Citigroup is due to price this week an investment note referencing Brazilian equity, via an exchange-traded fund. The note is synthetically linked to the underlying iShares MSCI Brazil Index Fund, which tracks the MSCI Brazilian equity index. The synthetic structure allows Citigroup to offer an auto-call feature, meaning the investor may get capital plus a coupon returned as early as six months into the note. This feature is already popular with European and Asian retail investors but is less common in the U.S.
The Citi note has a provisional life of two years, but with six-monthly observation dates. If the value of the underlying fund is above its starting price on any of these dates, the investor's capital is returned with a coupon. According to marketing material, the firm is looking for the coupon to be between 7.25% and 8.50% for the first date, 14.50%-17.00% if called at a year, 21.75%-25.50% if at 18 months and 29.00%-34.00% if called in July 2008. If the fund does not exceed its starting level, investors capital is returned providing shares in the fund have not lost more than 65% of their value.
The final coupon details depend on this week's pricing. Citigroup officials declined all comment prior to pricing and potential investors in the note could not be determined.
