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Taiwan CBO with PPN

Taiwan CBO with PPN. Joice Shih Director Global Securitized Market, Asia-Pacific Citigroup July 14, 2006. Typical NTD/USD Hybrid CBO Structure in Taiwan. Taiwan NTD/USD Hybrid CBO Structure. Background for NTD/USD Hybrid CBO. Huge local currency liquidity

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Taiwan CBO with PPN

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  1. Taiwan CBO with PPN Joice Shih Director Global Securitized Market, Asia-Pacific Citigroup July 14, 2006

  2. Typical NTD/USD Hybrid CBO Structure in Taiwan Taiwan NTD/USD Hybrid CBO Structure Background for NTD/USD Hybrid CBO • Huge local currency liquidity • Limited local currency investment opportunities especially for structured product • Restriction on foreign investment for insurance companies • Very tight credit spread v.s. rating (tighter than equivalent rating USD asset)

  3. Low Credit Risk NTD Structured Bond 50% Low Yield Unfamiliar Credit Risk Higher Yield USD Asset 50% Why PPN • Purpose of CBO • Nature of NTD asset • Balance of yield, risk and volatility • CBO Structure Puzzle….

  4. Why PPN • When CBO meets Investors…. • Plain Vanilla • low credit risk • simple payoff • low volatility • shorter duration NTD Structured Bond 50% Low Credit Risk Low Yield Higher Yield Unfamiliar Credit Risk • Exotic • higher credit risk • structured payoff • higher volatility • longer duration USD Asset 50%

  5. NTD Structured Bond • Plain Vanilla • low credit risk • simple payoff • low volatility • shorter duration NTD Structured Bond $100 Match Better Principal protection $100 ? • Exotic • higher credit risk • structured payoff • higher volatility • longer duration Why PPN • PPN matches the needs • What is PPN? • How PPN helps? High rating Zero (70%) $100 High yield product (30%) De-leverage to reduce the volatility

  6. What is Achieved and What to Expect • Good demand with over subscription. • The largest deal in Taiwan securitization market (NT$18.4bn). • The only deal using Cash CDO/CLO as underlying collateral. • Import structuring know-how to Taiwan market from different global product teams e.g. CDO, MTN, derivatives etc. • Demand or repeating structure or similar local fixed income product. …….Thank You

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