Lehman, Citigroup, RBC offer BRIC-related products; offerings may attract defense-minded investors

By Kenneth Lim

Boston, March 31 - A couple of currency-linked products were launched on Monday that focus on the BRIC markets.

Lehman Brothers Holdings Inc. announced an offering of zero-coupon principal protected bull-bear notes due April 29, 2011 linked to the exchange rate of a basket of five currencies relative to the U.S. dollar.

The basket comprises equal weightings of the Brazilian real, the Russian ruble, the Indian rupee, the Chinese renminbi and the South Korean won.

If the basket appreciates versus the greenback, the notes will pay par of $1,000 plus the product of the basket return and the upside leverage amount. The upside leverage amount will be at least 100%, to be determined at pricing.

If the basket falls, the notes will pay par plus at least 50% of the absolute basket return. The actual downside return rate will be set at pricing.

Citigroup Inc. is selling zero-coupon principal protected notes due 2013 linked to a basket of BRIC equities and currencies.

The Citigroup basket will comprise a 50% weighting on the S&P BRIC 40 Index and 12.5% weightings on each of the Brazilian real, the Russian ruble, the Indian rupee and the Chinese renminbi.

The basket will pay 100% to 110% of the basket return plus par of $10 upon maturity if the basket level increases. Otherwise the payout will be par.

"With all of the bad news that have been hitting the U.S., investors are definitely more interested these days in increasing their exposure to emerging economies," a structurer said. "I think a lot of investors have been realizing the importance of diversifying their portfolios, not just across asset classes, but also across different markets."

"The BRIC markets offer a cross section of the global emerging economies," the structurer said. "Whether you're looking at stocks or currencies, these are bellwethers of the overall emerging economies. Especially with the rise of China and India, BRIC economies are not just major exporters, they are also becoming major importers of commodities and other goods and services."

The BRIC-linked products could attract investors looking for a cushion against declines in their U.S.-based holdings, the structurer said.

"Structured products like these offer an accessible way for investors to gain exposure to the markets in these emerging economies which otherwise wouldn't be so easy to invest in," the structurer said. "It's easier than setting up a system to directly invest in those places. You also get leveraged returns on the upside and principal protection, so if you end up taking the wrong view, at least you get back your capital."

"I think what's interesting here is a lot of these products are coming with principal protection," the structurer said. "It's partly because of the nature of the platform, but also I think it reflects how the market is perhaps looking for more defensive type of holdings at this time."

RBC prices BRIM-linked notes

Royal Bank of Canada on Monday priced $2.13 million of zero-coupon principal protected notes due March 31, 2010 linked to a basket of developing-nation currencies.

The basket comprises equal weightings of the Brazilian real, the Russian ruble, the Indian rupee and the Malaysian ringgit.

The basket will pay 125% of the basket return plus par of $1,000 at maturity if the basket level finishes above the initial level. Otherwise the payout will be par.

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