What do nominal value, face value, principal value and total cash consideration mean?
Nominal value is the same as face value. Quoted trading sizes are always on a nominal basis unless specifically mentioned otherwise. Also, coupon income is based on the nominal amount.
For example, a $1,000,000 nominal position in a Eurobond that pays a 10% coupon per annum and is purchased at a 90% cash price, will pay a total coupon of $100,000 per annum to the investor. The 90% cash price is irrelevant in coupon income calculations, however is used to determine the “principal value” of the holding.
The total cash consideration is the total cash amount an investor requires in order to buy a Eurobond in the first place, which includes accrued interest.
|Nominal Amount||$1,000,000.00||The amount an investor receives back at maturity. It is also the amount the coupon payment calculation is based on.|
|Principal Amount||$900,000.00||Clean Price x Nominal Amount|
|Accrued Interest||$30,711.81||Nominal Amount x Coupon Rate x (Settlement Date - Previous Coupon Date) / Day-Count Convention Year|
|Total Consideration||$930,711.81||Principal Amount + Accrued Interest|
What is the minimum amount needed to invest in Eurobonds?
When Eurobonds are issued, a minimum nominal amount is set to purchase the Eurobond.
At present, $200,000 nominal is the threshold for all Nigerian Eurobonds with a $1,000 increment thereafter. There is one exception, which is Nigeria’s June 2022 Diaspora Bond which has a nominal minimum of $2,000.
Nominal trading sizes below $200,000 are possible, either through the purchase of a structured note or a so-called “buy/sell-back” process. The latter is more common and largely depends on dealer willingness and inventory position.
Sub-nominal trading sizes, i.e. a nominal amount below the set minimum threshold, is generally referred to a "fractional sizes" or "fractional bonds". A separate section of the HowNoww guide is dedicated to Fractional Bonds.