Barclays Capital sold $26.4 million of two-month credit-linked notes on bonds issued by the State Bank of India (SBI), that pay an annualised coupon of 0.9 per cent.
The notes pay 0.15 per cent in total and act as an alternative to dollar deposits, according to Qian Qin, head of emerging-market structuring at Barclays Capital in Hong Kong where the notes were structured.
“I don’t think you could find anything to match the 0.9 per cent return, for example, on two-month certificates of deposit in the market,” Qin said. “Consider that three-month Libor (London interbank offered rate) is only paying 28 basis points (bps), that’s a 60 bps pickup, and two-month credit risk is really no risk.”
The bonds underlying the notes were issued last year and pay an annual coupon of 4.5 per cent. SBI is rated BBB- by Standard & Poor’s, one step above the non-investment grade status.
Credit-linked notes are tied to the creditworthiness of a country or company and are usually sold to investors who may have difficulty accessing underlying bonds. Libor is an average of rates set daily by banks and used as a borrowing benchmark.