The Korea Land Corp. (KoLand), a South Korean government land bank, is fast becoming a regular issuer of domestic quasi-asset-backed securitizations.
KoLand, which undertakes housing and industrial projects and sets national land policy, is already working on its fourth transaction - a W450 billion ($399.3 million) deal backed by a combination of current and future receivables from land sales. Daewoo Securities Co. is arranging the transaction, which will issue in March, said a Daewoo banker in Seoul.
Though they may lack the fanfare of ABS issued by the Korea Asset Management Corp. (Kamco), the country's bad debt agency for banks, KoLand issued three quasi-securitizations totaling more than W1.1 trillion in 1999 alone.
KoLand's ABS illustrates how some Korean issuers are creatively applying securitization principles to obtain financing, and some of their potential pitfalls.
Cashflow on KoLand's asset-backed bonds comes from the proceeds of real estate sales, but in the event of a shortfall, a credit line provided by an outside bank ensures that investors are paid out on time. Also, like most Korean ABS deals, KoLand's issues are structured with recourse to the seller.
For example, in the body's last deal - a W299.5 billion, land installment sales-backed deal arranged by Salomon Smith Barney KEB Securities which closed in December - Housing & Commercial Bank provided a W90 billion line of credit, and investors have recourse to KoLand if payments are delinquent for over one year, said a banker who helped arrange the deal.
"KoLand has a lot of land that it wants to sell, but it takes a long time and land doesn't create cashflow by itself. That's why they adopted an ABS scheme, since they can issue long-term, zero-coupon bonds. And if the SPC cannot pay back the bonds at maturity, the bank which guaranteed the issue must pay them off," he added.
But while the presence of a bank-supplied credit line may expedite the deal and provide comfort to investors, Korean ABS arrangers are aware that it is not good for the development of securitization in the long run.
"Investors are getting too accustomed to having a credit line. They don't see the underlying risk of the assets and only rely on the bank and the rating. For now, they are just taking the easy way," admitted the Daewoo banker.
