RBC to pay 27.55% on Harmony Gold deal; Morgan Stanley to price S&P 500-linked notes

By LLuvia Mares

New York, Jan. 11 - The Royal Bank of Canada's plan to price 27.55% reverse convertibles linked to Harmony Gold Mining Co. Ltd., a structure that carries a coupon, one market specialist said, that is a headline grabber.

The reverse convertible notes are due April 30, 2008 and interest will be payable monthly.

If Harmony Gold stock falls below the knock-in price - 80% of the initial share price - during the life of the notes and finishes below the initial price, the payout at maturity will be a number of Harmony Gold shares equal to par divided by the initial price. Otherwise, the payout will be par.

"Because [reverse convertibles] have a tactical short-term trade, they always focus on the stories of the moment,' said Tim Mortimer, managing director at Future Value Consultants.

"The ones with high volatility will generate the coupons and they can be reasonably expected not to go down or not to reach the barrier. And in a similar way, RBC with the gold product, you have a high coupon and with only three months.

"If you think you can avoid a 20% fall over three months," then the 27.55% makes it "quite a headline-grabbing coupon."

The notes will price on Jan. 28 and settle on Jan. 31.

RBC Capital Markets Corp. will be the agent.

Morgan Stanley to price notes linked to S&P 500

In other news, Morgan Stanley plans to price zero-coupon 96% protected absolute return barrier notes due July 2009 linked to the S&P 500 index.

"So here you have a 96% principal return and up to 25% in absolute return if you haven't hit the barrier," said Mortimer.

"This [structure] is very similar to some of the double barrier products that we have seen before. This one only gives you 96% back, but it is not fully protected. So if within 18 months, the S&P does not stray for more than 25%, you can get a decent pay-off. So it's a pretty big bet."

If the index remains within 25% of its initial level throughout the life of the notes, the payout at maturity for each $10.00 note will be $9.60 plus the absolute value of the index return multiplied by the leverage factor, which will be between 150% and 170% and will be determined at pricing.

If the index does not remain within 25% of its initial level, the payout will be $9.60 per $10.00 par amount.

The notes will price and settle in January.

Morgan Stanley & Co. Inc. will be the agent.

ABN Amro plans exchangeables linked to Frontline

Elsewhere in the market, ABN Amro Bank NV plans to price 18.25% Knock-in Reverse Exchangeable Securities due July 31, 2008 linked to the common stock of Frontline Ltd.

"This [structure] is obviously planning on oil being around $100 a barrel," said Mortimer. "This product is pretty volatile, therefore generating a decent coupon."

Interest will be payable monthly.

If Frontline stock falls below the knock-in level - 70% of the initial share price - during the life of the securities and finishes below the initial share price, the payout at maturity will be a number of Frontline shares equal to par divided by the initial share price.

Otherwise, the payout will be par.

The securities are expected to price on Jan. 28 and settle on Jan. 31.

ABN Amro Inc. is the lead agent.

JPMorgan plans notes linked to currency basket

Elsewhere in the market, JPMorgan Chase & Co. plans to price principal protected notes due Feb. 18, 2010 linked to a basket of four currencies.

"This is a typical currency product that we have seen many times in the last year which links to four emerging market currencies," Mortimer said. "If those currencies strengthen then the investor picks up their return."

The basket consists of equal weights of the Brazilian real, the Indian rupee, the Mexican peso and the New Turkish lira, all against the dollar.

The payout at maturity will be par plus any gain on the basket times a participation rate that will be at least 200%. Investors will receive at least par.

The notes are expected to price Feb. 15 and settle Feb. 21.

J.P. Morgan Securities Inc. is the underwriter.

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