KBC IFIMA, the Belgian bank insurer's international finance company has launched a structured note linked to the Bel 20 index. The five-year, US dollar-denominated euro medium-term note (EMTN) offers yearly coupons equal to the annual performance of the index - capped at 5% per annum - and is one of a number of equity linked products issued by the company in recent months.
Until recently, KBC IFIMA concentrated more on interest rates with the majority of its notes linked to the constant maturity swap (CMS) rate - first in euros and from late 2013 onwards predominately in dollars. "The historical production of CMS-linked notes was a euro story," said Alexander Lehmann (pictured), head of institutional sales at KBC Bank. "In the current market environment, it is extremely difficult to commercialise valuable proposals in euros in the medium term. That's why we have not just implemented diversification towards currency but also towards asset classes as underlyings."
The fact that the Bel 20 is rarely seen in the Belgian retail market (with only 11 products since 2012, according to SRP data) has not stopped KBC from opting for the benchmark. "Our investors are familiar with the companies in the index," said Toon Boyen, structured products sales at KBC Bank. "It is the index of our home market."
KBC IFIMA's structured notes protect, without exception, 100% of the nominal invested, as opposed to the structured funds and Class 23 life insurance products issued by its sister company KBC Asset Management, which often offer only 90% capital protection. "Our clients look at our products as 'traditional' bonds with regular coupon payments, unlike the structured funds where that connotation is less present," said Lehmann. "[Capital protection] is not a must but we try to provide a product offering which is complementary to that of other internal product manufacturers."
To increase the term of the company's products, currently between five and six-years, to be able to still offer euro-denominated solutions is not an option, according to Lehmann. "Due to the level and format of both the interest rate and the credit curve we can, at the moment, offer our customers little added value on very long maturities," he said.
The SRP Belgium database lists 69 structured notes worth a combined €1bn from KBC IFIMA. The products, which date back to April 2010 and are listed on the Luxemburg Stock Exchange, are linked to the interest rate (58 products), equities (six) and the inflation (five).
KBC IFIMA's best-selling product in the SRP database was the EUR CMS Interest Linked Subordinated Notes. The five-year product, which was initially launched in April 2010 and has since expired, collected sales of €185m during its subscription period, making it the third highest selling structured product in Belgium that year.
Belgium: Dollar products lose ground as shift to 90% protection continues
We had to learn to live with the moratorium and we have, KBC
Structured funds have a number of advantages for us, KBC