South Korea's booming domestic securitization market may soon see the development of a new asset class, if a proposed deal from Poongsang Construction comes to fruition.
The company recently confirmed that it is working with the Korea Real Estate Investment Trust (Koreit) to issue the country's first securitization backed by apartment buildings under construction. It hopes that the domestic transaction will raise around W18 billion ($16 million).
Koreit officials believe that the transaction will pave the way for small construction companies to access funding at capital market rates and will boost the construction market, but others were more skeptical.
Some pros suggested that companies like Poongsang are unlikely to have the kind of financial strength and track record that would allow rating agencies to view the deal with the necessary level of certainty. Other experts suggested, however, that a performance bond may make the deal possible, but would also make it considerably more expensive for the issuer.
Meanwhile, Hanvit Bank is also hoping to get the benefit of securitization technology, in its case with a deal backed by non-performing loans. The bank, which like many in Korea is burdened with significant levels of bad loans, hopes to be able to raise W710 billion through an asset-backed transaction.
The deal is part of the bank's attempts to reduce its levels of bad loans and is scheduled for the second half of the year, a Hanvit official said.
Hanvit, which is the country's largest commercial bank, also plans to set up a corporate restructuring vehicle, which will absorb assets with a face value of W2 trillion, and to sell assets originally valued at W210.9 billion to U.S. bad debt buyers Lone Star Fund.
* Korea's domestic securitization market issued W17.214 trillion during the first four months of the year, according to figures from the Financial Supervisory Service. This compares to just W283.8 billion in the same period last year and W6.77 trillion for the whole of last year.
The FSS said that deals were backed by loans, real estate holdings and securities.