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Derivatives

Westpac Plans Its First CDO In Asia

Westpac Banking Corp. is planning to issue its first synthetic collateralized debt obligation in Asia. The CDO will likely be referenced to a USD1 billion pool of Australian, New Zealand, European and Asian credits, said Nick Fyffe, global head of structured product sales in Sydney.

"For Asia, a portfolio requires broader diversity," said Fyffe. He continued that a CDO portfolio will contain Asian and European credits in addition to Aussie names to ensure diversity. Nonetheless, Keiran McPhee, head of financial markets and Asian sales in Hong Kong, said "our strategy is to structure a portfolio [primarily] with New Zealand and Australian credits--that's where we have a niche." Fyffe added, "for example, an [Australian] investor might look at a portfolio of 50 Aussie names--to him that's a lot of diversity. If you showed the same portfolio to an investor in Asia he'd tell you to [get lost]." He declined to elaborate on the product.

The firm is actively talking to clients in Asia about the possibility of issuing a CDO, noting that a number of clients are interested in gaining exposure to the Australian market, said McPhee.

"You can see it in primary issues and loans that there's more and more appetite across Asia for Australian risk," said a credit derivatives structurer at an international house in Hong Kong. He added that with this broad appetite for Australian credits it would be feasible to issue the CDOs in Asia, but noted that investment decisions would still be based upon a number of factors, including the structure and attractiveness of the product.

 

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