The Industrial Bank of Korea (IBK) is preparing to launch into the domestic market its first non-performing loan-backed quasi-securitization, said an IBK official.

A domestic SPC will issue W300 billion ($262 million) of senior notes, which are backed by a pool of assets with a face value of W600 billion, said the official.

Domestic securities firms Hyundai Securities Co. and Daishin Securities Co. are arranging the issue, which is set before the end of March. A line of credit guaranteeing payment on the bonds will likely come from Kookmin Bank, added Changhyon Cho, president of Daeil Financial Services, a financial services firm that is advising IBK on the transaction.

IBK's issue is the latest in a series of bank-issued non-performing loan-backed deals in South Korea, where banks remain mired with bad loans after the 1997 financial crisis. Last month, Kookmin Bank, Korea Exchange Bank, and Housing & Commercial Bank all issued NPL quasi-securitizations for the first time.

Though true NPL securitizations can be tricky to execute, Korea's nascent securitization market sees most ABS deals structured with recourse to the seller, and the underlying assets are not subject to the same degree of historical analysis as they are in more developed markets. Also, most ABS deals come with a credit line from an outside bank, which effectively guarantees payment on the bonds.

"Korean investors are mostly concerned about price and whether or not the spread is acceptable," explained Jae Woo Lee, a fixed-income specialist at Samsung Securities in Seoul. "The fact that they are NPL assets is not a concern, because they only look at the credit of the bank [providing the credit line]."

The rise of NPL issues is driven by banks' belief that they can recover a higher price for their NPL assets through quasi-securitization, said another banker in Seoul.

And despite the success of the Korea Asset Management Corp. (Kamco), the country's bad debt-clearing agency, in disposing of assets through auctions and NPL-backed issues, many doubt that Kamco has the funds needed to continue buying bad debts.

Those concerns were heightened after Kamco said it would buy from domestic investment trust companies the bad assets of the Daewoo Group, Korea's largest conglomerate which is unable to pay $73 billion of debt. "Kamco's ability to keep absorbing NPL assets is doubtful over the long term," the banker said.

The banks that sold assets to Kamco were Korea Development Bank, Shinhan Bank, Housing & Commercial Bank, Korea Exchange Bank, Hanmi Bank, the National Agricultural Cooperative Federation, Hanvit Bank, Hana Bank, and Cho Hung Bank.

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