<TABLE border=0 cellSpacing=0 cellPadding=0 width="100%"><TBODY><TR>Some credit-linked notes rallying
</TR><!-- headline one : end --><TR>Improved market conditions have led to surge in value and lowered risk of default </TR><!-- Author --><TR><TD class="padlrt8 georgia11 darkgrey bold" colSpan=2>By Gabriel Chen
</TD></TR><!-- show image if available --></TBODY></TABLE>
<!-- START OF : div id="storytext"--><!-- more than 4 paragraphs -->The redemption values of some structured products on the brink of collapse last October have recovered somewhat, as improving market conditions reduce the risk of default or credit events such as bankruptcy.
Take DBS High Notes 2, a five-year, structured, credit-linked note sold by DBS Group Holdings.
<TABLE width=200 align=left valign="top"><TBODY><TR><TD class=padr8><!-- Vodcast --><!-- Background Story -->RELATED LINKS
<!-- Audio --><!-- Video --><!-- PDF -->
HIGHER VALUES
<!-- Photo Gallery -->
</TD></TR></TBODY></TABLE>A credit-linked note typically allows the issuer to transfer a specific credit risk to investors.
DBS High Notes 2 is not a 'low-risk' product nor is it principal-protected, where your principal sum is ploughed into investments like bonds which, on maturity, are expected to provide the 100 per cent capital protection.
Last October, it was worth 27.5 per cent of its original value. Now, the 'indicative value', according to DBS, is 36.1 per cent.
DBS High Notes 3 - one of the 10 in a suite of High Notes products launched from several years ago - has also seen a surge in value, from 82 per cent last October to about 93.2 per cent now.
This means that if you were to redeem DBS High Notes 3 prematurely today, you will get back 93 per cent of your original investment.
'The valuation of many of our notes has improved due to credit spreads tightening,' a DBS spokesman said.
In layman's terms, there is now less risk aversion as investors feel the risk that companies will default on payment, for example, has diminished considerably.
Typically, a structured product is a combination of a deposit and an investment product. It gives a return linked to the performance of some financial instrument such as shares or foreign exchange.
Retail investors can jump in with as little as $5,000. These instruments expire over the medium term - up to 10 years.
For some investors, the surge in value may have come too late.
Ms K.T. Chan, 41, redeemed her High Notes 3 late last year for about 83 per cent of her principal and she has no regrets. 'So what if the value has gone up? It's a high-risk product and it could go down just like it did for High Notes 5,' she said.
She had put $50,000 into High Notes 3 and $200,000 into High Notes 5, a product whose value has plummeted to zero. High Notes 5 was linked to Lehman Brothers, which went bankrupt last year.
DBS is pretty much the only bank that offers prices of its structured investments on its website, which are updated daily.
Banks like Morgan Stanley and Merrill Lynch which sold such products did not want to provide their historical values despite repeated requests by The Sunday Times.
Experts said it is not just credit-linked notes like High Notes 2 and 3 that are seeing some signs of life. Equity-linked structured notes, or products linked to shares or stock indices, have also rebounded sharply.
'In one - albeit extreme - case of a non-principal-protected equity- structured note, the price has moved up from 6.6 per cent at its trough to 49 per cent currently,' said UBS' head of equity risk management products for South Asia, Mr Rohit Jaisingh. He declined to name the product as it was not offered to the public.
While the higher values are good news to investors, they are not cast in stone. High Notes 3, which matures in October, can still see its value fluctuate until then.
For sure, many of the exotic structures are technically worthless, including Lehman Minibonds, Merrill Lynch Jubilee Series 3 and Morgan Stanley's Pinnacle Notes Series 9 and 10.
But the reality is that compared with the market maelstrom following last Sept 15's bankruptcy of Lehman Brothers and the subsequent plunge in the value of many products linked to the failed bank, conditions are much calmer today.
Still, experts caution that not all credit-linked notes are in good shape. 'Those notes comprising entities that are financially strong and have good liquidity will result in a lower default risk and are seeing a price recovery, but for those that are financially weak, the risk of impairment remains,' said Mr Lucas Yeoh, investor director of APS Komaba Asset Management.
In other words, the fate of some credit-linked products is not tied so much to the health of the market as it is now but instead to one or two names on the verge of default.
An example is Pinnacle Notes Series 1, which was sold to 342 retail investors who put in about $14.7 million. They are likely to lose their principal investments after Morgan Stanley said last month a mandatory redemption could be triggered by a 'credit event' involving Syncora Guarantee Inc, now a junk-rated insurer in the United States.
The firm has failed to pay interest on its bonds after the New York Insurance Department ordered it to stop doing so and to return any surplus to policyholders instead.
A check on Morgan Stanley's website showed no indicative price for Pinnacle Notes Series 1, while for other notes in the Pinnacle collection, some were trading at below 1 per cent of their principal value.
[email protected] Are you still holding on to structured products and have a view on them? E-mail [email protected]
</TR><!-- headline one : end --><TR>Improved market conditions have led to surge in value and lowered risk of default </TR><!-- Author --><TR><TD class="padlrt8 georgia11 darkgrey bold" colSpan=2>By Gabriel Chen
</TD></TR><!-- show image if available --></TBODY></TABLE>
<!-- START OF : div id="storytext"--><!-- more than 4 paragraphs -->The redemption values of some structured products on the brink of collapse last October have recovered somewhat, as improving market conditions reduce the risk of default or credit events such as bankruptcy.
Take DBS High Notes 2, a five-year, structured, credit-linked note sold by DBS Group Holdings.
<TABLE width=200 align=left valign="top"><TBODY><TR><TD class=padr8><!-- Vodcast --><!-- Background Story -->RELATED LINKS
<!-- Audio --><!-- Video --><!-- PDF -->
<!-- Photo Gallery -->
</TD></TR></TBODY></TABLE>A credit-linked note typically allows the issuer to transfer a specific credit risk to investors.
DBS High Notes 2 is not a 'low-risk' product nor is it principal-protected, where your principal sum is ploughed into investments like bonds which, on maturity, are expected to provide the 100 per cent capital protection.
Last October, it was worth 27.5 per cent of its original value. Now, the 'indicative value', according to DBS, is 36.1 per cent.
DBS High Notes 3 - one of the 10 in a suite of High Notes products launched from several years ago - has also seen a surge in value, from 82 per cent last October to about 93.2 per cent now.
This means that if you were to redeem DBS High Notes 3 prematurely today, you will get back 93 per cent of your original investment.
'The valuation of many of our notes has improved due to credit spreads tightening,' a DBS spokesman said.
In layman's terms, there is now less risk aversion as investors feel the risk that companies will default on payment, for example, has diminished considerably.
Typically, a structured product is a combination of a deposit and an investment product. It gives a return linked to the performance of some financial instrument such as shares or foreign exchange.
Retail investors can jump in with as little as $5,000. These instruments expire over the medium term - up to 10 years.
For some investors, the surge in value may have come too late.
Ms K.T. Chan, 41, redeemed her High Notes 3 late last year for about 83 per cent of her principal and she has no regrets. 'So what if the value has gone up? It's a high-risk product and it could go down just like it did for High Notes 5,' she said.
She had put $50,000 into High Notes 3 and $200,000 into High Notes 5, a product whose value has plummeted to zero. High Notes 5 was linked to Lehman Brothers, which went bankrupt last year.
DBS is pretty much the only bank that offers prices of its structured investments on its website, which are updated daily.
Banks like Morgan Stanley and Merrill Lynch which sold such products did not want to provide their historical values despite repeated requests by The Sunday Times.
Experts said it is not just credit-linked notes like High Notes 2 and 3 that are seeing some signs of life. Equity-linked structured notes, or products linked to shares or stock indices, have also rebounded sharply.
'In one - albeit extreme - case of a non-principal-protected equity- structured note, the price has moved up from 6.6 per cent at its trough to 49 per cent currently,' said UBS' head of equity risk management products for South Asia, Mr Rohit Jaisingh. He declined to name the product as it was not offered to the public.
While the higher values are good news to investors, they are not cast in stone. High Notes 3, which matures in October, can still see its value fluctuate until then.
For sure, many of the exotic structures are technically worthless, including Lehman Minibonds, Merrill Lynch Jubilee Series 3 and Morgan Stanley's Pinnacle Notes Series 9 and 10.
But the reality is that compared with the market maelstrom following last Sept 15's bankruptcy of Lehman Brothers and the subsequent plunge in the value of many products linked to the failed bank, conditions are much calmer today.
Still, experts caution that not all credit-linked notes are in good shape. 'Those notes comprising entities that are financially strong and have good liquidity will result in a lower default risk and are seeing a price recovery, but for those that are financially weak, the risk of impairment remains,' said Mr Lucas Yeoh, investor director of APS Komaba Asset Management.
In other words, the fate of some credit-linked products is not tied so much to the health of the market as it is now but instead to one or two names on the verge of default.
An example is Pinnacle Notes Series 1, which was sold to 342 retail investors who put in about $14.7 million. They are likely to lose their principal investments after Morgan Stanley said last month a mandatory redemption could be triggered by a 'credit event' involving Syncora Guarantee Inc, now a junk-rated insurer in the United States.
The firm has failed to pay interest on its bonds after the New York Insurance Department ordered it to stop doing so and to return any surplus to policyholders instead.
A check on Morgan Stanley's website showed no indicative price for Pinnacle Notes Series 1, while for other notes in the Pinnacle collection, some were trading at below 1 per cent of their principal value.
[email protected] Are you still holding on to structured products and have a view on them? E-mail [email protected]
