Merrill Lynch to price two notes linked to Greater China Index basket; UBS set to price silver-linked notes

By Sheri Kasprzak

New York, April 10 - Merrill Lynch & Co., Inc. led structured products news Tuesday with word that it intends to price not one, but two offerings linked to the Greater China Index basket.

"There is a lot of interest in China right now," said one market source.

"Asian stocks in general, and particularly those in emerging markets countries, have been garnering a lot of interest over the past six months or so, I'd say. China seems to be one of the strongest in terms of what its economy and what its stocks are doing."

The index basket includes the FTSE/Xinhua China 25 and the Hang Seng indexes.

Terms of the notes

One of the notes is an issue of zero-coupon Accelerated Return Notes with a 15-month term.

The notes pay par plus triple any gain on the basket with a cap of between $12.10 and $12.50 per $10.00. The exact cap will be determined at pricing.

Investors will be fully exposed to any decline in the index.

The other notes are zero-coupon Market Index Target-Term Securities (Mitts) with a five-year term.

The Mitts pay par plus 105% of any percentage increase in the basket. Investors will receive at least par at maturity.

UBS plans notes with silver lining

Elsewhere in the market, UBS AG said it is in the process of negotiating an offering of yield optimization notes with contingent protection linked to the price of silver.

"We're expecting a resurgence of commodities-linked deals anyway and silver seems to be an obvious choice," said a source familiar with the deal Tuesday. "[The price of] silver is still on the rise so this is a good time to do something like this."

On Tuesday, silver prices gained 12 cents to close at $13.93 per ounce.

The market source noted that commodities had their heyday a few months ago but had fallen out of favor for a time.

The six-month notes will pay an annualized coupon of 9% to 10%, with the exact coupon to be determined at pricing.

The deal is set to price April 24.

Payout at maturity will be par unless the price of one troy ounce of silver falls by more than 20% during the life of the notes and finishes below the initial price. In that case, investors will be fully exposed to declines in the price of silver.

Coming up, Wachovia Corp. plans to price an issue of three-year enhanced yield securities linked to a basket that includes silver among other commodities like copper, nickel, zinc, lead, platinum and iron.

Similar offerings

Back in November, JPMorgan Chase & Co. priced $460,000 in 0% return enhanced notes linked to silver.

The payout on those one-year notes will be par plus triple the appreciation of the fixing level of silver up to 48.75% cap. Investors are exposed to any declines.

Also in November, Lehman Brothers Holdings Inc. priced $15 million in 0% Double Conditional Range Notes linked to the prices of gold and silver.

Those four-month notes paid 103.15% of par if gold and silver prices trade within a reference range during the term of the notes. The notes paid par if either commodity traded outside of the reference ranges.

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