Citigroup plans commodity-linked notes based on gold; Wachovia prices $12 million in commodity notes

By Sheri Kasprzak

New York, Nov. 1 - Citigroup Funding Inc. led structured products news Wednesday with word that it plans to price 0% commodity-linked notes based on the price of gold.

One market source said the notes are interesting because gold is not part of a basket of other commodities.

"The only thing I think is interesting about these [notes] is that it's just based on the price of gold, not a basket," said one market source when asked about the rarity of an offering like this.

"I don't think it's unheard of, but it's not something you see every day. Normally, gold would just be linked along with a basket of commodities.

"I assume the point here is that there's an awful lot of confidence in where gold prices are going."

Notes linked to gold price

The 0% notes linked to the gold price - which were announced late Tuesday - are due in 2007 and pay 97% of par plus the gain in the price of gold, capped at an increase of between 19% and 21%, with the exact cap to be set at pricing. The maximum return on the notes will be between 16% and 18%, with the limit depending on the cap.

If the price of gold declines, investors will receive 97% of par.

Gold prices on Wednesday gained $9.80 to close at $616.60 per ounce.

Gold part of Wachovia issue

The offering is not the only commodities-related offering in recent structured products news.

On Tuesday, Wachovia Corp. priced two commodity-linked notes that included gold. And on Wednesday, Lehman Brothers Holdings Inc. priced $4.35 million in 100% principal-protected crude oil-linked range notes.

Wachovia priced $12.5 million in enhanced yield notes linked to equal weights of gold, West Texas Intermediate crude oil, zinc, aluminum, copper, nickel and lead. The notes have a 65% barrier level. Interest is 12% unless any commodity component falls below the barrier, in which case the coupon will be zero for that period.

Wachovia also priced $6.47 million in 0% notes linked to equal weights of gold, WTI crude oil, copper, aluminum, lead and zinc. They have a payout at maturity of par plus 115% of any basket gain. Investors will receive at least par.

Lehman's oil-linked notes

In other commodity-related offerings, Lehman priced $4.35 million in 100% principal-protected crude oil-linked range notes Tuesday.

The notes are due Nov. 7, 2007.

At maturity, the notes pay 102% of par - for an annual return of 8% - if crude oil stays within the range of $52.2697 and $65.1903. The notes pay par if crude oil is outside that range on any business day during the observation period.

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