Fixed Income

Water Cooler Investing
#1

Hi all. Is fixed yield income of 8% possible from investment grade country in africa. I was a bit skeptical at first and thought a yield of 8% locked funds to be paid on maturity is close to impossible till they gave me the fine print and in included currency hedging. Basically the bank taking a strike if exchange goes above certain number on maturity and both principal and interest than there after to be paid on the strike price.

Fortunately this strike price is reasonable and what I may call optimum way out with minimal informed risk and maximum returns, it being 8%.

Now to my question, shall I walk away from this, it sounding like a risk issue or follow it through. Secondly given its great returns with almost certain minimal arbitrage, not absolute see it through and even raise funds for it. I am thinking in the range of 5m or so. I was thinking of pitching it to IB shops here in The middle east. How should I go about and most of all how to get my eventual cut given I am an outsider? How can I go either on advisory or even commission base and sell it? Your feedbacks are much appreciated and thanks in advance all.

#2

How do you buy it? I’ve been looking for good fixed income ideas. Is this Botswana?

#3

Palantir that was quick! How did you know it was Botswana. Small world eh. I do not know really how to go about as I was pitched a sale while drinking with a buddy who works for a bank there. Will further inquire? Do you really think its worth it though and am I able to further pitch it to others and maybe get a commission or advisory out of it. Given the role of my friend there, I can corner the whole lot or some of it. Do tell mate. Will speak to him through the weekend and update you.

#4

I don’t know details on Botswana, but I do know that Botswana has often been an island of stability in a sea of troubles. One of their biggest troubles was a staggeringly high AIDS rate, but maybe they have managed to control that with inexpensive retrovirals. I would definitely be willing to think over some Botswana exposure in a portfolio at 8%. How to access it is a big question though.

#5

So, they are giving you 8%, packaged with some kind of options to offset the changes in exchange rates? What are the exact details of this product? Normally, when you see something like this, you will get gooned on the commission, or spread that you can’t see, since they don’t decompose the pricing components for you (this is basically my current job, in case you are wondering).

#6

Are they just giving you put options on Botswana currency? The actual level of the strike is *really* important here.

#7

I’ve been looking for investing ideas in Africa for a few mos, and I believe Botswana has been fiscally stable for many years. Personally, I’m not sure how you’d go about doing this, but it is interesting, definitely let us know how it turns out. Is it basically long 8% bond with a put option for the xchange rate?

#8

Also how did that trade you talked about earlier turn out? The one with long dated OTM calls?

#9

I don’t know how they do things in Botswana, but you need a license to sell financial products in the U.S.

#10

Mods - Can you please move this to Investments?

#11

moved to Investments.

#12

Hi Guys sorry for the delay in getting back to you all. I have finally figured it out that my friend was just booze talking. In reality, the only fixed income or so per se he has in the same in Kenya. Basically same rate of 8%.

The only problem is it is not a fixed income vehicle but rather a simple USD exchange lock up upto maturity with certain risk. Basically the Bank has the option to pay you in USD or KES, depending on the prevailing USD/KES exchange rates on the day of maturity of your deposit investment with us.

For the exchange risk you are willing to take over a year’s period, we propose to pay you an interest rate of 8.6% on your deposit investment, compared to 1% that you would earn as interest on a risk free dollar deposit over the same period.

In this proposal, if the exchange rate is below 92.00 on the maturity date of your deposit, there is no foreign exchange commitment – The Bank pays you back your principal amount invested and the interest earned over that period in U.S dollars at 8.6%. If the exchange rates are higher than 92.00 on that date, the bank converts and pays you the principal plus interest earned in Kenya shillings over that period at 8.6% - The U.S dollars are converted at 92.00

Is this worth taking. Would you say would be more sellable were it in the form of a fixed income to foreign buyers. Mind you this is a decent bank with good rating. Your feedbacks are much appreciated.