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Trading On SK Corp Jumps On Back Of Exchangeable Issuance

Credit dealers in Asia noted a strong demand for credit protection on SK Corp, a Korean oil refiner. early in the week, on the back of a USD1.25 billion exchangeable bond, priced last Thursday. "Clients and dealers will want to hedge their bond positions," said Sandeep Gill, head of credit derivatives at DBS Bank in Singapore.

Since the exchangeable bond was announced three weeks ago, five-year credit default protection has jumped to 160-190 basis points from around 100-130bps. Trading picked up last Monday as the pricing date approached in both the three and five-year default-swaps. One trader noted that about USD50-70 million was traded last week, compared to about USD30 million in an average month.

Credit Suisse First Boston and Goldman Sachs are co-managing the exchangeable bond. It has a five-year maturity and is callable after three years into shares of SK Telecom. Traders said the demand for credit protection likely stemmed from hedge funds purchasing the exchangeables and stripping them. An official familiar with the issuance noted that the deal will likely close on Aug. 1. The bonds are rated BBB minus by Standard & Poor's and Baa3 by Moody's Investors Service. Officials at CSFB and Goldman declined comment.

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