Daiwa Securities SMBC is planning to follow up on the first-ever rated collateralized equity obligation it recently launched in Japan with up to six deals this year. The Tokyo-based house recently structured a JPY23.4 billion (USD216 million) portfolio on 30 Japanese stocks, dubbed Zest Investments V.
"As corporate bond spreads in Japan have shrunk to such tight levels, it's difficult to obtain attractive coupons on CDOs," said Nick James, deputy general manager of structured credit in the bond division at Daiwa in Tokyo, noting that with chronically tight credit spreads in Japan and pent-up demand for credit risk, there will be appetite for additional CEOs.
James continued that Daiwa is eyeing additional deals, which will likely hit the market after the new fiscal year starts in Japan next month.
Paul Cluely, partner at Allen & Overy in Tokyo, said that while portfolios containing equity-default risk have been structured that incorporated credit-default risk, notably JPMorgan's deal in Europe (DW, 2/8), Daiwa's recent structure was the first rated transaction exclusively of equity-default swaps. Cluely doesn't think Daiwa will be the only firm. "This won't be a one-off transaction. Given the increased yield on fundamentally the same risk, as it behaves as a credit product, there's a compelling story for equity-default swap products," he said.
