UBS last week began offering what it thinks is one of the first equity-linked notes of its kind. "We believe the combination of absolute returns and a step up feature is one of the first in this market," said Christopher Lee, executive director in equity risk management in Hong Kong.
The principal-protected structure provides a guaranteed coupon of 5.5% in the first year and contains a step-up function to lock in returns for the subsequent years. Lee explained that after the first year of the note, for which the coupon is guaranteed, the structure becomes performance-dependent on the underlying basket of stocks.
For the note, years two-to-five will be structured via one-year over-the-counter straddles comprised of puts and calls, noted Lee. The underlying basket consists of 25 well-known domestically listed stocks and will be distributed by a syndicate of local banks. The issue is part of its SUPER Note series, which is now on its fifth issue.
