Despite President Roh Moo-hyun's impeachment, Korea First Bank (KFB) overcame investor concerns to complete South Korea's first public cross-border securitization since Samsung Life's $299.6 million MBS in December 2002.

UBS Warburg acted as lead manager and sole bookrunner on KFB's $499.6 million MBS transaction, with Lehman Brothers as co-lead.

The deal - issued through Korea First Mortgage SPV - was backed by 22,483 residential mortgages with a current balance of W874.1 billion (US$757.5 million) and average loan-to-value of 46.6%.

UBS employed a fast-pay/slow-pay structure, a first for a non-Japanese Asia MBS deal. Moody's Investors Service and Standard & Poor's rated the $328 million A1 and $171.6 million A2 notes triple-A due to an Ambac wrap. Additional credit support comes through 15% subordination and a 1% reserve fund.

Given Moo-hyun's difficulties and the poor reputation of South Korea's consumer credit industry - the major factor behind the recent lack of issuance - that the deal got completed reflects well on KFB and UBS. But both parties will be especially pleased that pricing was inside market talk, as well as establishing a benchmark for Korean MBS.

The 1.79-year A1 tranche priced at 38 basis points over Libor and the 5.79-year A2 piece at 58 basis points over, giving KFB all-in pricing of 45 basis points. Samsung Life priced at 50 basis points at launch, and trades at similar levels today.

A source close to the deal said pricing was testimony to the

issuer - in which the private equity fund Newbridge Holdings has a 50.9% interest - and the work done by UBS.

"It is great to have reopened Korea," he said. "The credit card crisis made selling any consumer risk difficult. So it was important to make people comfortable with the underlying pool and what is an extremely professional originator. The transaction benefited from a non-deal roadshow for KFB a few months back, so half the deal was placed before launch."

Unlike previous Korean deals, sold mainly to North American and European buyers, Asian investors bought over half of the KFB issue. Sixteen accounts - predominately asset managers and banks - were involved. The split between Asia, the U.S. and Europe was 52/30/18 on the A1 tranche and 61/34/5 for the A2 piece, respectively.

Positive signs, but no onslaught

A rival banker heralded Korea's return to the international markets, but was realistic about seeing more issuance in 2004. "It is good news but generally the cross-border business is struggling," he remarked. "Korean deals need monoline involvement to attract foreign investors. Ambac was involved this time but generally monolines are very selective after what happened with the card deals. When they become comfortable, we might see issuance approaching 2001 and 2002 levels."

Another story emerging from Korea concerned the request for proposals (RFP) sent out by the Ministry of Commerce, Industry and Energy for a $1 billion primary collateralized bond obligation program to the country's 35 registered banks.

Nothing strange in that, except that it was reported several weeks ago that the Ministry had already mandated Credit Suisse First Boston and JPMorgan Securities, with a first deal from the program expected in July. So has the Ministry done a U-turn? Not according to a banker at one of the joint-lead institutions, who said that he was unaware of the RFP and insisted CSFB and JPM still have the mandate.

The CBO will provide cheaper funding than bank loans to small and medium-sized technology companies. CSFB arranged a similar deal in 2001; it was a $300 million issue guaranteed by the Korea Development Bank - rated A3' by Moody's - that priced at 125 basis points over three-month Libor.

Across the region

Like the CBO effort in Korea, Japan's Sumitomo Mitsui Banking Corp. is trying to provide cheaper funding to the market, developing a program enabling smaller companies to securitize their inventories.

For the first deal, Sumitomo has joined forces with Sanyo Electric Credit Co. to lend 3 billion (US$28.9 million) to Hanaten Co, the used-car sellers. Hanaten will transfer 2000 used cars to an SPV and repay Sumitomo and Sanyo from car sales.

Two delayed Taiwanese MBS deals are likely to be launched in April, Taipei sources told ASR. First up will be the NT$5.7 billion (US$172.9 million) deal by Taishin International via Citigroup Global Markets. The transaction was due in early March - at the same time as First Commercial Bank completed Taiwan's first MBS deal, a NT$4.28 billion offering via Deutsche Bank Securities.

Bankers speculated the issue was put on hold due to pricing issues, but it is anticipated spreads for the triple-A piece will mirror the 25 basis points over the adjustable mortgage rate available on the FCB deal.

Meanwhile, Chinatrust Commercial Bank is finalizing its own NT$5 billion transaction.

The bank initially mandated Lehman Brothers but opted to self-arrange the deal earlier this year.

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