|Derivatives Week, February 3,
Endesa Issues Latam Equity-Linked Bond
International Endesa, a
Netherlands-based company owned
by Empresa Nacional de Electricidad in Madrid, has launched a USD26.5
U.S. dollar-denominated five-year bond linked to the performance of a
of Latin American shares, according to Pedro Corpas, subdirector of
finance in Madrid. The note, structured by Santander Financial Products
and sold to Argentinean pension funds, is the first equity-linked bond
to be issued by a foreign company in Argentina and sold to local
said Javier Epstein, v.p.-marketing at Santander FP in New York.
FP provided Endesa with the hedge through a five-year equity swap that
mirrors the bond’s payout and converts the bond’s U.S. dollar cash
into French francs, Corpas said.
The company converted the bond’s U.S.
dollar cash flows
into francs because the franc has a higher correlation to the Spanish
than the U.S. dollar, Corpas added. The bond allows Endesa to finance
without incurring a substantial currency risk, he said, noting that in
the swap, Endesa pays a floating rate in French francs.
The five-year zero-coupon
principal-protected bond, which
is listed in London, is linked to a basket of Latin American shares and
pays, at maturity, a variable interest rate based on the basket’s
average appreciation during the life of the bond, Epstein said. The
options allow investors to participate in the upside during the five
instead of only at one point during the bond’s life. The
basket is composed of the top five shares in Mexico, Brazil, Argentina
and Chile, Epstein noted, adding that the investment-grade bond gives
exposure to other emerging markets.
Luis Rocco, head of portfolio managers
at local pension
fund manager Siembra AFJP with USD800 million in assets under
said the note provides Siembra exposure to the equity markets of other
Latin American countries, adding that local regulation limits pensions’
direct participation in international markets. However, the note may
had a better risk/return profile if the guarantor had been a local
he noted, adding that although the average-rate feature made the
options less expensive, it also complicated the note’s payout.