DBS Bank offers CLNs to Hong Kong retail investors

Up to $75 million of bank basket callable first-to-default CLNs are being issued through a Cayman Island-based special purpose vehicle called Constellation Investment. The CLNs are referenced to HSBC Holdings, Bank of China, Standard Chartered, the Bank of East Asia and Wing Hang Bank.

Sandeep Gill, head of structured products at DBS Bank in Singapore, said the notes were referenced to banks in anticipation of market demand for bank names. “The market demand for bank names is quite high, [as] people are familiar with all these names because they deposit money with these banks anyway,” he said. “And it’s a pretty low risk and low volatility credit risk for the Hong Kong investors.”

The issue is part of a $5 billion limited recourse secured debt issuance programme that was set up on September 22. This will allow for the launch of a range of products including bonds, equity-linked notes, index-linked notes, CLNs and synthetic products, as well as other types of debt instruments that will be funded by and secured over the proceeds from certain underlying assets. Further structured products, in addition to the CLNs, would be launched depending on market demand, added Gill.

“Due to the low deposit rates with local banks and uncertain stock market performance, there is a growing trend for Hong Kong and regional investors to invest in high-yield products,” added Chin-Chong Liew, a partner specialising in structured and derivatives products, who led the Allen & Overy team that advised on the programme. “With modernisation of, and further relaxation in, prospectus requirements in Hong Kong, we foresee that there will be more similar high-yield retail offerings in the market,” he said.

Prospectuses for the debt issuance programme and for the first-to-default CLNs, were authorised by the Securities and Futures Commission, the local regulatory body, and registered with the Registrar of Companies in Hong Kong.