Citigroup is preparing to launch a principal-protected retail investment note in Hong Kong focusing on volatility. "The focus is on absolute returns of the underlying shares whereas other deals in the market provide payoffs only if the shares go up," said Joey Tang, v.p. in Asia-Pacific equity derivatives at Citi in Hong Kong.
Dubbed Lock Swing Notes, the four-year deal is linked to a basket of 15 local stocks, which Tang said are large-cap, well-known and higher volatility names. A variable coupon is provided in the first year, either linked to the absolute performance of the worst-performing share multiplied by a participation rate, or 1.5%, whichever is higher. For subsequent years, the investor receives the greater of either the previous year's coupon or that year's performance. "Investors not certain on the direction of the market in the coming years will benefit," said Tang, explaining the product has been popular with institutional clients and is now being brought out to the retail base.
The notes are offered in two currencies: U.S. dollars offering participation of between 66-70% in the worst-performing share, and between 58-62% for Hong Kong dollar tranches. Distributed through a handful of domestic houses such as Dah Sing Bank and Asia Commercial Bank, the deal will be closed by month-end.
