Mexican provider BBVA Bancomer has launched its first phoenix structured warrant aimed at Mexican retail investors.
According to SRP data, this is the first time the bank has used a combination of payoff types comprising knock out, digital and protected tracker options as the components of a structured note in the Mexican market.
BBVA Bancomer equity strategist Gustavo Gaxiola Danwing told SRP that Mexican clients are increasingly demanding warrants with similar characteristics to the well-known structured products issued in Spain. The demand would increase further in the near future if regulation was relaxed.
“Pricing is a key element in the success of this kind of structured note, and BBVA has actually issued several phoenix products in other regions,” said Gaxiola. “Baskets of international shares or ETFs provide more volatility. Unfortunately in Mexico, due to regulatory guidelines, we can only settle with one underlying, or local stocks basket with no volatility, but we hope the range of options is expanded to other underlyings in the near future.”
This second best-selling warrant of the year, it sold MXN320m ($24.36m) during its subscription period and will mature on March 17, 2015.
The new American Warrant – MSCI Brazil Capped ETF observes the underlying level every three months. If at any of the observation dates the underlying registered a level at or above 77.65% of its initial level the product offers a coupon equal to 2.5%. Moreover, if at any of the observation dates the underlying level is at or above 100% of its initial level the product matures early and offers 100% capital back plus the 2.5% coupon. Otherwise, the product continues until maturity.
At maturity, if the underlying level is at or above 77.65% of its initial level, the product offers 100% capital return plus the last coupon. If the last condition is not met but the underlying level is at or above 77.65% of its initial level, the product offers 100% of the initial investment. Otherwise, the product offers 100% capital return, minus the fall in the underlying.
SRP data shows that the Mexican warrants space has been very active and is ready to leverage its assets into the wider structured products market. During Q1 2014 there has been a 6.4% increase in issuance of warrants compared with the same period last year.
Equity sales at BBVA Bancomer Antonio Diaz Saenz de Viteri told SRP that BBVA Bancomer’s success relies on innovative structures and their capacity to answer client’s demand.
“The higher degree of sophistication in terms of payoffs has positioned BBVA Bancomer as one of the leaders in the market,” he said. “Particular to this introduction to the market, the added value of the underlying is that it provides a very high coupon of 10% pa with more than 20% of capital protection.”
BBVA Bancomer, the largest financial institution in Mexico, has issued 22 of the 61 warrants brought to market with more than MXN1.32bn ($10m) in sales year to date, which accounts for more than 40% of total sales.