Common use of Specific Risks Clause in Contracts

Specific Risks. It is important to note that certain bonds may contain special features and risks that warrant special attention. These include: Perpetual bonds Perpetual debentures do not have a maturity date, and the coupon payments pay- out depends on the viability of the issuer in the very long term, it may be deferred or even suspended subject to the terms and conditions of the issue. Furthermore, perpetual debentures are often callable and/or subordinated, and bear re-investment risk and/or subordinated bond risk, as detailed below. Re-investment risk of callable bonds If the bond is callable in which the issuer may redeem the bond before maturity, it is subject to re-investment risk. The yield received when re- investing the proceeds may be less favourable. Subordinated bonds Holders of subordinated debentures will bear higher risks than holders of senior debentures of the issuer due to a lower priority of claim in event of the issuer’s liquidation. Subordinated debentures are unsecured and have lesser priority than that of an additional debt claim of the same asset. They usually have a lower credit rating than senior bonds. Your specific attention is drawn to the credit information of this product, including the respective credit rating of the issuer, the debenture and/or the guarantor, as the case may be. Bonds with variable coupon/coupon deferral features If the bonds contain variable and/or deferral of interest payment terms, then you would face uncertainty over the amount and time of the interest payments to be received. Bonds with extendable maturity date If the bonds contain extendable maturity date terms, then you would not have a definite schedule of principal repayment. Convertible or exchangeable bonds Convertible or Exchangeable bonds are convertible or exchangeable in nature and the Client is subject to both equity and bond investment risk. They may additionally have a contingent write-down or loss absorption feature, meaning the bond may be written-off fully or partially or converted to common stock on the occurrence of a trigger event. These bonds generally absorb losses while the issuer remains a going concern. Before investing in bonds of this nature, you should pay extra attention to its features, the trigger events, the implications and consequences of such trigger events. Multiple credit support providers This refers to bonds with more than one guarantor. You should take into account matters such as the credibility of the guarantors, whether such guarantors have material operations and the credit support structure(s) involved. Under some credit support structures, the bondholders’ rights may be subordinated to those of the issuer, the guarantors and/or other parties where an event of default were triggered. Other/multiple credit support structures This refers to bonds with keepwell deeds in place as a form of credit enhancement. Some of these bonds may also have credit support providers serving as guarantors. Keepwell deeds need to be individually assessed and could be structurally complex. They are not necessarily comparable to guarantees and are subject to much greater legal and regulatory uncertainty compared to guarantees. In particular, capital control laws in certain countries could heighten the risk that timely payments will not be made, even if there is a keepwell deed.

Specific Risks. It is important to note that certain bonds may contain special features and risks that warrant special attention. These include: Perpetual bonds Perpetual debentures do not have a maturity date, and the coupon payments pay- pay-out depends on the viability of the issuer in the very long term, it may be deferred or even suspended subject to the terms and conditions of the issue. Furthermore, perpetual debentures are often callable and/or subordinated, and bear re-investment risk and/or subordinated bond risk, as detailed below. Re-investment risk of callable bonds If the bond is callable in which the issuer may redeem the bond before maturity, it is subject to re-investment risk. The yield received when re- investing the proceeds may be less favourable. Subordinated bonds Holders of subordinated debentures will bear higher risks than holders of senior debentures of the issuer due to a lower priority of claim in event of the issuer’s liquidation. Subordinated debentures are unsecured and have lesser priority than that of an additional debt claim of the same asset. They usually have a lower credit rating than senior bonds. Your specific attention is drawn to the credit information of this product, including the respective credit rating of the issuer, the debenture and/or the guarantor, as the case may be. Bonds with variable coupon/coupon deferral features If the bonds contain variable and/or deferral of interest payment terms, then you would face uncertainty over the amount and time of the interest payments to be received. Bonds with extendable maturity date If the bonds contain extendable maturity date terms, then you would not have a definite schedule of principal repayment. Convertible or exchangeable bonds Convertible or Exchangeable bonds are convertible or exchangeable in nature and the Client is subject to both equity and bond investment risk. They may additionally have a contingent write-down or loss absorption feature, meaning the bond may be written-off fully or partially or converted to common stock on the occurrence of a trigger event. These bonds generally absorb losses while the issuer remains a going concern. Before investing in bonds of this nature, you should pay extra attention to its features, the trigger events, the implications and consequences of such trigger events. Multiple credit support providers This refers to bonds with more than one guarantor. You should take into account matters such as the credibility of the guarantors, whether such guarantors have material operations and the credit support structure(s) involved. Under some credit support structures, the bondholders’ rights may be subordinated to those of the issuer, the guarantors and/or other parties where an event of default were triggered. Other/multiple credit support structures This refers to bonds with keepwell deeds in place as a form of credit enhancement. Some of these bonds may also have credit support providers serving as guarantors. Keepwell deeds need to be individually assessed and could be structurally complex. They are not necessarily comparable to guarantees and are subject to much greater legal and regulatory uncertainty compared to guarantees. In particular, capital control laws in certain countries could heighten the risk that timely payments will not be made, even if there is a keepwell deed.

Specific Risks. It is important to note that certain bonds may contain special features and risks that warrant special attention. These include: : (i) Perpetual bonds Perpetual debentures do not have a maturity date, and the coupon payments pay- pay-out depends on the viability of the issuer in the very long term, it may be deferred or even suspended subject to the terms and conditions of the issue. Furthermore, perpetual debentures are often callable and/or subordinated, and bear re-investment risk and/or subordinated bond risk, as detailed below. often (ii) Re-investment risk of callable bonds If the bond is callable in which the issuer may redeem the bond before maturity, it is subject to re-investment risk. The yield received when re- investing the proceeds may be less favourable. . (iii) Subordinated bonds Holders of subordinated debentures will bear higher risks than holders of senior debentures of the issuer due to a lower priority of claim in event of the issuer’s liquidation. Subordinated debentures are unsecured and have lesser priority than that of an additional debt claim of the same asset. They usually have a lower credit rating than senior bonds. Your specific attention is drawn to the credit information of this product, including the respective credit rating of the issuer, the debenture and/or the guarantor, as the case may be. . (iv) Bonds with variable coupon/coupon deferral features If the bonds contain variable and/or deferral of interest payment terms, then you would face uncertainty over the amount and time of the interest payments to be received. . (v) Bonds with extendable maturity date If the bonds contain extendable maturity date terms, then you would not have a definite schedule of principal repayment. . (vi) Convertible or exchangeable bonds Convertible or Exchangeable bonds are convertible or exchangeable in nature and the Client is subject to both equity and bond investment risk. They may additionally have a contingent write-down or loss absorption feature, meaning the bond may be written-off fully or partially or converted to common stock on the occurrence of a trigger event. These bonds generally absorb losses while the issuer remains a going concern. Before investing in bonds of this nature, you should pay extra attention to its features, the trigger events, the implications and consequences of such trigger events. . (vii) Multiple credit support providers This refers to bonds with more than one guarantor. You should take into account matters such as the credibility of the guarantors, whether such guarantors have material operations and the credit support structure(s) involved. Under some credit support structures, the bondholders’ rights may be subordinated to those of the issuer, the guarantors and/or other parties where an event of default were triggered. . (viii) Other/multiple credit support structures This refers to bonds with keepwell deeds in place as a form of credit enhancement. Some of these bonds may also have credit support providers serving as guarantors. Keepwell deeds need to be individually assessed and could be structurally complex. They are not necessarily comparable to guarantees and are subject to much greater legal and regulatory uncertainty compared to guarantees. In particular, capital control laws in certain countries could heighten the risk that timely payments will not be made, even if there is a keepwell deed.