First National Bank (FNB), a division of FirstRand, has added another Bloomberg decrement index for its first worst-of autocall offering.

The new 100% principal-protected autocallable note, issued and hedged by UBS AG, tracks the least performing underlier between the Bloomberg Europe DM Top 30 Basic Resources Decrement 5% Indexes (EU30MPE) and the Bloomberg Luxury Series 1 - 5% Decrement index (LUXS1E).

“Investors today want a balance between growth and security, especially when traditional investments may not deliver the expected returns,” said Samukelo Zwane (pictured), head of product, wealth and investments at FNB.

“Cash and income investments, and potentially even equities, may struggle to provide double-digit returns in the coming years.”

The underlying combination seeks to capitalise on a decent correlation between the indices and the higher volatility around the Bloomberg Europe DM Top 30 Basic Resources Decrement 5% Indexes (EU30MPE). The latter is backed by the view that a great amount of reconstruction work is anticipated out of the conflicts in Ukraine and Gaza and lower interest rates will reduce debt cost for corporates.   

To be listed on the Johannesburg Stock Exchange, the FNB 100 CapitalPreserver Autocall 4 (ZAR) is the fourth tranche of structured notes offered by FNB with a minimum investment of ZAR20,000 (US$1,099).

The local commercial bank has booked north of ZAR500m (US$27m) in traded notional since it entered the segment in a push for wealth and investments business in Q3 2023, according to Zwane.

Most of the assets come from tranche offerings featuring a relatively small ticket size and are almost equally split between onshore (denominated in Rand) and offshore (in US dollar). The remainder comes from ‘on-demand’ or custom offerings for high-net-worth and institutional investors.    

“This is our first time using more than one index through a worst-of option as we are aiming to build up a holistic book with different payoffs and underliers available [for tranche offerings],” Zwane told SRP.

Unlike previous autocallable tranches where the observation starts from the third year, the new product will be observed annually from the first year during a five-year period, said Zwane.

The principal-protected note will expire and bring a return of 11% to 12% p.a. if the least performing index closes at or above its initial level on any of the observation dates.

Underlying exposure

Launched in August 2022, the Bloomberg Europe DM Top 30 Basic Resources Decrement Indices are designed to represent the largest 30 companies by float market capitalisation in the metals, mining and steel sectors in the European developed markets region.

The indices series also includes the Bloomberg Europe DM Top 30 Basic Resources Decrement 50 Points Index (EU30MPT), which is the reference asset of 26 structured products issued by UBS AG in France from February 2023, according to SRP data.

In addition, FNB is pitching an uncapped 2x upside participation note with no principal guarantee as part of the fourth tranche. It is tied to the Bloomberg Luxury Series 1 - 5% Decrement index and set to go listed on the Luxembourg Stock Exchange.

With a five-year tenor, the USD-denominated note requires a minimum investment of US$6,000 and will participate 1:1 in the loss if the index drops below 70% of its initial level at maturity.

“The luxury sector, which the index tracks, continues to demonstrate resilience, strong pricing power and increasing consumer demand, making it a compelling target for long-term investment,” said Zwane.

UBS is currently the sole external counterparty for FNB’s structured notes while Rand Merchant Bank, the investment banking arm of FirstRand, is behind some ZAR-denominated tranches.

In South Africa, there are 352 structured notes brought by a group of 23 issuers as of today since 2024. Most are linked to regional market cap indices led by the Nikkei 225 (181 products), Eurostoxx 50 (171), S&P 500 (147) and Swiss Market Index (47) among a total of 54 names.

With a two-month subscription window, the two new offerings are scheduled to be traded on 9 May.

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