Korea Housing Finance Corporation is said to be planning a $500m covered bond issue, and an official at the institution on Wednesday said that the instrument allows it to diversify its investor base and build a more stable funding structure.

KHFC is understood to have mandated BNP Paribas, Société Générale and Standard Chartered for an expected $500m issue.

Speaking at a European Covered Bond Council plenary in Barcelona on Wednesday, Dae Geun Kim, team head of the securitisation department at KHFC, said that after the 2008 global financial crisis, when issuance in the ABS market became difficult, even domestically, the government-owned institution decided to diversify its funding sources and investor base internationally.

Kim noted that KHFC successfully issued its first covered bond in 2010 – a $500m five year deal in July 2010 that was issued under legislation specific to the institution. This provided a platform for a more stable funding structure, Kim said.

South Korea passed covered bond legislation in December 2013, under which no deals have yet been issued. Previous issuance from Korean banks other than KHFC has been on a contractual basis. KHFC’s issuance is backed by mortgages pooled by South Korean banks.

Kim said that the prevailing interest rate environment for the mortgage industry is positive, with housing loans growing and house prices decreasing amid very low interest rates. Korean housing loans’ credit quality is also very good, Kim added, stating that the one month-plus delinquency ratio is less than 0.5%.

Korea’s Kookmin is also expected to tap the covered bond market, having in June mandated BNP Paribas, Citi and SG for a US dollar denominated deal and held a roadshow. The issuer was the first to establish a covered bond programme under the new Korean legislation.

Photo: DG Kim, third from left, on the ECBC panel