Maturity Based PricingMaturity‐Based Pricing Sovereign and Sovereign-
Guaranteed Borrowers
Key Concepts and Examples
Calculating Average Loan Maturity
Key Concepts and Examples
g g yand Associated Maturity Premium
This document provides general information on maturity-based pricing and related concepts, such as Average Loan Maturity
IntroductionIntroduction
ADB’s Board of Directors approved the introduction oft it b d i i f LIBOR b d l (LBL) tmaturity-based pricing for LIBOR-based loans (LBL) to
sovereign borrowers or with sovereign guarantees, andlocal currency loans with sovereign guarantees on 14December 2011.
A maturity premium will be applicable to loans for whichf l l ti ti l t d ft 1 A ilformal loan negotiations are completed on or after 1 April2012.
Average loan maturity is an important element underg y pmaturity-based pricing.
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Maturity Premium(S i d i t d b )(Sovereign and sovereign-guaranteed borrowers)
• The average loan maturity will determine how much maturitypremium is applied on the loan
Average Loan Maturity Maturity Premiuma
premium is applied on the loan.
Less than or equal to 13 years NilGreater than 13 years and up to 16 years 0.10% per annum
Greater than 16 years and up to 19 years 0 20% per annumGreater than 16 years and up to 19 years 0.20% per annum
• Maturity premium is applicable to loans for which formal loannegotiations are completed on or after 1 April 2012.
• The average loan maturity is subject to a limit of 19 years.a To be applied for the entire life of the loan
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Average Loan MaturityAverage Loan Maturity
Average loan maturity is the weighted average time tol It id b th t d t drepay a loan. It considers, both, repayment dates and
amounts to provide a better estimation of how quickly a loanis repaid.
Repayment dates depend on the first principalpayment date, grace period and loan term.
Repayment amounts depend on repayment methodselected.
Choice of key repayment terms such as Grace Period Choice of key repayment terms, such as Grace Period,Loan Term and Repayment Method are importantconsiderations, given their effect on Average Loan Maturity.
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Average Loan Maturity - CalculationAverage Loan Maturity Calculation
Average loan maturity is calculated as the average of the Average loan maturity is calculated as the average of thenumber of years until each principal repayment amount isdue, weighted by the principal repayment amount.
Average Loan Maturity = Sum of Weighted RepaymentsSum of Total Repayments
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Average Loan MaturityAverage Loan MaturityExamples
Disclaimer : Numbers are for illustrative purposes only
Example 1: Average Loan Maturity CalculationStraight Line Repayment MethodStraight-Line Repayment Method
Loan Amount: US$ 60 million Straight Line (5‐Year Maturity) Repayment Method
Loan Amount: US$ 60 millionLoan Term (including GracePeriod): 5 yearsGrace Period:* 2 yearsR t M th d St i ht Li
Years Principal
Repayments Weighted
Repayments (A) (B) C = (A x B)
Grace Period0 50 Repayment Method: Straight-Line
* Grace Period – the period prior to the first principal payment date wherein no principal repayments are made.
0.501.001.502.00Repayment PeriodRepayment Period2.50 10.00 25.00 3.00 10.00 30.00 3.50 10.00 35.00 4.00 10.00 40.00 4.50 10.00 45.00 5.00 10.00 50.00
Sum 60.00 225.00
7Average Loan Maturity3.75 years
= Sum of C / Sum of B= 225.00 / 60.00
Example 2: Average Loan Maturity CalculationAnnuity-type Repayment Methody yp p y
Discount Rate : Time (Years) Principal Weighted Principal Weighted
Repayment Repayment Repayment Repayment
Repayment MethodAnnuity '2'Annuity '1'10.00%5.00%
Loan Amount:US$ 60 million
Repayment Repayment Repayment Repayment(A) (B1) C1=(AxB1) (B2) C2=(AxB2)
0.5‐5.0
5.5 2,348,828 12,918,552 1,814,555 9,980,054 6.0 2,407,548 14,445,291 1,905,283 11,431,698 6.5 2,467,737 16,040,291 2,000,547 13,003,556
Grace Period
Loan Term (including Grace Period):15 years
Grace Period:7.0 2,529,431 17,706,014 2,100,574 14,704,021 7.5 2,592,666 19,444,997 2,205,603 16,542,024 8.0 2,657,483 21,259,864 2,315,883 18,527,067 8.5 2,723,920 23,153,320 2,431,678 20,669,259 9.0 2,792,018 25,128,162 2,553,261 22,979,353 9.5 2,861,819 27,187,276 2,680,925 25,468,783
Grace Period:5 years
Repayment Method:Annuity with different10.0 2,933,364 29,333,640 2,814,971 28,149,707
10.5 3,006,698 31,570,330 2,955,719 31,035,052 11.0 3,081,866 33,900,521 3,103,505 34,138,558 11.5 3,158,912 36,327,490 3,258,680 37,474,826 12.0 3,237,885 38,854,620 3,421,615 41,059,374 12.5 3,318,832 41,485,401 3,592,695 44,908,691
Annuity, with different discount rates
12.5 3,318,832 41,485,401 3,592,695 44,908,691 13.0 3,401,803 44,223,438 3,772,330 49,040,290 13.5 3,486,848 47,072,447 3,960,947 53,472,778 14.0 3,574,019 50,036,268 4,158,994 58,225,914 14.5 3,663,370 53,118,860 4,366,944 63,320,681 15.0 3,754,954 56,324,308 4,585,291 68,779,360 Sum 60 000 000 639 531 090 60 000 000 662 911 046
The lower the discount rate, the shorter the Average Loan Maturity.
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Sum 60,000,000 639,531,090 60,000,000 662,911,046 =Sum of C1 / Sum of B1
=Sum of C2 / Sum of B2
=639,531,090/60,000,000
=662,911,046/60,000,000
11.05 years10.66 years
Example 3: Average Loan Maturity CalculationCustom-Tailored Repayment
Time (Years) Principal Weighted Principal WeightedRepayment Repayment Repayment Repayment
Repayment Method
Higher Repayments at the Start Higher Repayments at the EndLoan Amount: US$ 60 million
Loan Term (including Grace Period): 15 years
p y
(A) (B1) C1=(AxB1) (B2) C2=(AxB2) 0.5‐5.0 5.5 3,500,000 19,250,000 2,000,000 11,000,000 6.0 3,500,000 21,000,000 2,000,000 12,000,000 6.5 3,500,000 22,750,000 2,500,000 16,250,000 7.0 3,500,000 24,500,000 2,500,000 17,500,000
Grace Period
Period): 15 years
Grace Period: 5 years
Repayment Method:, , , , , , , ,
7.5 3,500,000 26,250,000 2,500,000 18,750,000 8.0 3,500,000 28,000,000 2,500,000 20,000,000 8.5 3,500,000 29,750,000 3,000,000 25,500,000 9.0 3,500,000 31,500,000 3,000,000 27,000,000 9.5 3,000,000 28,500,000 3,000,000 28,500,000 10 0 3 000 000 30 000 000 3 000 000 30 000 000
Custom-tailored
• The Average Loan Maturity depends on timing and amount of repayment If higher repayments10.0 3,000,000 30,000,000 3,000,000 30,000,000
10.5 3,000,000 31,500,000 3,000,000 31,500,000 11.0 3,000,000 33,000,000 3,000,000 33,000,000 11.5 3,000,000 34,500,000 3,500,000 40,250,000 12.0 3,000,000 36,000,000 3,500,000 42,000,000 12.5 2,500,000 31,250,000 3,500,000 43,750,000
repayment. If higher repayments are made at the start, the Average loan maturity will be shorter.• For custom‐tailored repayment method, the amortization
13.0 2,500,000 32,500,000 3,500,000 45,500,000 13.5 2,500,000 33,750,000 3,500,000 47,250,000 14.0 2,500,000 35,000,000 3,500,000 49,000,000 14.5 2,000,000 29,000,000 3,500,000 50,750,000 15.0 2,000,000 30,000,000 3,500,000 52,500,000 Sum 60,000,000 588,000,000 60,000,000 642,000,000
schedule should meet the cash flows of the project.
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=Sum of C1 / Sum of B1
=Sum of C2 / Sum of B2
=588,000,000/60,000,000
=642,000,000/60,000,000
9.80 years 10.70 years
Example 4: Average Loan Maturity and Maturity Premium Computation
Annuity 'A'Discount Rate : 10.00%
14.52 12.75
Time (Years)
Repayment Date 0.10 % Premium NIL
Start Apr-15-2012
Straight-line
Average Loan Maturity
Repayment Methods
The choice of repayment method has an impact on how much maturity premium is applied.
Loan amount: US$ 60 millionLoan Term
Start Apr 15 2012
0.5-5.0 Oct-15-2012 to Apr-15-2017
5.5 Oct-15-2017 903,086 2,000,000 6.0 Apr-15-2018 948,240 2,000,000 6.5 Oct-15-2018 995,652 2,000,000 7.0 Apr-15-2019 1,045,435 2,000,000
7.5 Oct-15-2019 1,097,707 2,000,000
(incl. Grace Period):20 yearsGrace Period: 5 years
Average Loan Maturity (10% Annuity):
7.5 Oct 15 2019 1,097,707 2,000,000 8.0 Apr-15-2020 1,152,592 2,000,000 8.5 Oct-15-2020 1,210,222 2,000,000 9.0 Apr-15-2021 1,270,733 2,000,000 9.5 Oct-15-2021 1,334,269 2,000,000 10.0 Apr-15-2022 1,400,983 2,000,000 10.5 Oct-15-2022 1,471,032 2,000,000
11 0 Apr 15 2023 1 544 584 2 000 000 Average Loan Maturity (10% Annuity):14.52 yearsMaturity Premium: 0.10% per annum
A L M t it (St i ht li )
11.0 Apr-15-2023 1,544,584 2,000,000 11.5 Oct-15-2023 1,621,813 2,000,000 12.0 Apr-15-2024 1,702,904 2,000,000 12.5 Oct-15-2024 1,788,049 2,000,000 13.0 Apr-15-2025 1,877,451 2,000,000 13.5 Oct-15-2025 1,971,324 2,000,000 14.0 Apr-15-2026 2,069,890 2,000,000
Average Loan Maturity (Straight-line):12.75 yearsMaturity Premium: Nil
14.5 Oct-15-2026 2,173,384 2,000,000 15.0 Apr-15-2027 2,282,054 2,000,000 15.5 Oct-15-2027 2,396,156 2,000,000 16.0 Apr-15-2028 2,515,964 2,000,000 16.5 Oct-15-2028 2,641,762 2,000,000 17.0 Apr-15-2029 2,773,850 2,000,000 17.5 Oct-15-2029 2,912,543 2,000,000
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18.0 Apr-15-2030 3,058,170 2,000,000 18.5 Oct-15-2030 3,211,079 2,000,000 19.0 Apr-15-2031 3,371,633 2,000,000 19.5 Oct-15-2031 3,540,214 2,000,000 20.0 Apr-15-2032 3,717,225 2,000,000
Total 60,000,000 60,000,000
Average Loan MaturityAverage Loan MaturityTools for Calculation
* Table for Quick Reference* Average Loan Maturity Calculator
Average Loan Maturity Table for Quick Reference(Straight-Line Repayment)
1 2 3 4 5 6 7 81234
Grace Period
Average Loan Maturity*
Maturity Premium per annum
≤ 13 years NIL45 3.25 3.75 4.25 4.75 6 3.75 4.25 4.75 5.25 5.75 7 4.25 4.75 5.25 5.75 6.25 6.75 8 4.75 5.25 5.75 6.25 6.75 7.25 7.75 9 5.25 5.75 6.25 6.75 7.25 7.75 8.25 8.75
> 13 years and up to 16 years 0.10%
> 16 years and up to 19 years 0.20%
*subject to a limit of 19 years10 5.75 6.25 6.75 7.25 7.75 8.25 8.75 9.25 11 6.25 6.75 7.25 7.75 8.25 8.75 9.25 9.75 12 6.75 7.25 7.75 8.25 8.75 9.25 9.75 10.25 13 7.25 7.75 8.25 8.75 9.25 9.75 10.25 10.75 14 7.75 8.25 8.75 9.25 9.75 10.25 10.75 11.25 15 8 25 8 75 9 25 9 75 10 25 10 75 11 25 11 75Loan Term
For the same grace period, the longer the 15 8.25 8.75 9.25 9.75 10.25 10.75 11.25 11.75
16 8.75 9.25 9.75 10.25 10.75 11.25 11.75 12.25 17 9.25 9.75 10.25 10.75 11.25 11.75 12.25 12.75 18 9.75 10.25 10.75 11.25 11.75 12.25 12.75 13.25 19 10.25 10.75 11.25 11.75 12.25 12.75 13.25 13.75 20 10.75 11.25 11.75 12.25 12.75 13.25 13.75 14.25
Loan Term(inc. Grace period)
p , gloan term, the longer the Average Loan Maturity.
21 11.25 11.75 12.25 12.75 13.25 13.75 14.25 14.75 22 11.75 12.25 12.75 13.25 13.75 14.25 14.75 15.25 23 12.25 12.75 13.25 13.75 14.25 14.75 15.25 15.75 24 12.75 13.25 13.75 14.25 14.75 15.25 15.75 16.25 25 13.25 13.75 14.25 14.75 15.25 15.75 16.25 16.75 26 13 75 14 25 14 75 15 25 15 75 16 25 16 75 17 25
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26 13.75 14.25 14.75 15.25 15.75 16.25 16.75 17.25 27 14.25 14.75 15.25 15.75 16.25 16.75 17.25 17.75 28 14.75 15.25 15.75 16.25 16.75 17.25 17.75 18.25 29 15.25 15.75 16.25 16.75 17.25 17.75 18.25 18.75 30 15.75 16.25 16.75 17.25 17.75 18.25 18.75
Average Loan Maturity Table for Quick Reference(Annuity-type Repayment – 10% Annuity)( y yp p y y)
1 2 3 4 5 6 7 812
Grace Period
Average Loan Maturity*
Maturity Premium per annum
≤ 13 NIL345 3.38 3.82 4.28 4.76 6 3.95 4.38 4.82 5.28 5.76 7 4.54 4.95 5.38 5.82 6.28 6.76
≤ 13 years NIL
> 13 years and up to 16 years 0.10%
> 16 years and up to 19 years 0.20%
* bj t t li it f 198 5.14 5.54 5.95 6.38 6.82 7.28 7.76 9 5.76 6.14 6.54 6.95 7.38 7.82 8.28 8.76 10 6.40 6.76 7.14 7.54 7.95 8.38 8.82 9.28 11 7.05 7.40 7.76 8.14 8.54 8.95 9.38 9.82 12 7.71 8.05 8.40 8.76 9.14 9.54 9.95 10.38
*subject to a limit of 19 years
For the same loan term,13 8.39 8.71 9.05 9.40 9.76 10.14 10.54 10.95 14 9.09 9.39 9.71 10.05 10.40 10.76 11.14 11.54 15 9.79 10.09 10.39 10.71 11.05 11.40 11.76 12.14 16 10.52 10.79 11.09 11.39 11.71 12.05 12.40 12.76 17 11.25 11.52 11.79 12.09 12.39 12.71 13.05 13.40
Loan Term(inc. Grace period)
For the same loan term, the shorter the grace period, the shorter the Average Loan Maturity.
18 12.00 12.25 12.52 12.79 13.09 13.39 13.71 14.05 19 12.76 13.00 13.25 13.52 13.79 14.09 14.39 14.71 20 13.53 13.76 14.00 14.25 14.52 14.79 15.09 15.39 21 14.31 14.53 14.76 15.00 15.25 15.52 15.79 16.09 22 15.11 15.31 15.53 15.76 16.00 16.25 16.52 16.79 23 15 91 16 11 16 31 16 53 16 76 17 00 17 25 17 52
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23 15.91 16.11 16.31 16.53 16.76 17.00 17.25 17.52 24 16.73 16.91 17.11 17.31 17.53 17.76 18.00 18.25 25 17.55 17.73 17.91 18.11 18.31 18.53 18.76 19.00 26 18.39 18.55 18.73 18.91
Average Loan Maturity CalculatorAverage Loan Maturity Calculator
Borrowers can access, both, a web-based and an excel-b d l t it l l t t th ADB b itbased average loan maturity calculator at the ADB website.
Loan Accounting and Servicing (LAS) Website:http://lfis.adb.orghttp://lfis.adb.org
Borrowers to email at [email protected] to obtain “UserName” and “Password” for access to calculators.
The calculators allow borrowers to make informed decisionsin structuring the loan profile by simulating, and considering,different options of repayment termsdifferent options of repayment terms.
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Loan Accounting and Servicing WebsiteLoan Accounting and Servicing Website
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Average Loan Maturity Calculator W b B d- Web-Based
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Average Loan Maturity Calculator E l B d- Excel-Based
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Summary
• Applicable to loans for which formal negotiations are completed on orafter 1 April 2012
A. Maturity-based Pricing
p
Average Loan Maturity Maturity Premium
Less than or equal to 13 years NIL
Th l i i bj t t li it f 19
q yGreater than 13 years and up to 16 years 0.10% p.aGreater than 16 years and up to 19 years 0.20% p.a
• The average loan maturity is subject to a limit of 19 years.
B. Choice of Repayment Terms is an important consideration givenits effect on Average Loan Maturity
C. Maturity premium applicability should be discussed in the earlystage of loan processing and reflected in the memorandum ofunderstanding or aide-memoire.
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