Citigroup Inc. and Goldman Sachs Group Inc. are helping investors bet that Hong Kong’s stock market rally, brought about by the city’s ties with China, won’t end.
The duo each underwrote 600 million yuan ($96.7 million) of two-year notes June 10 that were issued by Commonwealth Bank of Australia and pay a 7.88 percent annualized coupon if the Hang Seng China Enterprises Index stays above a certain level, Bloomberg-compiled data show.
The benchmark that measures Chinese stocks trading in Hong Kong rose to a seven-year high on May 26 amid speculation cross border sales of funds will fuel demand for the city’s equities. The index has since declined about 7 percent to 13,743.25 as of Thursday, dragged lower on concern MERS, or Middle East Respiratory Syndrome, may spread across Asia.
For the note underwritten by Goldman Sachs, the index needs to stay above 14,127 for the first year and 14,404 for the second, the data show. For Citigroup’s one, the level needs to be higher than 13,948.5 for the first year and 14,222 for the second.
Notes with the same maturity, coupon, issue date, issuer and structure can have different levels depending on the time of the day the trade was executed, or the pricing ability of the underwriting banks.
Citigroup also underwrote 600 million yuan of two-year notes tied to the Hang Seng China Enterprises Index and issued by International Finance Corp., the Washington-based financing unit of the World Bank, last month.
Citigroup and Goldman Sachs both collaborated with Commonwealth Bank last year on similar offerings that help investors bet on the rise in Japan’s Nikkei 225 Stock Average index, according to data compiled by Bloomberg.
Connie Ling, a Hong Kong-based spokeswoman for Goldman Sachs, declined to comment. Godwin Chellam, a Hong Kong-based spokesman for Citigroup, also declined to comment.