Martin Lee @ Sg
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Citrine Agriculture Booster Notes

Recently, Citrine Global Finance launched their Agriculture Booster Notes. The sponsor of the issue is Merrill Lynch with Citibank, OCBC Securities and Standard Chartered Bank as the main distributors.

With agriculture being the current fad now, it’s not surprising to see another product that offers investors a chance to invest into this hot sector.

Without going into the complex mechanism behind the notes, here’s a layman explanation of how the performance is derived.

The notes are linked to the performance of 6 commodity indices, namely:

  • Merrill Lynch Asia Agriculture Index
  • S & P GSCI Excess Return Index
    • Wheat
    • Corn
    • Sugar
    • Soybean
    • Cotton

The 80% and 90% level of the initial closing price of the indices will be called the lower and upper coupon barrier respectively.

On each index calculation day (denotes open trading days), you will accrue interest at the rate of 8%pa (S$ issue) and 12% (US$ issue) if all the 6 indices close above the upper coupon barrier. If all the 6 indices close above the lower coupon barrier but there is at least one which is less than the upper coupon barrier, you will only receive 4% pa (S$) and 6% ($US). If any of the indice falls below the lower coupon barrier, you will not receive any interest for that day.

Every 2 months (this is called the observation period), the accrued interest will be paid out and the process repeats.

The end of the observation period is also known as the observation date. If the value of the 6 indices are above their initial closing level on the observation date, the issuer will terminate the notes and return 100% of your capital plus any accrued interest.

Personally, I do not really like this product for a few reasons:

  1. The amount of interest you receive is dependent on the worst performance of the 6 indices.
  2. If all the indices do well and rise above their initial level, the issue will close the issue and return your money.
  3. On the other hand, if just one index falls below the lower coupon barrier, you are stuck with the notes and will not receive any interest. The period of lock-in is as long as 4.5 years.
  4. In other words, to earn the most interest, you need all 6 indices to trade between 90-100% of their initial starting prices. With commodity prices being so volatile, this is a tough act to meet.
  5. Merrill Lynch may adjust the weightings of the stocks making up the Merrill Lynch Asia Agriculture Index. This means they can very much control the price of that index which will affect your return. As the notes are essentially used by the issuer to hedge their own positions, there is a potential for conflict of interest.
  6. The return of your principal capital is not guaranteed. There are a few events that might result in early redemption and capital loss.

You can see that the risk of this product is high. If I’m bullish about agriculture commodities, I would rather invest via an index fund or unit trust.

For more information about the Citrine Agriculture Booster Notes, you can refer to the prospectus of the Citrine Agriculture Booster Notes.

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6 comments
JC says 8 years ago

Hi there…could you help me about update citrine agriculture booster 12 April 2011?.Thanks.

Reply
Kelly Brown says 10 years ago

Hi, gr8 post thanks for posting. Information is useful!

Reply
Sam says 10 years ago

Hey there, just wondering if you do know the exact exotic options this sort of note is using… Are they making use of digital or binary options? How do they come about with that 8% figure?

Reply
    lioninvestor says 10 years ago

    Hi Sam,

    I don’t know the exact instruments they use but generally I would expect their downside to be mostly hedged.

    Reply
      Sam says 10 years ago

      Hi there,

      Interesting to note that the 18% cushion exists. As the coupons are equity linked! Definitely interesting to know the mechanics. My initial guess would be some exotics to hedge the top most performing underliers. But it is still a guess… Definitely interesting to research on.

      Reply
Getting an exposure to agriculture | bigfatpurse says 10 years ago

[…] info here. Citrine Agriculture Booster Notes You can find out more from the concise write up from Lioninvestor. RICI Enhanced Agriculture Index Zero Cert – Certificate listed on SGX – Counter name: AA ZPC […]

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