Crelan has launched the BNP Paribas Arbitrage Issuance (NL) Eurozone Exporters Minimum Yield USD in Belgium. The eight-year capital protected medium-term note is linked to the Solactive Eurozone Exporters Efficient Price Index and offers the greater of a 10% return or 100% participation in the positive performance of the index. The note is the third structured product distributed by the bank this year which offers a ‘minimum yield’, i.e. investors are guaranteed a return above 100% at maturity.
“Last year the vast majority of our structured products protected 90% of the nominal invested. These products were all denominated in euro.” said Filip Gabriels, head of product management (off-balance sheet) at Crelan. “This year we have issued mainly 100% protected products because we have noticed that most investors prefer that little bit of extra security and right now the demand for 100% protection is higher than for 90% protection,” according to Gabriels. “For products denominated in foreign currencies we rather work with a minimum yield because of the currency risk.”
Minimum yield is currently only possible in currencies other than euro where the interest rate is higher than in euro, according to Gabriels. “We think US dollar and Norwegian krone look interesting to invest in at the moment: NOK because of the low oil price and USD for its upside potential,” he said. “Investors who in the past have invested in these currencies via bonds and mutual funds are often looking to reinvest in the same currencies.”
It is the first time the Solactive Eurozone Exporters Efficient Price index is used as underlying for a structured product in Belgium. The index, which is designed to track the performance of 30 Eurozone companies that generate a majority of their revenues outside of the Eurozone, and construct a portfolio which exhibits low volatility, was launched on January 11, 2016. Each share has a maximum weight of 5% (which can subsequently change according to fluctuations in the share) and the composition of the index is reviewed quarterly. The index is based on 1,000 as at the close of trading on the start date October 19, 2007. Yesterday (May 18) the index closed at 1,062.63bp.
“This is a theme that appeals to our clients,” said Gabriels. “The index is composed of European companies that generate a large part of their turnover outside Europe and at the same time benefit from regions where growth is likely to be higher than in Europe.”
The note is issued via the BNP Paribas Arbitrage Issuance vehicle. Since January 2015, Crelan has worked with a number of counterparties including Amundi, BNPP, Credit Agricole, LCL, Natixis, Credit Suisse and Societe Generale. “We want sufficient diversification in the portfolios of our clients and therefore we think it’s useful to work with multiple (but limited in number) issuers,” said Gabriels.
Crelan has launched 49 structured products since the legal merger between Crédit Agricole Belgium (known as Landbouwkrediet in Flanders) and Centea was completed in April 2013. Of these, seven products – dating back to February 2014 and including three products denominated in Norwegian krone, three in US dollar and one in euro – provide a minimum yield of between 5% and 12%.
The SRP Belgium database lists 732 structured products which provide a minimum yield. The majority (726) of the products, from providers including Belfius, BNPP Fortis, Generali and KBC, have strike dates prior to 2015.
Click the link to view the guideline for the Solactive Eurozone Exporters Efficient Index.
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