The Royal Bank of Scotland has sold a EUR500 million collateralized bond obligation to Taiwanese investors in a structure that allows them to gain greater exposure to foreign assets. With institutional investors across Asia often restricted in their ability to hold foreign securities, the firm is looking at rolling it out in other locations. "We are hoping we can do a deal like this in Korea too," said Stephen Wong, head of structured credit and collateralized debt obligations for Asia Pacific.
The CBO contains 50% Taiwanese dollar-denominated structured bonds and 50% euro-denominated principal protected notes which wrap European loans. RBS placed the assets in an onshore special purpose vehicle, which then swapped the eight-year principal into Taiwanese dollars. JPMorgan was the swap counterparty, necessary because RBS does not have an onshore branch in Taiwan.
Wong said the deal was attractive to Taiwanese institutions because there is a cap on the amount of foreign assets they can hold. Because of its local bond component, the CBO does not count against an institution's foreign basket, limited at 35% of investment assets. It has a Moody's Investors Service rating of Aaa.tw down to A.tw for the principal-only, participating tranche. The coupon on the highest-yielding Aaa notes is six-months commercial paper plus 55 basis points.
Taiwanese regulators have been looking at widening the band of foreign assets allowed in domestic CDOs since various static structures that combined global CDOs with domestic interest-rate notes were downgraded as a result of credit volatility (DW, 9/29).