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Capital Markets

Korea: KHFC covered bond sets new benchmark

Issuer says more to come; Market questions wisdom of deal pricing

The successful sale of a $500 million covered bond by Korea Housing Finance Corporation on July 15 could mark the start of a new issuance trend in Korea, according to the firm’s chief executive, Joo-Jae Lim. In a statement immediately after the bond’s pricing, he said that "[the issuer] has now opened the doors for itself and other Korean institutions to access the international covered bond markets." Some market participants, however, question how much benefit the issuer got from the structure, given that it priced along similar lines to comparable straight bonds.

The notes, which carry a coupon of 4.125% and mature in December 2015, were rated Aa3 by Moody’s, one notch higher than KHFC’s rating and the sovereign’s. Investors benefit from the added security of the bonds being backed by a pool of mortgage assets, as well as the credit of KHFC, which is a quasi-sovereign entity.

KHFC’s total order book, 5.5 times the deal’s size 

KHFC’s total order book, 5.5 times the deal’s size

Although bookrunners Standard Chartered and BNP Paribas have been eager to promote the deal as Asia’s first statutory covered bond, that is something of a quibble given that ­Korean bank Kookmin completed its own $1 billion covered bond deal in May 2009.

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