Bank of China International is preparing to launch a soft call retail equity-linked note in Hong Kong. The upcoming issue, called Flexibond #7, is a worst-of structure linked to six domestic blue chip stocks and is callable by the issuer after the first year.
If the stock market is rising and the investors look set to receive all the coupons, Bank of China will likely call the instrument. "If the stock market has done well, investors are happy to get their money back to invest directly," said Warren Kwan, head of equity derivatives in Hong Kong.
The Flexibond offers a guaranteed first coupon of 6% for the initial quarter, then, if the worst-performing stock in the basket remains above the five-day average return from the initial level, the customer will receive another 6% coupon the following quarter. After that, every period the threshold for the worst-performing stock falls by 2% for the life of the product, which has a maximum maturity of two years. "We found that people in Hong Kong like to follow the stock market frequently--that's why we set an observation point in every quarter," added Kwan. BOCI will close the issue at the end of this week.
