The issuance of equity-linked securities (ELS) and equity-linked bond (ELB) at NH Investment & Securities has reached its lowest point in Q3 21 down at the level seen a year ago.
Driven by ELS, the sales volume reported by the South Korean securities house dropped to KRW0.9 trillion from KRW1.2 trillion (US$876m) quarter-on-quarter (QoQ) or from KRW2.5 trillion in Q4 19 when it hit the peak during the past two years, according to NH Investment’s Q3 21 earnings release.
The slowdown in issuance and sales was reflected in the Korean ELS/ELB market featuring step-down autocallables which showed the issuance amount had fallen 30.8% to KRW11.6 trillion in Q3 21 QoQ.
‘Bond valuation loss due to interest rate hike and high market volatility effected low trading income; however, early redemptions in ELS and bond valuation,” stated NH Investment about its 39.6% quarterly decline of trading and related interest income at KRW207 billion.
The Korean securities house sold derivative-linked bond (DLB) and derivative-linked securities (DLS) at KRW100 billion in Q3 21, which represents a stable level QoQ or YoY but KRW500 billion less compared with the first quarter.
‘Self-hedging portion upheld 20% to 30% and quarterly issuance continues to diminish,' stated the firm about its structured products issuance.
As one of the top issuers of ELS/ELB in the country, the Korean securities house owned a smaller market share of DLS/DLB with Hana Financial Investment taking the crown on the back of KRW653.8 billion sales volume in Q3 21.
According to SRP data, NH Investment sold one DLB and four DLS private offerings which raised KRW40 billion from July to September. The 15-year DLB is linked to a basket comprising 10Y KRW constant maturity swap (CMS) rate, 5Y KRW CMS rate, 91-day certificate of deposit rate and three-month Korea treasury bond.
With a tenor of three years, the best-selling DLS tracks the performance of 30Y USD CMS rate and 2Y USD CMS rate with an issuance price of KRW20 billion.
In the ELS segment, the Apple and Advanced Micro Devices stocks gained popularity as reference assets in Q3 21 YoY, appearing across 17 and 16 products, respectively, SRP data shows. Te number of Nikkei 225-linked ELS fell to 23 from 58 products recorded in the previous quarter.
Compared with the prior-year period, new underlying names featured in the quarter include the S&P 500 NDF KRW Hedged Index, HSCEI KRW Hedged Index, General Motors, Naver and CSI 300 Index, which were tracked by nine, four, three, three and three ELS, respectively.
There were also an additional 14 ELB structures launched in the quarter with basket reference asset including Sky Telecom and Samsung Electronics. This strategies which featured a worst-of option with a digital coupon payoff have tenors of between two and less than a year investment period, SRP data shows.
As aof 30 September, NH Investment had an outstanding balance of KRW4.3 trillion for ELS/ELB and KRW3.3 trillion for DLS/DLB, according to the earnings release.
Its derived net income of KRW214.6 billion in Q3 21, was down 20.6% QoQ or 10.4% YoY, while the operating income declined 25.5% to KRW292.7 billion QoQ, translating to a 17.2% decrease YoY.
Click here to read NH Investment & Securities Q3 21 earnings release.