ABN AMRO has launched what is believed to be the first capital guaranteed note in Taiwan, which could open the floodgates for a new market and has stirred up interest from rivals including Credit Suisse First Boston, HSBC, Merrill Lynch and Morgan Stanley. "This is the first guaranteed product in Taiwan," noted Anthony Wah, head of marketing for Asian equity derivatives at ABN in Hong Kong. Wah noted that with strong demand in Asia, particularly in Hong Kong, for capital guaranteed structures, it makes sense to speak with the regulators and bring similar products to Taiwan.
ABN's note is an investment-linked insurance policy where part of the premium the investor pays goes into the structured note, thereby providing a guaranteed minimum return at expiry. The purchaser of the note buys a disability and accidental death insurance policy that lasts for the maturity of the package and a capital guaranteed note linked to the performance of the Dow Jones Global Titans 50 index. These are structured as one product and distributed by a domestic insurance company, which Wah declined to name. However, market officials in Taipei said the capital guaranteed note will be distributed by the insurance arm of Fubon Financial Holding Co. to its clients. Officials at Fubon did not return calls.
A trader at Merrill Lynch noted that this product could open the floodgates for further issuances. "The main obstacle in Taiwan has always been regulators. If there is liberalization, there's no doubt more of this stuff will happen." A marketer at HSBC in Hong Kong added that the market for capital guaranteed products in Taiwan could take off and emulate Hong Kong where approximately USD2-3 billion of notes were sold last year, though he added that it is too early to estimate the potential size of the market. One official at CSFB added, "This is something we are considering. [It] could be quite big."
A marketer at Morgan Stanley concurred that there is potential for such products in Taiwan, adding that it has been speaking with local financial institutions in Taiwan about similar products. He added, "This could be a popular product in Taiwan, given the low interest-rate environment."
"It provides transparency in terms of investment and return," added Wah, noting that for the six-year holding period, the investor receives a guaranteed return of 128% of the initial investment, in addition to participation on upside exposure linked to average monthly returns on the Global Titans index. ABN structures the product by writing an over-the-counter call option.
"This is the first of its kind but we've had strong initial indications from clients," noted Wah. Typical sizes of the structure will range anywhere from USD10 million to over USD100 million. Wah continued that ABN has worked with regulators in Taiwan to approve the product, noting that it had been a six-month process.
