MALLESONS STEPHEN JAQUES advised Hong Kong-based Sun Hung Kai Financial on the first property derivative used in the Asia-Pacific.
Lead lawyer on the deal, Paul McBride said property derivatives were devised in the UK market several years ago, but were groundbreaking for this region and his firm expects to see them being used in Australia in the near future.
“This is the first time in the Asia-Pacific market that people have applied derivative expertise to property,” he said.
“Now that there’s one that has been done in the Hong Kong derivatives market we think that pretty soon we’ll see similar transactions in the Australian market.”
McBride explained that property derivatives would allow buying or selling of “exposure” to a property market “without actually buying the property”, with investors making informed guesses on whether property values will increase or decrease.
The deal involved Mallesons’ team structuring and documenting a “price return swap” under which Sun Hung Kai Financial sold exposure to the Hong Kong residential market to ABN AMRO in return for a “periodic floating payment”.
The other Mallesons lawyer working on the deal, Hong Kong structured finance partner Adrienne Showering commented: “On this deal, we helped our client launch a new underlying asset for the Asian market by applying our cutting-edge expertise in product development and our wide experience.”
McBride said the property derivatives market began in 2005 in the UK, with close to £5 ($12) billion in related deals concluded so far.
He said this deal was executed quite quickly, and was given greater urgency as it had to be complete prior to Chinese new year. “Chinese new year plays a big part in the Hong Kong and certainly the [People’s Republic of China] market in terms of signing and closing deals because people go away.”