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Derivatives

Russian Manager Offers First Local-Debt CDO

OJSC Bank ZENIT, a Moscow-based fixed-income asset manager, is managing its first collateralized debt obligation.

OJSC Bank ZENIT, a Moscow-based fixed-income asset manager, is managing its first collateralized debt obligation. The RUB6.7 billion (USD250 million) two-year synthetic deal, called Red Square, is also the first CDO to reference Russian local currency-denominated corporate bonds. It consists of three tranches referencing 40 first-, second- and third-tier corporate names, with an average portfolio yield of 8.92%. The mezzanine and senior tranches were placed predominantly with hedge funds, while the manager is holding the equity portion.

Konstantin Pavlov, head of structured products at Bank ZENIT in Moscow, said the deal was designed to attract foreign investors to the local Russian market. Local-currency debt in many emerging markets offers more attractive spreads than major currency-denominated debt, particularly if the local currencies appreciate against the majors. Several other local currency CDOs have hit the market recently.

"A lot of investment firms are trying to offer investors simple products," Pavlov said. "We're offering a more complicated structure and can offer clients our experience in the market." Bank ZENIT manages a variety of funds and has been investing in structured products for years, Pavlov said.

Red Square was structured by JPMorgan, which has a historical relationship with Bank ZENIT and which Pavlov said was the only bank willing or able to structure the deal. Vlad Galea, structurer at JPMorgan in London, did not immediately return a call.

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