Singapore's United Overseas Bank is considering investing or managing synthetic collateralized debt obligations linked to a combination of credit and equity-default swaps before year end. "It's definitely on the radar screen," said Tay Teck Chye, director of global treasury in the Lion City, noting that the firm is eyeing the nascent structure, which has recently popped up in Asia. UOB manages four CDOs.
"These are new investment angles or tools," he said. While it is too early to predict a timeframe when it could potentially take the plunge, he noted that the firm could possibly enter one-to-two transactions this year. The reference portfolios, likely USD500-1 billion in size, would be primarily U.S. and European corporates.
Several international houses have shown UOB potential hybrid CDO investments, according to Chye, who declined to name the firms. "We're looking for a total package," added Chye, explaining that it looks at such factors as technology transfer, terms, the structure, and economics of potential deals when selecting a counterparty.
One credit official at a bulge bracket house said the product would be attractive to UOB on two fronts. "This would show them as being on the cutting edge as well as picking up an attractive spread as arbitrage opportunities are available," he said.
