UBS prices $40 million in notes linked to Chinese renminbi; Morgan Stanley plans currency-linked notes

By Sheri Kasprzak

New York, April 24 - UBS AG led structured products news on Tuesday with the pricing of $40 million in zero-coupon notes linked to the performance of the U.S. dollar against the Chinese renminbi.

"The Chinese economy is growing at such a fast rate that it would not surprise me to see more China-related offerings going forward," said one market source.

In fact, the market source pointed to recent data that indicates that China's economy may expand by almost 11% this year.

"That's a huge rate of growth and I'm sure a lot of investors are eager to capitalize on that growth," he noted.

Payout at maturity on the notes will be based on the dollar/renminbi exchange rate relative to the breakeven rate of 7.619 renminbi per dollar.

If the currency return, which is equal to the breakeven rate and the final spot rate, is positive, investors will receive par plus the return at maturity.

Investors will lose 1% for every 1% the final spot rate is below the breakeven rate.

Similar offerings

Although the movements in the exchange rate are restricted by the Chinese government, the renminbi has been featured in several recent offerings, particular as part of the BRIC basket along with the Brazilian real, the Russian ruble and the Indian rupee.

Earlier this month, Barclays Bank plc announced plans to price principal-protected notes linked to the Chinese yuan, the Indonesian rupiah, the Indian rupee, the Japanese yen and the Malaysian ringgit, all versus the U.S. dollar.

Royal Bank of Canada announced plans on April 16 to price notes linked to a basket of currencies that included the renminbi with a 74% weight, along with the Thai baht, the Indian rupee and the Indonesian rupiah. Those notes are set to price April 26.

Lehman Brothers Holdings Inc. also plans to price notes with the Chinese renminbi included in the basket. Those two-year notes, which also include the real, the ruble and the rupee, are expected to price on April 24.

Finally, Merrill Lynch & Co. is also planning to price zero-coupon principal-protected notes linked to the renminbi, real, ruble and rupee and those notes are expected to settle in May.

Morgan Stanley plans notes

The Chinese renminbi is also part of a basket of notes Morgan Stanley plans to price. The investment bank is negotiating the terms of currency-linked capital-protected notes linked to the renminbi, the Brazilian real, the Hungarian forint, the Indian rupee, the Mexican peso and the Turkish lira.

The two and a half-year notes pay par at maturity plus a supplemental redemption amount. If the basket performance is less than or equal to zero, the supplemental redemption amount will be nothing. If the basket performance is greater than zero, the supplemental redemption amount will be the greater of $250 and $1,000 times the basket performance times the participation rate, which is 200%.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.