Korea Housing Finance Corporation could launch its second covered bond in June or July as the country’s banks are showing a renewed interest in taking advantage of the funding instrument.

KHFC launched its first, $500m five year issue in July 2010. That was led by BNP Paribas and Standard Chartered, and the new issue is mandated to those two banks as well as Nomura.

The issuer is understood to be considering issuing in dollars again or turning to the Japanese yen market.

KHFC’s debut was only the second covered bond to have been issued out of Korea, and indeed Asia, after Kookmin Bank sold a $1bn issue in 2009.

KHFC, a government institution, pools collateral from Korea’s banks in its issuance. Its first issue was backed by mortgages originated by Standard Chartered First Korea Bank, Shinhan Bank and Woori, although its forthcoming issue is open to all its members, which also include Kookmin Bank, Korea Exchange Bank, Industrial Bank of Korea and Hana Bank.

Korea’s banks nevertheless remain keen to be able to issue on a standalone basis, according to market participants. They have been in discussions with Korea’s Financial Supervisory Service to this end.

Korea has no covered bond law, but KHFC issues under the law governing the institution.

“The KHFC Act authorises KHFC to issue mortgage backed bonds,” said Moody’s in a pre-sale report ahead of KHFC’s debut. “These are dual recourse obligations that represent both (i) a claim on the general assets of KHFC and (ii) a priority claim on the residential mortgages which are designated to secure payment of the mortgage backed bonds, which are segregated and managed separately from the other assets of KHFC.”