Maturity BasedPricingBased Pricing

Maturity-Based Pricing

Sovereign and SovereignGuaranteed Borrowers

Key Concepts and Examples

Calculating Average Loan Maturity and Associated Maturity Premium

This document provides general information on maturity-based pricing and related concepts, such as Average Loan Maturity

Introduction

ADB's Board of Directors approved the introduction of maturity-based pricing for LIBOR-based loans (LBL) to sovereign borrowers or with sovereign guarantees, and local currency loans with sovereign guarantees on 14 December 2011.

A maturity premium will be applicable to loans for which formal loan negotiations are completed on or after 1 April 2012.

Average loan maturity is an important element under maturity-based pricing.

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Maturity Premium

(Sovereign and sovereign-guaranteed borrowers)

? The average loan maturity will determine how much maturity premium is applied on the loan.

Average Loan Maturity

Maturity Premiuma

Less than or equal to 13 years Greater than 13 years and up to 16 years Greater than 16 years and up to 19 years

Nil 0.10% per annum 0.20% per annum

? Maturity premium is applicable to loans for which formal loan negotiations 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 Maturity

Average loan maturity is the weighted average time to repay a loan. It considers, both, repayment dates and amounts to provide a better estimation of how quickly a loan is repaid. Repayment dates depend on the first principal payment date, grace period and loan term. Repayment amounts depend on repayment method selected.

Choice of key repayment terms, such as Grace Period, Loan Term and Repayment Method are important considerations, given their effect on Average Loan Maturity.

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Average Loan Maturity - Calculation

Average loan maturity is calculated as the average of the number of years until each principal repayment amount is due, weighted by the principal repayment amount. Average Loan Maturity = Sum of Weighted Repayments Sum of Total Repayments

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Average Loan Maturity

Examples

Disclaimer : Numbers are for illustrative purposes only

Example 1: Average Loan Maturity Calculation Straight-Line Repayment Method

Years

(A) Grace Period 0.50 1.00 1.50 2.00 Repayment Period 2.50 3.00 3.50 4.00 4.50 5.00

Repayment Method

Straight Line (5-Year Maturity)

Principal

Weighted

Repayments Repayments

(B)

C = (A x B)

10.00 10.00 10.00 10.00 10.00 10.00

25.00 30.00 35.00 40.00 45.00 50.00

Sum

60.00

225.00

= Sum of C / Sum of B = 225.070 / 60.00

3.75 years

Loan Amount: Loan Term (including Grace Period): Grace Period:* Repayment Method:

US$ 60 million

5 years 2 years Straight-Line

* Grace Period ? the period prior to the first principal payment date wherein no principal repayments are made.

Average Loan Maturity

Example 2: Average Loan Maturity Calculation Annuity-type Repayment Method

Discount Rate : Time (Years)

(A) 0.5-5.0

5.5 6.0 6.5 7.0 7.5 8.0 8.5 9.0 9.5 10.0 10.5 11.0 11.5 12.0 12.5 13.0 13.5 14.0 14.5 15.0 Sum

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Repayment Method

Annuity '1'

Annuity '2'

5.00%

10.00%

Principal

Weighted

Principal

Weighted

Repayment

Repayment

Repayment

Repayment

(B1)

C1=(AxB1)

(B2)

C2=(AxB2)

Grace Period

2,348,828

12,918,552

1,814,555

9,980,054

2,407,548

14,445,291

1,905,283

11,431,698

2,467,737

16,040,291

2,000,547

13,003,556

2,529,431 2,592,666

17,706,014 19,444,997

2,100,574 2,205,603

14,704,021 16,542,024

2,657,483

21,259,864

2,315,883

18,527,067

2,723,920

23,153,320

2,431,678

20,669,259

2,792,018

25,128,162

2,553,261

22,979,353

2,861,819

27,187,276

2,680,925

25,468,783

2,933,364

29,333,640

2,814,971

28,149,707

3,006,698 3,081,866

31,570,330 33,900,521

2,955,719 3,103,505

31,035,052 34,138,558

3,158,912

36,327,490

3,258,680

37,474,826

3,237,885

38,854,620

3,421,615

41,059,374

3,318,832

41,485,401

3,592,695

44,908,691

3,401,803

44,223,438

3,772,330

49,040,290

3,486,848 3,574,019

47,072,447 50,036,268

3,960,947 4,158,994

53,472,778 58,225,914

3,663,370

53,118,860

4,366,944

63,320,681

3,754,954

56,324,308

4,585,291

68,779,360

60,000,000 639,531,090

60,000,000 662,911,046

=Sum of C1 /

=Sum of C2 /

Sum of B1 =639,531,090/

60,000,000

10.66 years

Sum of B2 =662,911,046/

60,000,000

11.05 years

Loan Amount: US$ 60 million

Loan Term (including Grace

Period):

15 years

Grace Period: 5 years

Repayment Method: Annuity, with different discount rates

The lower the discount rate, the shorter the Average Loan Maturity.

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