UBS in bid to tap retail interest in equity-linked note

UBS Warburg, the investment banking unit of Switzerland's UBS, is negotiating with Hong Kong Exchanges and Clearing to list an equity-linked note released in Hong Kong in November. The move is an effort to generate retail investor interest in the derivatives instrument.

The four-month equity-linked note, the first of its kind to be issued directly to the public in Hong Kong, is structured as a non-interest-bearing debt instrument with an embedded put option. The return on the note is linked to the performance of the Hong Kong Exchange Tracker Fund. If the closing price of the fund is greater than or equal to the conversion price on the fixing date agreed upon in the contract, the investor is paid the principal amount at settlement. If the closing price of the fund is less than the conversion price on the fixing date, the investor will gain either a fixed amount of units of the tracker fund, specified in the contract, or an equivalent cash amount depending on the issuers' preference.

Christopher Chau, director of equity risk management products at UBS Warburg in Hong Kong, said the strong interest shown in the note spurred UBS towards gaining a listing.

"The low interest rate environment in Hong Kong has led investors to look for alternative sources of return," said Chau, adding that the main attraction of the note is that it allows private investors access to this type of product without having to go through an intermediary. In the past, such notes were only available in high denominations of around $400,000 or more.

The Hong Kong note is closely modelled on UBS's Singapore equity-linked note that was listed on the Singapore Stock Exchange in early 2001. UBS believes that the securitised product business in Asia is poised for rapid growth in the coming years due to several factors including the high savings rate environment and increased investor sophistication.