Maturity Based Pricing
Maturity‐Based Pricing Sovereign and SovereignGuaranteed Borrowers
Key Concepts and Examples
Calculating Average Loan Maturity g
g
y
and Associated Maturity Premium
This document provides general information on maturity-based pricing
and related concepts, such as Average Loan Maturity
Introduction
2

ADB’s Board of Directors approved the introduction of
maturity-based
t it b
d pricing
i i
f LIBOR-based
for
LIBOR b
d loans
l
(LBL) to
t
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
f
formal
l loan
l
negotiations
ti ti
are completed
l t d on or after
ft 1 April
A il
2012.

Average
g loan maturity
y is an important
p
element under
maturity-based pricing.
Maturity Premium
(S
(Sovereign
i and
d sovereign-guaranteed
i
t db
borrowers))
• The average loan maturity will determine how much maturity
premium is applied on the loan.
loan
Average Loan Maturity
Less than or equal to 13 years
Maturity Premiuma
Nil
Greater than 13 years and up to 16 years
0.10% per annum
Greater than 16 years and up to 19 years
0 20% per annum
0.20%
• 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
3
To be applied for the entire life of the loan
Average Loan Maturity


4
Average loan maturity is the weighted average time to
repay a loan.
l
It considers,
id
b th repaymentt dates
both,
d t
and
d
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,
terms such as Grace Period,
Period
Loan Term and Repayment Method are important
considerations, given their effect on Average Loan Maturity.
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
5
Average Loan Maturity
Average Loan Maturity
Examples
Disclaimer : Numbers are for illustrative purposes only
Example 1: Average Loan Maturity Calculation
Straight Line Repayment Method
Straight-Line
Repayment Method
Straight Line (5‐Year Maturity) Principal Weighted Repayments Repayments (B)
C = (A x B)
Years
(A)
Grace Period
0 50
0.50
1.00
1.50
2.00
Repayment Period
Repayment Period
2.50
3.00
3.50
4.00
4.50
5.00
10.00
10.00
10.00
10.00
10.00
10.00
Sum
60.00 225.00
Loan Amount:
Loan Term (including Grace
Period):
Grace Period:*
R
Repayment
tM
Method:
th d
US$ 60 million
5 years
2 years
St i ht Li
Straight-Line
* Grace Period – the period prior to the first principal payment date
wherein no principal repayments are made.
= Sum of C / Sum of B
= 225.00 / 60.00
7
25.00
30.00
35.00
40.00
45.00
50.00
3.75 years
Average Loan Maturity
Example 2: Average Loan Maturity Calculation
Annuity-type
y yp Repayment
p y
Method
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
12.5 13.0 13.5 14.0 14.5 15.0 Sum Sum
8
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 17,706,014 2,100,574 14,704,021 2,592,666 19,444,997 2,205,603 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 31,570,330 2,955,719 31,035,052 3,081,866 33,900,521 3,103,505 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
3,318,832 41,485,401
41,485,401 3,592,695
3,592,695 44,908,691
44,908,691 3,401,803 44,223,438 3,772,330 49,040,290 3,486,848 47,072,447 3,960,947 53,472,778 3,574,019 50,036,268 4,158,994 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
60,000,000 639 531 090
639,531,090 60 000 000
60,000,000 662 911 046
662,911,046 =Sum of C1 / =Sum of C2 / Sum of B1
Sum of B2
10.66 years
11.05 years
=639,531,090/
=662,911,046/
60,000,000
60,000,000
Loan Amount:
US$ 60 million
Loan Term (including Grace
Period):
15 years
Grace Period:
5 years
Repayment Method:
Annuity with different
Annuity,
discount rates
The lower the discount rate, the shorter the Average Loan Maturity.
Example 3: Average Loan Maturity Calculation
Custom-Tailored Repayment
p y
Repayment Method 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
10.0 10.5 11.0 11.5 12.0 12.5 13.0 13.5 14.0 14.5 15.0 Sum 9
Higher Repayments at the Start
Higher Repayments at the End
Principal
Weighted
Principal
Weighted
Repayment
Repayment
Repayment
Repayment
(B1)
C1=(AxB1)
(B2)
C2=(AxB2)
Grace Period
3,500,000 19,250,000 2,000,000 11,000,000 3,500,000 21,000,000 2,000,000 12,000,000 3,500,000 22,750,000 2,500,000 16,250,000 ,
,
24,500,000 ,
,
2,500,000 ,
,
17,500,000 ,
,
3,500,000 3,500,000 26,250,000 2,500,000 18,750,000 3,500,000 28,000,000 2,500,000 20,000,000 3,500,000 29,750,000 3,000,000 25,500,000 3,500,000 31,500,000 3,000,000 27,000,000 3,000,000 28,500,000 3,000,000 28,500,000 3 000 000
3,000,000 30 000 000
30,000,000 3 000 000
3,000,000 30 000 000
30,000,000 3,000,000 31,500,000 3,000,000 31,500,000 3,000,000 33,000,000 3,000,000 33,000,000 3,000,000 34,500,000 3,500,000 40,250,000 3,000,000 36,000,000 3,500,000 42,000,000 2,500,000 31,250,000 3,500,000 43,750,000 2,500,000 32,500,000 3,500,000 45,500,000 2,500,000 33,750,000 3,500,000 47,250,000 2,500,000 35,000,000 3,500,000 49,000,000 2,000,000 29,000,000 3,500,000 50,750,000 2,000,000 30,000,000 3,500,000 52,500,000 60,000,000 588,000,000 60,000,000 642,000,000 =Sum of C1 / =Sum of C2 / Sum of B1
Sum of B2
9.80 years
10.70 years
=588,000,000/6
=642,000,000/
0,000,000
60,000,000
Loan Amount: US$ 60 million
Loan Term (including Grace
Period): 15 years
Grace Period: 5 years
Repayment Method:
Custom-tailored
• The Average Loan Maturity depends on timing and amount of repayment If higher repayments
repayment. If higher repayments are made at the start, the Average loan maturity will be shorter.
• For custom‐tailored repayment method, the amortization schedule should meet the cash flows of the project.
Example 4: Average Loan Maturity and Maturity Premium
Computation
Repayment Methods
A nnuity 'A '
Discount Rate :
A verage Loan Maturity
Time
(Years)
Start
Repayment Date
10.00%
Straight-line
14.52
0.10 % Premium
12.75
NIL
5.5
A pr
pr-15-2012
15 2012
Oct-15-2012 to
A pr-15-2017
Oct-15-2017
903,086
2,000,000
6.0
A pr-15-2018
948,240
2,000,000
6.5
Oct-15-2018
995,652
2,000,000
0.5-5.0
7.0
A pr-15-2019
1,045,435
2,000,000
7.5
Oct-15-2019
Oct
15 2019
1,097,707
2,000,000
8.0
A pr-15-2020
1,152,592
2,000,000
8.5
Oct-15-2020
1,210,222
2,000,000
9.0
A pr-15-2021
1,270,733
2,000,000
9.5
Oct-15-2021
1,334,269
2,000,000
10.0
A pr-15-2022
1,400,983
2,000,000
10.5
Oct-15-2022
1,471,032
2,000,000
11 0
11.0
A pr-15-2023
pr 15 2023
1 544 584
1,544,584
2 000 000
2,000,000
11.5
Oct-15-2023
1,621,813
2,000,000
12.0
A pr-15-2024
1,702,904
2,000,000
12.5
Oct-15-2024
1,788,049
2,000,000
13.0
A pr-15-2025
1,877,451
2,000,000
13.5
Oct-15-2025
1,971,324
2,000,000
14.0
A pr-15-2026
2,069,890
2,000,000
14.5
Oct-15-2026
2,173,384
2,000,000
15.0
A pr-15-2027
2,282,054
2,000,000
15.5
Oct-15-2027
2,396,156
2,000,000
16.0
A pr-15-2028
2,515,964
2,000,000
16.5
Oct-15-2028
2,641,762
2,000,000
17.0
A pr-15-2029
2,773,850
2,000,000
17.5
Oct-15-2029
2,912,543
2,000,000
18.0
A pr-15-2030
3,058,170
2,000,000
18.5
Oct-15-2030
3,211,079
2,000,000
19.0
A pr-15-2031
3,371,633
2,000,000
19.5
Oct-15-2031
3,540,214
2,000,000
A pr-15-2032
3,717,225
10
20.0
Total
60,000,000
2,000,000
60,000,000
The choice of repayment method
has an impact on how much
maturity premium is applied.
Loan amount:
Loan Term
US$ 60 million
(incl. Grace Period): 20 years
Grace Period:
5 years
Average Loan Maturity (10% Annuity):
14.52 years
Maturity Premium: 0.10% per annum
Average L
A
Loan Maturity
M t it (St
(Straight-line):
i ht li )
12.75 years
Maturity Premium: Nil
Average Loan Maturity
Average Loan Maturity
Tools for Calculation
* Table for Quick Reference
* Average Loan Maturity Calculator
Average Loan Maturity Table for Quick Reference
(Straight-Line Repayment)
1
Loan Term
Loan
Term
(inc. Grace period)
12
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
2
3
Grace Period
4
5
6
7
8
Average Loan Maturity*
≤ 13 years
3.25
3.75
4.25
4.75
5.25
5.75
6.25
6.75
7.25
7.75
8.25
8 25
8.75
9.25
9.75
10.25
10.75
11.25
11.75
12.25
12.75
13.25
13.75
13 75
14.25
14.75
15.25
15.75
3.75
4.25
4.75
5.25
5.75
6.25
6.75
7.25
7.75
8.25
8.75
8 75
9.25
9.75
10.25
10.75
11.25
11.75
12.25
12.75
13.25
13.75
14.25
14 25
14.75
15.25
15.75
16.25
4.25
4.75
5.25
5.75
6.25
6.75
7.25
7.75
8.25
8.75
9.25
9 25
9.75
10.25
10.75
11.25
11.75
12.25
12.75
13.25
13.75
14.25
14.75
14 75
15.25
15.75
16.25
16.75
4.75
5.25
5.75
6.25
6.75
7.25
7.75
8.25
8.75
9.25
9.75
9 75
10.25
10.75
11.25
11.75
12.25
12.75
13.25
13.75
14.25
14.75
15.25
15 25
15.75
16.25
16.75
17.25
5.75
6.25
6.75
7.25
7.75
8.25
8.75
9.25
9.75
10.25
10 25
10.75
11.25
11.75
12.25
12.75
13.25
13.75
14.25
14.75
15.25
15.75
15 75
16.25
16.75
17.25
17.75
6.75
7.25
7.75
8.25
8.75
9.25
9.75
10.25
10.75
10 75
11.25
11.75
12.25
12.75
13.25
13.75
14.25
14.75
15.25
15.75
16.25
16 25
16.75
17.25
17.75
18.25
7.75
8.25
8.75
9.25
9.75
10.25
10.75
11.25
11 25
11.75
12.25
12.75
13.25
13.75
14.25
14.75
15.25
15.75
16.25
16.75
16 75
17.25
17.75
18.25
18.75
8.75
9.25
9.75
10.25
10.75
11.25
11.75
11 75
12.25
12.75
13.25
13.75
14.25
14.75
15.25
15.75
16.25
16.75
17.25
17 25
17.75
18.25
18.75
Maturity Premium per annum
NIL
> 13 years and up to 16 years
0.10%
> 16 years and up to 19 years
0.20%
*subject to a limit of 19 years
For the same grace
period,, the longer
p
g the
loan term, the longer the
Average Loan Maturity.
Average Loan Maturity Table for Quick Reference
((Annuity-type
y yp Repayment
p y
– 10% Annuity)
y)
1
Loan Term
(inc. Grace period)
13
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
2
3
Grace Period
4
5
6
7
8
Average Loan Maturity*
≤ 13
≤ 13 years
3.38
3.95
4.54
5.14
5.76
6.40
7.05
7.71
8.39
9.09
9.79
10.52
11.25
12.00
12.76
13.53
14.31
15.11
15.91
15 91
16.73
17.55
18.39
3.82
4.38
4.95
5.54
6.14
6.76
7.40
8.05
8.71
9.39
10.09
10.79
11.52
12.25
13.00
13.76
14.53
15.31
16.11
16 11
16.91
17.73
18.55
4.28
4.82
5.38
5.95
6.54
7.14
7.76
8.40
9.05
9.71
10.39
11.09
11.79
12.52
13.25
14.00
14.76
15.53
16.31
16 31
17.11
17.91
18.73
4.76
5.28
5.82
6.38
6.95
7.54
8.14
8.76
9.40
10.05
10.71
11.39
12.09
12.79
13.52
14.25
15.00
15.76
16.53
16 53
17.31
18.11
18.91
5.76
6.28
6.82
7.38
7.95
8.54
9.14
9.76
10.40
11.05
11.71
12.39
13.09
13.79
14.52
15.25
16.00
16.76
16 76
17.53
18.31
6.76
7.28
7.82
8.38
8.95
9.54
10.14
10.76
11.40
12.05
12.71
13.39
14.09
14.79
15.52
16.25
17.00
17 00
17.76
18.53
7.76
8.28
8.82
9.38
9.95
10.54
11.14
11.76
12.40
13.05
13.71
14.39
15.09
15.79
16.52
17.25
17 25
18.00
18.76
Maturity Premium per annum
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 19
*subject to a limit of 19 years
8.76
9.28
9.82
10.38
10.95
11.54
12.14
12.76
13.40
14.05
14.71
15.39
16.09
16.79
17.52
17 52
18.25
19.00
For the same loan term,
the shorter the grace
period, the shorter the
Average Loan Maturity.
Average Loan Maturity Calculator

Borrowers can access, both, a web-based and an excelb
based
d average loan
l
maturity
t it calculator
l l t att the
th ADB website.
b it

14
Loan Accounting and Servicing (LAS) Website:
http://lfis.adb.org

Borrowers to email at LfisGfisLas@adb.org to obtain “User
Name” and “Password” for access to calculators.

The calculators allow borrowers to make informed decisions
in structuring the loan profile by simulating, and considering,
different options of repayment terms.
terms
Loan Accounting and Servicing Website
15
Average Loan Maturity Calculator
- Web-Based
W bB
d
16
Average Loan Maturity Calculator
- Excel-Based
E
lB
d
17
Summary
A. Maturity-based Pricing
• Applicable to loans for which formal negotiations are completed on or
after 1 April
p 2012
Average Loan Maturity
q
to 13 years
y
Less than or equal
Greater than 13 years and up to 16 years
Greater than 16 years and up to 19 years
Maturity Premium
NIL
0.10% p.a
0.20% p.a
• The
Th average lloan maturity
i iis subject
bj t to
t a limit
li it off 19 years.
B. Choice of Repayment Terms is an important consideration given
its effect on Average Loan Maturity
C. Maturity premium applicability should be discussed in the early
stage of loan processing and reflected in the memorandum of
g or aide-memoire.
understanding
18