Westpac Banking Corp. and Deutsche Bank are separately structuring their first synthetic CDO transactions for New Zealand investors and expect the deals to hit the market in the coming months. Westpac is looking at structuring a CDO on a portfolio of solely Kiwi names, which would be a first, but Deutsche Bank expects to have a global portfolio which would include several Kiwi credits and be marketed in New Zealand, according to officials at both firms.
"The race is on," said an official at Westpac in Wellington, adding that he expects the bank to begin its marketing effort in three to six months. Kevin Kosovich, head of integrated credit trading in Australia and New Zealand at Deutsche Bank in Sydney, said it is planning the deal because of "growing interest in Australia and New Zealand for credit derivative products." Both banks have already completed CDOs in the larger Australian market.
Guy Hargreaves, director at Deutsche Bank in Sydney, said it would be difficult to structure a portfolio with only Kiwi names as only 15-20 credits are liquid enough. However, Geoff Roberts, senior manager of structured products at Westpac in Sydney, disagrees, noting that although there is a limited universe of Kiwi credits in the market, Westpac could combine names from its balance sheet along with names trading in the market. "Westpac has access to a raft of Kiwi names," added Roberts. He believes that a small basket of names would likely interest Kiwi investors, possibly totaling USD10-20 million per tranche.
Stephen Hong, manager of portfolio research and fixed-income investments at BNZ Investment Management in Wellington, said the firm would look to invest USD1-2 million in a tranche preferably on New Zealand names it is comfortable with and likely rated A minus or higher. He added, "If someone showed this to us now, we'd definitely consider it." The asset manager is yet to invest in synthetic CDOs and would make a decision on whether to invest based on pricing. Hong has not spoken to either bank about the pending CDOs.
