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case study

EUROPEAN PROPERTY FUND

Background

SEK asset initially financed with equity.

Refinanced with SEK debt 3 months later.

Risk of depreciation of SEK between purchase and refinancing.

Requirement for ongoing FX hedging.

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E:
T:

Our approach

Analysed cash flows

Recommended and arranged purchase of 3m SEK put option to protect against SEK weakness between purchase and refinancing

Reported on alternative hedging strategies

Negotiated terms of facility to ensure availability of credit for longer-term FX line

Arranged forward sales of SEK against EUR to hedge future SEK income and the portion of the investment financed by equity

Benchmarked pricing received and arranged execution of FX hedging

Our approach

  • EUR/SEK option pricing.
  • Availability of credit for FX line.
  • EUR/SEK forward curve.

Benefits of our approach

  • Purchase of SEK put option protected client against SEK depreciation which gave comfort when Riksbank unexpectedly cut rates in February and EUR/SEK spiked above 9.6000.
  • Option premium was eventually more than paid for by SEK appreciation on the asset ahead of the refinancing.
  • Hedging of both income and equity with FX forward contracts removes FX-driven volatility from the investment.
  • Post refinancing, forward sales of SEK protected EUR value of SEK income and equity.
  • Price benchmarking ensured all hedging was achieved at competitive rates.

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