UNION Bank of Switzerland (UBS) has issued an 18-month covered warrant in Hongkong Telecom, its second in the territory and its first listed call-spread issue.
The 500 million 10-for-one European-style warrants represent the second issue of its kind to be listed on the stock exchange.
The first call-spread warrant - a type of instrument more commonly used in the over-the-counter market - was issued by Peregrine on Wednesday in Swire Pacific stock.
Call-spread warrants reduce the cash price of buying the issue and increases the gearing, while capping the total return.
They are marketed to institutional investors for their higher-than-normal gearing, in spite of the cap on total return.
For a moderate rise in the stock over the life of the issue, the investor would be better off buying a call-spread warrant. Should the stock rise more dramatically, then the investor would have been better off with an un-capped, unlimited-gain warrant.
The maximum gain at maturity on the Telecom issue by UBS Global Equity Derivatives is 2.24 times the issue price. Any rise in the stock prompting a rise in the issue price to more than the cap might mean the investor would have been better off with an un-capped issue.