BNP Eyes Expansion in Korea’s $42 Billion Structured Note Market
“We’re currently correcting” the situation, Renaud Meary, the bank’s global head of structured equity for Asia Pacific said in an interview in Hong Kong. “Korea for us is a strong priority” and BNP Paribas is “expanding the business to all segments that can be active in structured products,” he said.
Sales of equity-linked securities in Asia’s fourth-largest economy surged 34 percent to a record 46.2 trillion won ($41.6 billion) in 2012, as low interest rates spurred demand for higher-yielding investments, according to the Korea Financial Investment Association. A lack of alternative products which can yield as generous returns amid monetary easing mean the market may expand further this year, according to Lee Jung Ho, a derivatives analyst at Tongyang Securities Inc. (003470)
The Bank of Korea lowered its benchmark seven-day repurchase rate to 2.5 percent from 2.75 percent last week as a weak yen dims the outlook for the nation’s exports and record household debt weighs on consumption. Yields on three-year corporate notes rated at AA- were at 2.93 percent May 13, near a record-low 2.80 percent reached on March 28, data going back to 2000 show.
That compares with an annual 8.4 percent coupon on a three-year product tied to South Korean, Hong Kong and U.S. equity indexes, issued this month by Tongyang Securities, according to a regulatory filing. The structured note pays that rate so long as none of the underlying assets fall by more than 45 percent at maturity. Issuers create the securities by bundling zero-coupon bonds with derivatives, such as options.
In South Korea, BNP Paribas and other international banks structure the products themselves before selling them to local securities firms which then on-sell them to investors. As demand for such products increases, competition among foreign banks will intensify, Lee said.
“The equity-linked securities market will at least remain at current levels or grow a bit more,” Lee said. “It will continue to be in the spotlight because there are no other similar products people can invest in.”
Foreign firms most active in the market to date include JPMorgan Chase & Co., Credit Suisse Group AG, Nomura Holdings Inc. and Standard Chartered Plc, according to Yoon Moon Han, a deputy manager for product development at Hana Daetoo Securities Co.
BNP Paribas obtained a license to operate an equity-structured products business in South Korea in November 2011 and has local staff handling functions related to equity-linked securities and warrants, Meary said, declining to comment on growth targets. About 14.5 trillion won of warrants were traded in the past six months through May 10, according to Korea Exchange data.
The bank plans to add more than 1,300 people in Asia over the next three years, Kyoya Okazawa, the head of global equities and commodity derivatives at BNP Paribas Securities (Japan) Ltd., said in an interview in March. Paris-based BNP Paribas is targeting annual revenue growth of 12 percent in its corporate-and investment-banking and investment solutions operations in Asia to more than 3 billion euros ($3.9 billion) by 2016, it said in presentation materials in February.
The firm’s market share of equity-linked uridashi notes jumped to 2.6 percent this year with issuance totaling $199 million, from 0.6 percent in 2012, according to data compiled by Bloomberg. The securities are issued outside Japan and sold to the nation’s individual investors.
The lender’s “goal is ultimately to become a leader in the Korean market,” as well as in the rest of Asia, Meary said.
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