Eksportfinans' $24.66 million notes tied to commodity basket offer simplicity, ease-of-access

By Emma Trincal

New York, Dec. 21 - Eksportfinans ASA's $24.66 million of 0% notes due Dec. 28, 2011 linked to a basket of five commodities lack structural benefits such as leverage and downside protection but offer investors easy access to a diversified portfolio of commodities, sources said.

Sources said that simply by providing investors an alternative to exchange-traded funds and futures contracts in order to gain exposure to a hard-to-access asset class was enough to explain the relatively good size of the offering.

"There is no leverage and no buffer in the notes," said Brian Kelly, principal and chief executive officer of Kanundrum Capital. "But it makes sense if you don't have a mandate to invest in commodities. You can get access to the asset class via a fixed-income instrument."

The basket includes the New York Mercantile Exchange West Texas Intermediate light sweet crude oil futures contract with a 40% weight, the London Metal Exchange copper cash settlement price with a 20% weight, the New York Mercantile Exchange platinum futures contract with a 20% weight, the Chicago Board of Trade soybean futures contract with a 10% weight and the IntercontinentalExchange cotton futures contract with a 10% weight.

The notes were sold via Goldman Sachs & Co., according to a 424B2 filing with the Securities and Exchange Commission.

The payout at maturity will be par plus the basket return, which could be positive or negative.

Diversification

Some stressed diversification and cost-efficiency as some of the main factors behind the popularity of the deal.

Kelly compared the underlying portfolio to which a noteholder would get exposure with a direct investment in a portfolio of ETFs.

"It very well could be cheaper than buying the equivalent in ETFs because you wouldn't just buy one ETF," he said.

"Some ETFs are physically backed, and you just can't get that type of combo in one single ETF. You don't have an ETF that invests in oil, soybeans, cotton, etc.

"It's even difficult to get exposure to these markets through U.S. equities."

The notes priced at 100.7% of par.

Fees were $2.50 per note.

Futures alternative

Other sources said that the ease-of-use and investors' appetite for commodities were two major reasons that could explain why some investors would opt for this structured note.

"It's very difficult for retail investors to buy commodities," said Kirk Chisholm, principal and wealth manager at NUA Advisors.

"Investors are usually not comfortable with futures investing. It entails risks people are not familiar with, in particular leverage risk.

"This type of notes can give investors more diversification without having to put too much capital up front."

In addition, the market sentiment is currently bullish on commodities, he noted.

"I like it as an investment strategy. Commodities are increasingly popular because inflation will continue to push commodities prices up," he said.

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