SG Corporate & Investment Banking is preparing to launch a commodity-linked note for the Hong Kong retail market--a first for the firm. The three-year principal-protected structure, set for release this month, is linked to crude oil, silver, nickel and copper and contains an auto-call feature. If all four underlyings are above the initial spot values at 12, 18, 24, 30 and 36-month observation dates, the note will be redeemed at an annualized rate of 11%.
"There are a lot of equity and credit-linked structures in the market and we reckon commodities is an asset class in itself for retail investors," explained Connie Leung, managing director in fixed income and derivatives at SG in Hong Kong. "This allows for very good diversification."
Two tranches have been structured for the retail deal, with varying risk if the note reaches maturity without being called. In the first tranche, the investor receives the full principal plus 70% participation to the average performance of the underlying, while in the second tranche the investor receives a fixed 105% return in the case it continues to maturity.
Leung noted SG will likely follow up with additional commodity deals to the retail audience, given the high-profile of resources in recent months and strong appetite for such deals.
