Taiwan CBO with PPN Joice Shih Director Global Securitized Market, Asia-Pacific Citigroup July 14, 2006

Typical NTD/USD Hybrid CBO Structure in Taiwan Background for NTD/USD Hybrid CBO Taiwan NTD/USD Hybrid CBO Structure Huge local currency liquidity Limited local currency investment opportunities especially for structured product Restriction on foreign investment for insurance companies Very tight credit spread v.s. rating (tighter than equivalent rating USD asset)

Why PPN CBO Structure Puzzle…. NTD Structured Bond 50% USD Asset 50% Low Yield Low Credit Risk Higher Yield Unfamiliar Credit Risk –Purpose of CBO –Nature of NTD asset –Balance of yield, risk and volatility

Why PPN When CBO meets Investors…. NTD Structured Bond 50% USD Asset 50% Low Yield Low Credit Risk Higher Yield Unfamiliar Credit Risk Plain Vanilla low credit risk simple payoff low volatility shorter duration Exotic higher credit risk structured payoff higher volatility longer duration

Why PPN PPN matches the needs –What is PPN? –How PPN helps? High rating Zero (70%) High yield product (30%) $100 NTD Structured Bond NTD Structured Bond $100 De-leverage to reduce the volatility Match Better Plain Vanilla low credit risk simple payoff low volatility shorter duration Exotic higher credit risk structured payoff higher volatility longer duration Principal protection ? $100

What is Achieved and What to Expect Good demand with over subscription. The largest deal in Taiwan securitization market (NT$18.4bn). The only deal using Cash CDO/CLO as underlying collateral. Import structuring know-how to Taiwan market from different global product teams e.g. CDO, MTN, derivatives etc. Demand or repeating structure or similar local fixed income product. …….Thank You