Such structures are very familiar to private bank clients, but this is the first time such a product has been targeted at retail investors in Asia. It is listed on the Singapore stock exchange and requires a minimum investment of just S$1,000.
"Bringing a private bank product to retail investors was quite a big challenge," says Martin Wong, assistant director in Rabobank's equity derivatives team in Hong Kong. The bank set up its structured warrants team in Singapore in November last year and has been working with the Singapore stock exchange for the past six months to get the RaboJet Certs series off the ground.
This first product is a much-simplified version of what high net-worth investors buy. To help the retail market get to grips with the unfamiliar structure Rabobank has designed the product around four very well-known stocks: DBS, CapitaLand, SingTel and Singapore Airlines. "We didn't want to confuse investors with a complicated underlying," says Wong. "We wanted to focus on explaining the structure."
The Rabobank team was in Singapore during the weekend to conduct seminars and meetings with investors to help do just that. They will take orders between June 4 and 7 and, if all goes well, it is expected to launch on June 7, to expire on June 11 next year.
The payoff is built around an options strategy that comprises puts, calls and range accrual notes, and is designed to deliver enhanced returns in a sideways market. The 20% return will be achieved if the price of the worst-performing of the four stocks ends each trading day between 95% and 88% of its value on day one. The return is accumulated on a daily basis and nothing is earned on days when the worst-performer is outside the 88%-95% band.
There is a potential knock-out each quarter. If the worst-performer is equal to or higher than 95% of its initial price on this day the certificates are terminated and investors will get their money back, plus whatever cash has accumulated from the daily lock-in û a maximum of 5% for each quarter.
Wong says that the recent trading history of the four stocks suggests that it's fairly likely the certificates will knock out before maturity. "That's not necessarily a bad thing," he says. Investors who continue to believe the market is headed sideways could roll into a new series of the certificates, with a new structure, and end up with broadly similar annual returns û minus the transaction costs of buying a new certificate.
If the product reaches maturity and the worst-performer is above 88% on the final day, investors will get their cash plus the lock-in amount. But if the worst-performer is below 88% investors start to face losses. There is no principal protection, so if the worst-performer is significantly underwater on the final day investors can lose all of their money.
When talking to investors, Rabobank uses some examples to illustrate. If the certificates earn a daily lock-in on 160 of the 250 trading days in a year and the worst-performer is higher than 88% of its initial price the return will be 12.8%. However, if the worst-performer has halved in value investors will have to eat a 19% loss.
If all goes well with the first product launch Rabobank expects to bring series two and three in June, and on a regular basis thereafter.
The certificates will be distributed through Kim Eng, OCBC and Phillip Capital.