Koreas financial system is showing the first concrete
signs of a recovery from its near-devastating crash six months
ago, as institutional investors return to the battered market
and local banks gear up for fresh funds.
The improved conditions come as Kookmin Bank prepares to launch
Asias first covered bond issue next week
potentially opening the door to new funding for Koreas
dollar-hungry financial institutions.
The bond issue, of between $500 million and $1 billion, will be
the first issue by any Asian bank of covered bonds, which are
typically backed by mortgages. The bonds remain on the
banks balance sheet, making them crucially different to
the mortgage-backed bonds that have become toxic assets in the
The thawing climate marks a dramatic turnaround from the end of
last year, when banks found themselves stumped by soaring
funding costs on fears for the countrys economic
Stephen Williams, head of global capital markets for Asia at
HSBC in Hong Kong, said: The liquidity situation for
Korean borrowers is improving, and investors are showing a
greater willingness to look away from extremely vanilla
It wont be too long before we see banks able to
access the markets for unsecured, non-guaranteed
The deal is evidence that investors are returning to Korea,
after the collapse of Lehman Brothers last September destroyed
the value of the won and left Korean borrowers frozen out of
the international markets.
Joint bookrunners Citi and HSBC arranged meetings with
investors in New York and London on Friday, at the end of a
global roadshow, and are expected to launch the deal early next
Kookmin, led by CEO Kang Chung-won, is in the market for a
benchmark dollar deal that will be split between three- and
five-year maturities. The bonds will be backed by mortgages,
but Kookmin is also adding credit card receivables to the pool
of collateral another new twist on the model used in
Europe, where banks regularly issue covered bonds to keep down
their costs of funding.
Kookmin is also set to be the first private sector Korean
lender to sell dollar bonds without a guarantee from the
government, in another sign that appetite is returning. A
guarantee was given on a $1 billion three year bond sold by
local rival Hana Bank at the beginning of April.
Korean banks get 12% of their funding from the international
capital markets, according to Standard & Poors,
making them more vulnerable than most of their Asian peers to
the capital markets freeze.
But the government has taken steps to ease dollar liquidity and
restore confidence, including introducing dollar swap
facilities with the US Federal Reserve. It also launched a $2
billion sovereign bond in April, designed to provide a
benchmark for other Korean companies looking to access capital.
But the cost of borrowing remains much higher than in recent
years. Kookmin paid just 23 basis points (bp) over Libor on its
last visit to the dollar bond markets, in January 2007, but
fund managers are hoping to earn at least 450 bp over
treasuries on next weeks issue.