Korea Housing Finance Corporation issued the first green of social covered bond from Asia and the first Korean euro covered bond on Wednesday, a EUR500m five year deal backed by affordable housing loans that attracted EUR1.5bn of orders. The issuer discussed its moves into the new markets with The CBR.

Why has Korea Housing Finance Corporation (KHFC) decided to issue a social covered bond?

KHFC is targeting a further expansion of its investor base to take in SRI investors in addition to traditional covered bond investors.

Also, KHFC is aiming to promote its credit as a public financial institution with a policy role of enhancing social values in Korea. Social covered bonds can offer a great opportunity for us to broadly and clearly highlight our raison d’être and our business, which is to help develop social values in Korea.

Why has KHFC chosen to issue in euros?

Our aim is to diversify our investor base by advancing into the European market, the birthplace of the covered bond. We also wanted to broaden our funding options by capturing solid demand from European investors.

What were the key messages KHFC had for investors on the roadshow about its offering, and what aspects did investors focus on?

1) Investors’ interest in the covered bond structure: Investors were very keen to understand the quality of the cover pool as well as the credit of the issuer, both of which were strong points for KHFC.

2) KHFC’s position in Korea’s economy: Investors were quite familiar with the issues facing Korea’s housing market and wanted to clarify KHFC’s role in Korea as a stable housing finance provider.

3) Korean housing market in general and government policy: Investors were interested in the status of and forecasts for the housing market in Korea and the direction of government policy.

How satisfied are you with the deal execution, including the pricing and demand you achieved?

We once again saw strong demand from traditional covered bond investors, including central banks. In addition, we successfully diversified demand by receiving orders from SRI investors as well as expanding our investor base by capturing orders from 16 different European countries.

We expect to consistently stand as a benchmark issuer for Korean covered bonds, which could further help other banks advance into the covered bond market in the near future.

Are green and social bonds taking off in Korea in general?

More and more issuers are attaching sustainable aspects to their bonds. Up to 2017, only five issuers had printed green bonds since Kexim issued the first Korean green bond in February 2013. In 2018, eight Korean issuers tapped the market after they prepared green/social/sustainability frameworks and the deals were all successful.

We expect this trend to continue going forward, given that more investors are taking into account ESG values in their investment decisions, as proven by the growing size of green/sustainable funds managed by key investors.