Barclays' $63.68 million notes tied to Asian indexes drew large bid for macro theme, structure

By Emma Trincal

New York, Aug. 8 - The combination of a popular theme and simple structure made Barclays Bank plc's $63.68 million of 0% buffered return enhanced notes due Aug. 21, 2013 linked to a basket of Asian indexes and their related currencies the top offering last week, according to sources commenting on the reasons for the size.

The basket includes the Hang Seng index with a 25% weight, the Korea Composite Stock Price Index 200 with a 25% weight, the Hang Seng China Enterprises index with a 21% weight, the MSCI Taiwan index with a 20% weight and the MSCI Singapore index with a 9% weight, according to a 424B2 filing with the Securities and Exchange Commission.

The related currencies are the Hong Kong dollar for the Hang Seng and Hang Seng China Enterprises, the Korean won for the Korea Composite Stock Price, the Taiwan dollar for the MSCI Taiwan and the Singapore dollar for the MSCI Singapore.

The basket return is equal to the sum of the weighted component returns for the basket indexes. The component return for each index will be its return multiplied by the return of its underlying currency relative to the U.S. dollar.

If the basket return is positive, the payout at maturity will be par plus 200% of the basket return, subject to a maximum return of 14%. Investors will receive par if the basket return is between zero and negative 10% and will lose 1.1111% for every 1% that it is less than negative 10%.

Barclays was the agent with J.P. Morgan Securities LLC and JPMorgan Chase Bank, NA acting dealers.

Appeal

"You sell some of the upside and you get some downside protection. It's certainly quite a big trade," said Tom May, partner at Catley Lakeman Securities.

Both the theme and the structure are attractive, according to a market participant.

"It's a combination of a short-term maturity and an Asian underlying," this market participant said.

"Certainly JPMorgan probably had internal research pointing to opportunities in Asia. JPMorgan probably requested a note on this market and Barclays delivered it.

"It also has a decent buffer. The 14% cap is not too bad for a one-year. It's a pretty clean, straightforward structure with an interesting theme."

Hot money

Many Asian markets have recently been in positive territory. Since early June, the Hang Seng index has gained more than 8%. The MSCI Singapore index is up 18.5% year to date, and most of the gains were seen in early June.

"Asia is a little bit hot money right now," May said. "I would be somewhat wary. When everyone is doing the same thing, it may not be the best time to get involved.

"Asian stocks are volatile. The 10% buffer doesn't make a massive difference. Who knows what's going to happen in Asia? Ten percent is not a huge amount of downside protection. It wouldn't be a reason for me to buy the note."

But the market participant said that investors are taking note of the economic difficulties experienced by the world's leading developed markets even if a bullish mood still prevails in the United States.

"Europe and the U.S. are suffering right now," he said.

"Many Asian countries are heavily export-driven, but as far as their domestic markets go, most of them don't have excessive debt issues or interest rates on a downward path, and they don't have central banks running out of options.

"Then you have China that provides a strong engine for growth within Asia.

"If I had to pick a theme, Asia would be something I would look into."

But May said that he prefers the "second generation-type of emerging markets" in Asia.

"If I wanted Asia, I would probably go for Vietnam or Indonesia, both massive markets difficult to access," he said.

The notes (Cusip: 06741JL49) carried a 1% fee.

Other large deals giving investors exposure to Asia earlier this year include Barclays' $67.48 million of 0% notes due May 1, 2014 linked to the performance of the Chinese renminbi relative to the dollar, which priced in April, as well as Credit Suisse AG, Nassau Branch's $58.49 million of 0% buffered return enhanced notes due July 3, 2013 linked to the same basket of five Asian indexes as the one used in last week's offering.

JPMorgan was the dealer for those two deals as well.

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