Inflation Index linked Bonds (Localization for Treasury Brazil)

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A common practice in Brazil is to have Corporate Bond Issuance linked to inflation indexes, such as IPCA, that are released in a monthly basis.

SAP Treasury and Risk Management customers faces difficulties to manage this product type as they have to create a virtual currency to be able to update the nominal amount.

A new functionality is now available in SAP S/4HANA 2023 (Nov 2023) to support this requirement as informed in the What's New page Manage Index-Linked Bonds

Requirement description

The shares of this type of instrument are remunerated according to the IPCA as following:

Inflation adjustment of the VNA and amortizations, if any, will have to observe the anniversary dates of each fund, as well as the periods of incidence of the closed index and the projections for the index published by ANBIMA, as described below:

Calculating VNA:

𝑽𝑵𝑨 = 𝑽𝑵𝑬 𝑿 𝑪

Where: VNA= Adjusted Nominal Value to eight decimal places, without rounding off;

VNE = Nominal Unitary Value on the date of issue, on the date of payment or on the date of the last amortization or compounding of the remuneration, if any, whichever occurs last.

C= Accumulated change factor of the price index.

Source: Metodologias Precificacao FIDC_ingles.pdf (anbima.com.br)

Complete Guide in Portuguese: Calculo_Rentabilidade_TesouroIPCA.pdf (tesourodireto.com.br)
 

Index Source of Information

The historical series of inflation indexes can be found here Índice Nacional de Preços ao Consumidor Amplo | IBGE
Indexes prices are released in a monthly basis as follows:

YEAR	MONTH	INDEX PRICE	VARIATION
			%
2017	JAN	4793,85	0,38
	FEV	4809,67	0,33
	MAR	4821,69	0,25
	ABR	4828,44	0,14
	MAI	4843,41	0,31
	JUN	4832,27	-0,23
	JUL	4843,87	0,24
	AGO	4853,07	0,19
	SET	4860,83	0,16
	OUT	4881,25	0,42
	NOV	4894,92	0,28
	DEZ	4916,46	0,44

Overview of functionality in SAP Treasury and Risk Management

The Brazilian IPCA Inflation Index can be entered using application ENTER PRICE INDEX VALUES or transaction TMDPRICEIDX.

TMDPRICEIDX

Effects on Customizing:

Condition type:

The new FIMA Calculation category PIDX was created to be assigned to the condition type for the index price adjustment.

New Calculation Category

Position Management

Type of step 3 procedure for index valuation have to be defined in the following path:

Treasury and Risk Management > Transaction Manager > General Settings > Accounting > Settings for Position Management > Key Date Valuation > Define Index Valuation Procedure

Index Valuation Step

Example of End User Operations:

In the example below the Bond was issued on 25.08.2017 and the contract states that the index validity is from 15th to 15th of each month.

Index Price have to be informed in the basic data of the security class.

Security Class Basic Data

And in the condition for the price index adjustment, Fixing Data area indicates that the index will be fixed starting from July 15th to August 15th, and the first index value read will be applied on September 15th.

Index Price Adjustment condition in FWZZ

In the security class cashflow, the index factor value is available to be checked for operational flows.

Security Class Cashflow