at some point during the life of the bond in order for the gov or corporation that emitted the bond to save money but in that way the investor will lose out on interest income". Does that mean the agency whoever it is allows the bond emitter to lower the percentage of the coupon? If not that then what does that mean exactly?
Probably it's just me but it sounds a bit ambiguous and it's not 100% clear what those explanations by those two sources mean.

Thanks in advance for your comments.

passedout
Posts: 7
Joined: May 16th, 2022, 10:29 am

Re: sinkable bond

#500913

Postby passedout » May 17th, 2022, 10:17 am

GoSeigen wrote:
passedout wrote:Hi Alaric thanks for your reply.
The bond I"m looking at is XS2325747637.
Capital repayment in any bond should be only on expire date unless is callable and unless is sinkable and that's if I understand the meaning of sinkable properly.
Thanks


Hello passedout and welcome to The Lemon Fool.


A quick google search turns up the final terms for this bond, they are here:

rns-pdf.londonstockexchange.com/rns/4713U_1-2021-4-6.pdf[/url]


Taking a brief look at the terms there appears to be no call but the bond amortises in three equal tranches payable in 2040, 2041 and 2042. Sinkable means that it is backed by a sinking fund from which the amortisation payments will be drawn. More info here:

investopedia.com/terms/s/sinkablebond.asp[/url]


GS

Hi Goseigen thanks for your reply.
That link you posted is of a zero coupon bond. The one I'm looking at buying it's got a coupon and as I explained in my previous post to Alaric, I have doubts on whether the coupon in sinkable bonds is changeable during the life of the bond or not. Also I have doubts on the bond recalling process by the bond emitter. Again the prospectus would probably shed some light on it because it would say on what dates and what percentage of bonds can be recalled at any given time. And then again if the prospectus says that 33% of the bonds will be recalled after 10 years, which bonds will get recalled? Yours or mine? Who's going to lose out on the first wave of recalling?
Thanks for your comment in advance.

GoSeigen
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Re: sinkable bond

#500967

Postby GoSeigen » May 17th, 2022, 12:49 pm

passedout wrote:
GoSeigen wrote:
passedout wrote:Hi Alaric thanks for your reply.
The bond I"m looking at is XS2325747637.
Capital repayment in any bond should be only on expire date unless is callable and unless is sinkable and that's if I understand the meaning of sinkable properly.
Thanks


Hello passedout and welcome to The Lemon Fool.


A quick google search turns up the final terms for this bond, they are here:

rns-pdf.londonstockexchange.com/rns/4713U_1-2021-4-6.pdf[/url]


Taking a brief look at the terms there appears to be no call but the bond amortises in three equal tranches payable in 2040, 2041 and 2042. Sinkable means that it is backed by a sinking fund from which the amortisation payments will be drawn. More info here:

investopedia.com/terms/s/sinkablebond.asp[/url]


GS

Hi Goseigen thanks for your reply.
That link you posted is of a zero coupon bond. The one I'm looking at buying it's got a coupon and as I explained in my previous post to Alaric, I have doubts on whether the coupon in sinkable bonds is changeable during the life of the bond or not. Also I have doubts on the bond recalling process by the bond emitter. Again the prospectus would probably shed some light on it because it would say on what dates and what percentage of bonds can be recalled at any given time. And then again if the prospectus says that 33% of the bonds will be recalled after 10 years, which bonds will get recalled? Yours or mine? Who's going to lose out on the first wave of recalling?
Thanks for your comment in advance.



Apologies, senior moment, the URLs are subtly different and I copied/pasted the wrong one. Try this:

https://www.rns-pdf.londonstockexchange.com/rns/4713U_4-2021-4-6.pdf

Hopefully correct... Having said that it really is not difficult to google and find this info oneself!


I don't know if you'll find a prospectus; I'd guess you'd rather need to refer to the MTN terms and then the separate Final Terms for each tranche as I have linked to above. If you can't find the MTN program documentation maybe email the lead broker or other Financial institution involved in placing the bonds.


GS
P.S.See also https://www.investegate.co.uk/ghana--republic-of---77ot-/rns/publication-of-final-terms/202104060719154713U/

passedout
Posts: 7
Joined: May 16th, 2022, 10:29 am

Re: sinkable bond

#501147

Postby passedout » May 18th, 2022, 8:25 am

GoSeigen wrote:
passedout wrote:
GoSeigen wrote:
passedout wrote:Hi Alaric thanks for your reply.
The bond I"m looking at is XS2325747637.
Capital repayment in any bond should be only on expire date unless is callable and unless is sinkable and that's if I understand the meaning of sinkable properly.
Thanks


Hello passedout and welcome to The Lemon Fool.


A quick google search turns up the final terms for this bond, they are here:

rns-pdf.londonstockexchange.com/rns/4713U_1-2021-4-6.pdf[/url]


Taking a brief look at the terms there appears to be no call but the bond amortises in three equal tranches payable in 2040, 2041 and 2042. Sinkable means that it is backed by a sinking fund from which the amortisation payments will be drawn. More info here:

investopedia.com/terms/s/sinkablebond.asp[/url]


GS

Hi Goseigen thanks for your reply.
That link you posted is of a zero coupon bond. The one I'm looking at buying it's got a coupon and as I explained in my previous post to Alaric, I have doubts on whether the coupon in sinkable bonds is changeable during the life of the bond or not. Also I have doubts on the bond recalling process by the bond emitter. Again the prospectus would probably shed some light on it because it would say on what dates and what percentage of bonds can be recalled at any given time. And then again if the prospectus says that 33% of the bonds will be recalled after 10 years, which bonds will get recalled? Yours or mine? Who's going to lose out on the first wave of recalling?
Thanks for your comment in advance.



Apologies, senior moment, the URLs are subtly different and I copied/pasted the wrong one. Try this:

rns-pdf.londonstockexchange.com/rns/4713U_4-2021-4-6.pdf[/url]

Hopefully correct... Having said that it really is not difficult to google and find this info oneself!


I don't know if you'll find a prospectus; I'd guess you'd rather need to refer to the MTN terms and then the separate Final Terms for each tranche as I have linked to above. If you can't find the MTN program documentation maybe email the lead broker or other Financial institution involved in placing the bonds.


GS
P.S.See also investegate.co.uk/ghana--republic-of---77ot-/rns/publication-of-final-terms/202104060719154713U/[/url]


Hi Goseigen thanks for your reply and links. Yes, I was aware of that info in the londonstockexchange.com but unfortunately, they don’t have neither the prospectus nor the medium term notes on the trances that I can find of anyway which could partially answer one of my two questions I have on sinkable bonds.

As I mentioned in the reply to Alaris two days ago, my first question is about what investors will have to surrender own bonds during the first and second trance and get paid either par price or market price whichever the lowest like Investopedia says, and which investors are allowed to keep the bond until expiry date and get repaid par price. If during the buy back the market price it’ll be lower than one bought the bonds at, one faces a loss. Again, maybe as you said the prospectus or the MTN will give a clue on that, or maybe not.

The second point is about what Investopedia says in this link:
investopedia.com/terms/s/sinkablebond.asp
“Because the sinking fund adds stability to the repayment process, the ratings agencies rate the bonds as AAA and reduce the interest rate from 6.3% to 6%. The corporation saves $120,000 in interest payments in the first year and additional money thereafter”.

That to me it sounds like at some point during the life of the bond, the percentage of the coupon can be lowered in order for the company to save some money on interest payment. Do you understand it the way I do or am I misreading something?

Thanks

GoSeigen
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Re: sinkable bond

#501237

Postby GoSeigen » May 18th, 2022, 11:56 am

passedout wrote:
GoSeigen wrote:
Apologies, senior moment, the URLs are subtly different and I copied/pasted the wrong one. Try this:

https://www.rns-pdf.londonstockexchange.com/rns/4713U_4-2021-4-6.pdf

Hopefully correct... Having said that it really is not difficult to google and find this info oneself!


I don't know if you'll find a prospectus; I'd guess you'd rather need to refer to the MTN terms and then the separate Final Terms for each tranche as I have linked to above. If you can't find the MTN program documentation maybe email the lead broker or other Financial institution involved in placing the bonds.
[...]


Hi Goseigen thanks for your reply and links. Yes, I was aware of that info in the londonstockexchange.com but unfortunately, they don’t have neither the prospectus nor the medium term notes on the trances that I can find of anyway which could partially answer one of my two questions I have on sinkable bonds.

As I mentioned in the reply to Alaris two days ago, my first question is about what investors will have to surrender own bonds during the first and second trance and get paid either par price or market price whichever the lowest like Investopedia says, and which investors are allowed to keep the bond until expiry date and get repaid par price. If during the buy back the market price it’ll be lower than one bought the bonds at, one faces a loss. Again, maybe as you said the prospectus or the MTN will give a clue on that, or maybe not.

The second point is about what Investopedia says in this link:
investopedia.com/terms/s/sinkablebond.asp
“Because the sinking fund adds stability to the repayment process, the ratings agencies rate the bonds as AAA and reduce the interest rate from 6.3% to 6%. The corporation saves $120,000 in interest payments in the first year and additional money thereafter”.

That to me it sounds like at some point during the life of the bond, the percentage of the coupon can be lowered in order for the company to save some money on interest payment. Do you understand it the way I do or am I misreading something?

Thanks


Did you read the Final Terms linked above? If so, what is unclear about them? Let's not talk about Investopedia, it is not relevant to these bonds. The terms are clearly written in the document, is there anything you don't understand?

Answering your Q1: the redemption terms are in Clauses 21-24.
Q2: the interest terms are in Clauses 17 and 18.


GS

passedout
Posts: 7
Joined: May 16th, 2022, 10:29 am

Re: sinkable bond

#501300

Postby passedout » May 18th, 2022, 2:46 pm

GoSeigen wrote:
passedout wrote:
GoSeigen wrote:
Apologies, senior moment, the URLs are subtly different and I copied/pasted the wrong one. Try this:

https://www.rns-pdf.londonstockexchange.com/rns/4713U_4-2021-4-6.pdf

Hopefully correct... Having said that it really is not difficult to google and find this info oneself!


I don't know if you'll find a prospectus; I'd guess you'd rather need to refer to the MTN terms and then the separate Final Terms for each tranche as I have linked to above. If you can't find the MTN program documentation maybe email the lead broker or other Financial institution involved in placing the bonds.
[...]


Hi Goseigen thanks for your reply and links. Yes, I was aware of that info in the londonstockexchange.com but unfortunately, they don’t have neither the prospectus nor the medium term notes on the trances that I can find of anyway which could partially answer one of my two questions I have on sinkable bonds.

As I mentioned in the reply to Alaris two days ago, my first question is about what investors will have to surrender own bonds during the first and second trance and get paid either par price or market price whichever the lowest like Investopedia says, and which investors are allowed to keep the bond until expiry date and get repaid par price. If during the buy back the market price it’ll be lower than one bought the bonds at, one faces a loss. Again, maybe as you said the prospectus or the MTN will give a clue on that, or maybe not.

The second point is about what Investopedia says in this link:
investopedia.com/terms/s/sinkablebond.asp
“Because the sinking fund adds stability to the repayment process, the ratings agencies rate the bonds as AAA and reduce the interest rate from 6.3% to 6%. The corporation saves $120,000 in interest payments in the first year and additional money thereafter”.

That to me it sounds like at some point during the life of the bond, the percentage of the coupon can be lowered in order for the company to save some money on interest payment. Do you understand it the way I do or am I misreading something?

Thanks


Did you read the Final Terms linked above? If so, what is unclear about them? Let's not talk about Investopedia, it is not relevant to these bonds. The terms are clearly written in the document, is there anything you don't understand?

Answering your Q1: the redemption terms are in Clauses 21-24.
Q2: the interest terms are in Clauses 17 and 18.


GS


Hi Goseigen thank you very much for bearing with me on this one.
Yes I did read them.

Clause 24 I think it says that a third of the issued bonds will be bought back 2 years before expiry and another third will be bought back a year before expiry. But it’s not clear to me at least if those two tranches are referred to the available bonds that will be available to buy in the market at the time or it means that every single investor will have to sell a third of his or her bonds back? Also, what price will the investors get for those two tranches of bonds? Clause 23 I guess it’s the price that will be paid for each bond in case of default and not in case of amortisation as they call it.

Clause 17 says “Fixed Rate Note Provisions: Applicable” and then below goes on saying the amount which is fine but then in clause 17c says “Fixed Coupon Amount(s): Not Applicable”
That’s confusing to me! Shall I just ignore the 17c then?
Thanks

GoSeigen
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Re: sinkable bond

#501355

Postby GoSeigen » May 18th, 2022, 4:32 pm

passedout wrote:
Hi Goseigen thank you very much for bearing with me on this one.
Yes I did read them.

Clause 24 I think it says that a third of the issued bonds will be bought back 2 years before expiry and another third will be bought back a year before expiry. But it’s not clear to me at least if those two tranches are referred to the available bonds that will be available to buy in the market at the time or it means that every single investor will have to sell a third of his or her bonds back? Also, what price will the investors get for those two tranches of bonds? Clause 23 I guess it’s the price that will be paid for each bond in case of default and not in case of amortisation as they call it.


No it means that holders get a cash payment equal to a third of the nominal (par) value of the bonds they hold in each of the last three years.


Clause 17 says “Fixed Rate Note Provisions: Applicable” and then below goes on saying the amount which is fine but then in clause 17c says “Fixed Coupon Amount(s): Not Applicable”
That’s confusing to me! Shall I just ignore the 17c then?
Thanks

Yes, 17c is not applicable. As they are registered notes no coupons are attached. Holders receive the 8.857% interest in two equal semi-annual payments as per 17a and b.


The Final Terms refer to a Base Offering Circular dated 24 March 2021. Have you seen that? If not it's here:

https://www.investegate.co.uk/ghana--republic-of---77ot-/rns/publication-of-a-base-offering-circular/202103241022233280T/


GS

passedout
Posts: 7
Joined: May 16th, 2022, 10:29 am

Re: sinkable bond

#501433

Postby passedout » May 19th, 2022, 3:26 am

GoSeigen wrote:
passedout wrote:
Hi Goseigen thank you very much for bearing with me on this one.
Yes I did read them.

Clause 24 I think it says that a third of the issued bonds will be bought back 2 years before expiry and another third will be bought back a year before expiry. But it’s not clear to me at least if those two tranches are referred to the available bonds that will be available to buy in the market at the time or it means that every single investor will have to sell a third of his or her bonds back? Also, what price will the investors get for those two tranches of bonds? Clause 23 I guess it’s the price that will be paid for each bond in case of default and not in case of amortisation as they call it.


No it means that holders get a cash payment equal to a third of the nominal (par) value of the bonds they hold in each of the last three years.


Clause 17 says “Fixed Rate Note Provisions: Applicable” and then below goes on saying the amount which is fine but then in clause 17c says “Fixed Coupon Amount(s): Not Applicable”
That’s confusing to me! Shall I just ignore the 17c then?
Thanks

Yes, 17c is not applicable. As they are registered notes no coupons are attached. Holders receive the 8.857% interest in two equal semi-annual payments as per 17a and b.


The Final Terms refer to a Base Offering Circular dated 24 March 2021. Have you seen that? If not it's here:

https://www.investegate.co.uk/ghana--republic-of---77ot-/rns/publication-of-a-base-offering-circular/202103241022233280T/



GS


Hi Goseigen thank you very much for clarifying those points for me and thanks for your patience much appreciate it!
Now it all makes more sense! I'll go through the MTN and see if I can further my knowledge with the relevant bits.
Thanks again!


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