News emerged last week from Seoul that Korea Highway Corp., the South Korean government agency responsible for road construction, repair and maintenance, plans to issue roughly W1 trillion ($997 million) of ABS issuance in 2005.

The Korean Ministry of Finance Economy, the brains behind the scheme, outlined its plans in a report to the National Assembly. Under the proposal, Korea Highway will also seek to raise W5 trillion through 2010 with future-flow deals backed by highway toll income, according to bankers familiar with the report.

The ABS program is part of a widespread effort of government investment aimed at boosting Korea's flagging domestic economy. The South Korea's central bank has already lowered its economic growth forecast for 2005 to 4% from 4.7%, but the government hopes a series of state-sponsored construction projects will improve sentiment and aid recovery.

It will not be the first time Korea Highway has tapped the ABS market. In October 2003, the agency issued a W500 billion three-year transaction backed by toll-road revenues managed by Daehan Securities, Hana Securities and Meritz Securities.

Last year saw a revival of government-linked securitization in Asia; sparked by the Hong Kong's HK$6 billion ($769.2 million) tunnel deal and the M$1.6 billion ($421.1 million) MBS issued by Malaysian secondary mortgage entity Cagamas.

Inevitably, heads of Asian ABS at foreign houses turned their attention to Korea late last year to pitch ideas to various government entities. But, while they may have planted the seeds for KHC's sizeable ABS program, it seems they won't be involved on any of the deals.

"We had discussions with Korea Highway last week and they've got no plans to do any cross-border deals," a banker told ASR. "Given its near sovereign status, KHC came to the conclusion it can fund itself more cheaply in the local markets. And local deals means local arrangers."

Copyright 2005 Thomson Media Inc. All Rights Reserved.

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