BNP Paribas is planning to issue synthetic collateralized debt obligations for the first time in non-Japan Asia in the coming months on the back of growing client demand. "It's a natural evolution," said Guillaume Dieu, director and head of Asia Pacific synthetic securitization in Hong Kong. He continued that the firm will look to issue its first synthetic CDO, likely USD1 billion in size, in the next three to six months and possibly two or three additional transactions of the same size later this year.
Dieu transferred from Paris to Hong Kong in September as part of the firm's effort to boost its synthetic CDO capabilities outside of Europe (DW, 12/23). He continued that clients in Asia are looking at CDOs for diversification: "It's a good tool for investors to diversify their portfolios."
The reference portfolios will probably consist of credit-default swaps on Asian, Australian, European and U.S. names. The products will be sold to investors as credit-linked notes, in tranches with ratings of BB plus, AA and AAA, with a five-year maturity. BNP will likely keep the equity tranche. "With greater education and a more liquid credit derivatives market, it's now easier to build tailor-made portfolios," said Dieu, adding that CDOs are a recent product in the Asian market. "Synthetic CDOs are now available in Asia, this wasn't the case two or three years ago."