Asian currency-linked offerings continue to abound; Lehman raises FX notes to $1.042 million

By Sheri Kasprzak and LLuvia Mares

New York, Dec. 3 - Investors continue to demonstrate hunger for baskets of Asian currencies - and two currencies in particular seem to keep on popping up.

"I think you'll see more things linked to the [South Korean] won," said one market source who deals regularly with FX offerings. "Seen tons of things linked to the [Malaysian] ringgit and it's because that currency has jumped by leaps and bounds over the past year. It's going crazy. Investors are really turning an eye towards the ringgit."

Another market source Monday said disappointment in the performance of the U.S. dollar may be driving investors to the Far East.

"It's really too early to tell if the dollar is going to improve substantially but I think we still have several months where Asian currencies are going to be preferable," he added.

The won and the ringgit are featured in Lehman Brothers Holdings, Inc.'s recently priced $1.042 million in FX basket-linked notes, which also include the Indonesian rupiah, the Indian rupee and the Singapore dollar. The basket includes equal weights of each currency.

The principal-protected notes will pay par plus the greater of zero and the principal amount times the product of the leverage, which is 290%, times the basket return.

The notes have a two-year term.

Last week, Lehman priced $368,000 in principal-protected notes with enhanced participation linked to equal weights of the Indonesian rupiah, the Indian rupee, the Malaysian ringgit and the Singapore dollar. Those notes have an 18-month term and pay par plus the greater of zero and $1,000 times the basket return times the 210% participation rate.

Eksportfinans plans Dogs of the Dow offering

Elsewhere, Eksportfinans ASA plans to price another issue of 26% reverse convertibles linked to the Dogs of the Dow for December 2007 through Natixis Securities.

"Can't say enough about them," said one market insider, who has previously enthused about the structure. "I just think they're incredibly innovative. Not just a regular reverse convertible. It's a great structure and the investors really do love them."

If all the reference stocks stay at their individual knock-in level or above during the life of the notes or ends below the initial share price, the payout at maturity will be par. If, however, a knock-in level trigger occurs, the investors will receive a number of the shares of the worst-performing stock equal to $1,000 divided by the initial share price of that stock.

The knock-in price on the one-year notes is 60%.

Merrill plans 11% Strides linked to Home Depot

A surge of reverse convertible deals that hit the structured products market last week was a desperate dash by issuers and investors to settle deals before the New Year, according to a market source.

In one variation on the structure, on Friday, Merrill Lynch & Co., Inc. announced plans to price two-year 11% callable Stock Return Income Debt Securities (Strides) payable at maturity with Home Depot, Inc. common stock.

"We thought it was quite interesting and suspect that more of them will follow in the market," said a market specialist. "We expect to see some copycat trades in the next few weeks."

The payout at maturity will be a number of Home Depot shares equal to par of $25 divided by the initial volume-weighted average share price.

"This is a standard reverse convertible downside if that occurs, but it's callable and we've actually seen a product by Morgan Stanley very similar to this one," said a market specialist.

"The yield to maturity at the time of pricing is calculated to be around 14% but it hasn't been fixed yet and at anything during the second year they can call the product and give you a capital growth payment which will make your yield to the product equal to 14%, if indeed that is the fixed number. So whenever they call you they have increase to 3% over whatever period the product has been open to when it has been called."

The market source went on to say, "If they call after one year they can't really give you an extra 3% until the end, if they call you just before maturity in two years, they have to give you around 6%. By putting this callability feature in there, they boosted the coupon amount up to 11% [it would be lower otherwise]. And although calling is to Merrill's advantage, when they do it you will get an overall yield of 14% - very similar to techniques used in fixed income products often much longer dated," he said.

The Strides will be callable with a yield to call of 12% to 16% beginning one year after issue. The exact yield to call will be determined at pricing.

The notes are expected to price later this month.

Svensk to price Staples notes

AB Svensk Exportkredit intends to price an issue of zero-coupon enhanced outperformance notes linked to a long index and a short basket of stocks through Goldman, Sachs & Co.

"Just try to pick out the outperformance of the index against the stock," said a market observer. "So you get the double upside if you are right and the downside if you are wrong. Like a version of an acceleration product, it's an outperformance strategy based on one versus the other."

The long index is the S&P Consumer Staples Select Sector index. The basket consists of 56 common stocks selected from the S&P Consumer Discretionary Select Sector index.

The notes are expected to mature 13 to 15 months after issue.

If the percentage increase of the long index is at least that of the short basket, the payout at maturity will be par plus double the amount by which the long performance exceeds the short performance, capped at a maximum return that is expected to be between 22% and 28%. The exact cap will be set at pricing.

Otherwise, the payout will be par minus the percentage by which the short basket performance exceeds that of the long index.

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