Advantages and main risks
The World Bank Green Growth Bond 07/2024 is a complex financial instrument. You should only invest in it if you have a good understanding of its characteristics, and in particular if you understand the risks it entails. Your bank should determine whether you have sufficient knowledge and experience for this product. If the product is not appropriate for you, your bank should warn you of this. If your bank recommends to you a product as part of its investment advisory services, it must assess whether this product is suitable based on your knowledge and experience of the product, your investment objectives and your financial situation.
- Investment in a green bond supporting World Bank loans to climate-friendly projects
- Return linked to the performance of the Ethical Europe Climate Care Index, which encourages corporates to improve their energy transition strategy
- Upon maturity, the right to receive back 100% of the capital2, irrespective of the Index performance, paid by a premium quality issuer, rated Aaa/AAA (the highest possible rating)3.
Investors should carefully read the risks set out in the Prospectus and Final Terms, and the below is only a selection of the main risks entailed by an investment in a World Bank Green Growth Bond and is not intended to be complete:
- Risk of partial or total loss of capital:
- In the event of the Bonds being sold prior to maturity, the market price of the Bonds may be very different (higher or lower) from the Specified Denomination of these Bonds, as it may be subject to severe fluctuations during the lifetime of the Bonds, depending not only upon the performance of the Index, but also on other parameters, in particular, on Index volatility and interest rates, and distribution commissions included in the Offer Price at the time of initial purchase.
- In the event of default by the World Bank.
- No minimum redemption premium guaranteed, on top of the capital repayment, in the event of Index underperformance.
- Possible underperformance against the Index: The amount payable on the Bond at maturity will be based solely on the average of the closing levels of the Index on the Monthly Observation Dates, and will not be linked to the level of the Index at any other times. This can be to the investor’s disadvantage if the actual level of the Index on the maturity date or at other times during the term of the Bonds is higher than such average.
- Exposure to the US dollar/euro exchange rate: Issued in US dollars, the World Bank Green Growth Bonds are also an answer to investors who wish to diversify their investments within their portfolio in terms of currencies. Nevertheless, this implies a foreign exchange risk if they decide to convert at maturity the capital and the potential redemption premium that are paid to them from US dollar to euro. Indeed, the final return in euro will be determined, not only by the amount of the redemption premium received, but also by the evolution of the US dollar against the euro. Assuming that on payment date euro 1 is equivalent to US dollar 1.25, to purchase US dollar 10,000 of the Bonds on that date, investors spend euro 8,000. If, upon maturity, the Bond is redeemed US dollar 10,000:
- In the event that, on such date, the US dollar has increased in value by 10% against the euro, resulting in euro 1 equivalent to US dollar 1.14, the final return in euro will be improved: converting US dollar 10,000 in euros will make euro 8,800 for investors.
- Conversely, in the event that, on such date, the US dollar has decreased in value by 15% against the euro, resulting in euro 1 equivalent to US dollar 1.47, the final return in euro will be deteriorated: converting US dollar 10,000 in euros will make euro 6,800 for investors.
The above mentioned risk on the loss of capital (once converted) is also there if and when the investor decides to sell his Bonds before the maturity.
- Liquidity risk: Even though the Bonds are listed on a regulated market, there is no guarantee that you can sell them before maturity. In normal market conditions, the Market Maker will endeavor to make a secondary market in the Bonds.
- Index-related risks:
- The Index has been recently created on 20 August 2015. Therefore, only limited historical data are available.
- The Index is composed of 30 equities and is then less diversified as compared to other indices such as the EURO STOXX 50®.
- Investors do not benefit from the dividends paid by the components of the Index.
- The future performance of the Index cannot be predicted based on its historical performance.
- If Solactive AG discontinues or suspends the calculation of the Index, the Calculation Agent may designate a successor index.
- In the event of an « Amendment Event »4, the Issuer will pay an early redemption premium as soon as practicable after such event (while 100% of the capital will be redeemed at maturity). The early redemption premium will be the fair market value of the equity option embedded in each Bond, as determined by the Calculation Agent in good faith and in a commercially reasonable manner and may not reflect the performance of the Index throughout the term of the Bonds. Therefore, investors in the Bonds will not benefit from, or participate in, any increase in the value of the Index after such Amendment Event. Such early redemption premium might be zero depending on the market value of the equity option. Investors are invited to read carefully the Prospectus (including the documents incorporated by reference therein) and the Final Terms for more information.
Under the conditions specified in the Final Terms.
Excluding fees, paid in US dollars and therefore subject to foreign exchange risk if the investor converts the capital and the potential redemption premium that are paid to them from US dollar to euro, and subject to the absence of default by the World Bank.
Moody’s/Standard & Poor’s credit ratings as of 28 October 2015.
The term Amendment Event means the occurrence of either of the following events: (a) the Index Sponsor discontinues the calculation of the Index and the Calculation Agent determines, in good faith and according to the best market practices, that: (i) no successor index exists or the successor index is no longer published on any of the relevant trading days and (ii) the computation of a substitute level for the Index in accordance with the Final Terms does not provide investors with a comparable financial exposure; or (b) the Calculation Agent determines, in good faith and according to the best market practices, that a ”Change in Law” or ”Hedging Disruption Event” has occurred. A Change in Law, will occur if due to changes in law or in the interpretation of the law, it has become illegal for the Issuer to maintain or acquire a hedge with regard to the Index or if due to those changes, the Issuer would incur a materially increased cost in maintaining or acquiring such hedge. A Hedging Disruption Event will occur where the Issuer is unable, in practice, to maintain or acquire a hedge with regard to the Index. The above is only a summary and investors are invited to read carefully the Final Terms for a detailed description of the term Amendment Event.