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“Investors are getting a huge amount of leverage and they are comfortable taking the risk”
Sajid Javid, Deutsche Bank |
The recent correction in the bond markets could prove to be a boon for emerging market CDOs, according to bankers. A few synthetic deals are in the pipeline, including one being arranged by Goldman Sachs that would be the first single-tranche local-currency CDO in the emerging markets. That deal is expected in the third quarter. Bankers are also thought to be in the preliminary stages of arranging balance-sheet-driven CDOs including Russian and Saudi Arabian credits.
If these transactions come to light, they will follow a €227.5 million-equivalent, five-year static synthetic CDO that was arranged by Citigroup and issued by Salisbury International Investments last month. Salisbury is selling protection to the swap counterparty on a portfolio of 100 emerging market credits, comprising 80 corporate and 20 sovereign entities. The portfolio encompasses a range of sectors, and reference credits were selected from 34 countries in each emerging region.
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