Seoul-based Dongwon Securities, with KRW1.9 trillion (USD1.62 billion) in assets, recently structured a five-year equity-linked note, which is believed to be the longest maturity issue to date in the nascent onshore Korean mart. "This has the longest tenor in the market," said B.J. Kim, executive v.p. at Dongwon, noting that previous deals have stretched out to three years. The USD20 million note is linked to the KOSPI 200 index and contains range digital options and a knock-out option.
Kim explained that for the ELN, the firm executes two option plays. In the first, the investor is long an option which pays out if the index rises or falls by more the 10%. If the product stays within the 10% range, the investor receives a 1% annual coupon. In addition, the investor receives the upside performance of the index up to 140% and then is knocked out of any further gains.
Dongwon hedged the options with an international house. "We put it up for bidding with several houses," said Kim, declining to name the firm.
The Korean onshore equity-linked market, which is currently limited to local players, is heating up given that it only started earlier this year (DW, 5/4). Conversely, the long-established regional ELN market is expected to slump in the coming months due to record low volatility (DW, 9/8).
