As the old saying goes, you wait hours for one bus to come and then two come along at the same time. And that has been the case in Korea recently, where two banks launched the first two deals backed by future credit-card receivables to come out of the country. The transactions represent a landmark for Korea, not only because they are the first in the card asset class, but also the first to securitize future receivables of any kind.

The KEB Card Company, a wholly-owned subsidiary of Korea Exchange Bank, launched a domestic issue worth W336.6 billion ($280 million) and Kookmin Card, part of Kookmin Bank, will shortly follow suit with a W525 billion deal. Salomon Smith Barney was brought in to arrange the KEB deal, with Kookmin acting as joint lead manager on its own deal alongside Bank One.

Any asset-backed deal launched in Korea must first gain approval from the government body, the Financial Supervisory Committee (FSC). As the country's securitization market is still a fairly recent development, the FCC was particularly concerned about the added risks taken on by investors with future flow deals, but its decision to give the go-ahead to KEB and Kookmin is a promising sign for the ABS sector.

"The ABS market in Korea only started about two years ago, so the FSC was worried that sufficient protection for investors would be missing," explained K.W. Chae, part of the securitization team at Salomon Smith Barney in Seoul. "But since the early days, the volume of ABS issued has increased tremendously, and in addition to that, investors have increased their understanding about ABS structures. Because of this, the FSC has decided to allow securitizations backed by future cash flows."

An official at KEB was pleased at the change in attitude of the KSC, and predicted it could provide a further boost to an already busy market. "I think you'll see other banks as well as non-finance companies now looking to securitize future receivables, as has happened in the U.S. and other countries," the official said.

The KEB deal will be able to draw on revenues from the company's 140,000-plus cardholder base. A single W300 billion tranche, carrying a three-year maturity, was publicly offered to investors, and priced at 38 basis points over corporate bond yields. The notes have a local rating of AAA.

Credit enhancement will be provided by a W36 billion subordinated tranche, to be held by the originator.

According to the KEB official, the bonds were placed with between five and ten investors, and Chae was pleased with the response. "It is the first future receivable ABS deal from Korea, but the investors appetite was very good," he said. "We feel they are sensing a new market in credit card ABS."

The Kookmin deal will be backed by revenues received from more than 350,000 customers. The transaction, which employs a revolving structure which lasts for a year beyond the bonds initial one-year life, includes a W500 billion senior tranche, also rated triple-A by local agencies, and a W25 billion subordinated piece.

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