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Derivatives

Hong Kong CORPORATE Eyes Credit Debut

Shanghai Industrial Holdings, a Hong Kong-based conglomerate with assets totaling over HKD16.6 billion (USD2.15 billion), plans to seek board approval to invest in credit derivatives for the first time. "We're looking at new ideas," said Pauline Lai, manager of the finance department. Shanghai Industrial recently received HKD5.7 billion from infrastructure projects in China, which will need to be re-invested, according to an analyst. He continued that the conglomerate, along with most Asian firms, is cash rich. "Since the Asian crisis, most companies have been conservative and focused on repairing their balance sheets," he added.

Lai explained that the company will formulate its investment strategy for next year by year-end. "Deposits are yielding almost nothing," she noted, adding that the firm has been studying a wide array of investment products to enhance returns. Lai continued that Shanghai Industrial is studying investing in credit-linked notes referenced to regional names, but declined to elaborate. The investment plan will need to be approved by the board early next year.

"More corporates are getting into the game," said Francois de Supervielle, v.p. in the structured derivatives department at Société Générale Asia in Hong Kong. There is growing interest in Hong Kong for such products as credit-linked notes and first-to-default baskets as alternatives to cash products, he added. Other prominent end-users, including The Hong Kong Jockey Club (DW, 3/9), have also been looking at credit derivatives.

Other products that the firm has used include structured notes linked to interest rates, equity and fx-linked deposits and warrants. Lai declined to comment on the size of the department's investment portfolio. Additionally, Shanghai Industrial is also eyeing entering currency swaps for hedging U.S. dollar/Hong Kong dollar exposure, given the recent hike in volatility.

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