Deutsche Bank has closed what might be Taiwan's first local currency sale of synthetic collateralized debt obligations (CDOs). The offer, which was created out of Deutsche's global risk book, was arranged for Jih Sun International Bank and is referenced to an investment grade portfolio of 100 international corporate and financial names.
Two-thirds of the notes are denominated in New Taiwanese dollars and the remaining third is in US dollars. The notional amount of the CDO portfolio is $2.36 billion and the three-year bullet notes are credit-linked to the AA tranche of the CDO. The notes were placed privately with Jih Sun, which in turn will sell them to a group of corporate and high-net worth clients.
It is difficult to know exactly what goes on in the private market but sources say this could be one of the first.
"This is a great way to provide access for Asian corporate and retail investors to global credit portfolios with an ability to hedge returns into local currency terms," says Vinod Aachi, managing director of Deutsche's Asian relative value group.
To be sure, the appetite is there and both corporate and retail investors are keen to get into the market at the moment thanks to what bankers call a "credit positive" environment. In other words, rating agencies are reporting fewer instances of companies that are unable to pay off their debts and interest rates are expected to continue edging up slowly and predictably.
The deal has been structured as a fixed-rate, three-year static deal to take advantage of this continuing environment of low short-term interest rates, tightening credit spreads and fewer corporate defaults.
Meanwhile Jih Sun is also expected to close an auto-loan securitization next week, arranged by HVB in combination with Jih Sun Securities. JSB Taiwan Auto One is expected to raise $140 million and to pay investors somewhere in the region of 60 basis points over Libor. It has a legal maturity of 2009 and is rated Aa3 by Moody's and AA- by Standard & Poor's.