Grand Cathay Securities Corp., a securities house in Taipei, is looking to enter its first convertible asset swap in the coming weeks. "We're in the final stages--they're just reviewing the ISDA's," said Tony Ko, assistant v.p. of fixed income, referring to the International Swaps and Derivatives Association master documents. The firm received a license to enter asset swaps last year (DW, 6/17).
Its first transaction will be on the back of convertible bonds issued by VIA Technologies and COMPEQ Manufacturing. Ko estimated the asset swaps will be TWD50 million (USD1.42 million notional) each. Grand Cathay strips out the credit component of the convertibles, passing the credit risk to the counterparty. In return, Grand Cathay pays the counterparty a floating rate, the banker's acceptance rate, plus a spread of 150-180 basis points. Via the swap, Grand Cathay keeps the undervalued equity option.
"This is our emphasis for the year," noted Ko, stating that the firm will concentrate on entering convertible transactions with its customers, adding that it will look to handle TWD1 billion (USD28.6 million) in asset swaps by year-end. Securities houses in Taiwan are not permitted to sell the equity option, Ko said.