Fubon Securities, one of Taiwan's largest securities houses and a subsidiary of Fubon Financial with assets of over NTD116.1 billion (USD3.31 billion), recently became the first Taiwan-based organization to invest in a synthetic collateralized debt obligation. "This is the first deal in Taiwan for a CDO," said Roger Huang, manager of the fixed income and derivatives department in Taipei. The securities firm last month purchased a USD10 million managed mezzanine synthetic CDO tranche which it believes is the first CDO sold in Taiwan from Citigroup. The managed mezzanine tranche, rated Single A, is structured on a portfolio of global credits. In the structure Fubon has control over the credits selected in the portfolio as the equity and senior tranches are hedged by the arranger.
"We put in familiar names," said Huang, noting that it chose credits from the U.S. and Asia. The average rating is single A. He continued that the firm will likely buy at least one more mezzanine tranche of USD10 million or greater this year. The CDO is an investment for Fubon's fixed income portfolio, which is primarily made up of government bonds.
Huang said the firm has been eyeing the CDO market for around six months, because of the higher yields the instruments offer compared to the same names in cash bonds. It has waited until now, however, because it wanted to track the performance of the product.
