Standard Chartered’s Korea Unit Sells Notes Tied to Euro Swaps

Standard Chartered Plc’s South Korean banking unit sold structured notes tracking euro swap rates as part of its first offerings of securities linked to borrowing costs in six months.

The lender, the largest issuer of rate-linked notes in South Korea last year, sold 100 billion won ($92 million) of 15-year securities on Jan. 23 that yield more when there’s a wider spread between the 20-year and two-year constant-maturity swap rates in euros, according to a regulatory filing.

South Korean issuers are looking overseas to generate higher yields, as falling rates in the country amid forecasts of an economic slowdown make it harder to create certain products with attractive coupons. The difference between the country’s 20- and two-year won interest rate swaps was narrower than 50 basis points as of Jan. 31, less than a third of the spread in euros, according to Bloomberg data.

“It’s pretty difficult to engineer structured notes just using local curves now,” Chae Kyu Cheol, a researcher at Nice Pricing Services Inc., a bond-pricing agency in Seoul, wrote in an e-mailed response to questions. “There have been bigger moves in swap curves overseas because of changes in fiscal policy, so Korean issuers are trying to use that.”

Euro Swaps

The Standard Chartered securities pay 4.5 percent annually for the first two years. From then on through maturity, the payout rate correlates with the difference between the averages of 20-year and two-year euro constant-maturity swap rates, with a cap at 6.5 percent, according to terms filed with South Korea’s Financial Supervisory Service.

The notes were sold to Dongbu Securities Co., a brokerage house in the country, according to a regulatory filing.

Standard Chartered also sold a total of 40 billion won of 15-year range-accrual notes linked to the gap between 10-year swap rates in won and U.S. dollars in two offerings this month.

The larger security, totaling 30 billion won, pays 4.56 percent annually for days when the 10-year dollar constant-maturity swap doesn’t exceed the comparable Korean rate by 30 basis points, and when the country’s 91-day certificates of deposit earn less than 5.5 percent.

Standard Chartered had last sold rate-linked notes in July, tied to London interbank offered rates in yen, according to regulatory filings compiled by Nice. The bank issued 630 billion won of rate-linked securities in South Korea last year, or 29 percent of the total issuance in the country, as sales of such investments dropped to a four-year low, according to Nice data.