P-CBO to be Issued to Provide Liquidity Support to Construction Companies

Korea Housing Finance Corporation (CEO Joo-jae Lim) announced on March 26 that it would issue Primary-Collateralized Bond Obligations (P-CBOs) for the second time since last December to support homebuilders mired in difficulties with an increasing number of unsold apartments.

On March 27, KHFC will issue KRW 430 billion in P-CBO based on corporate bonds issued by home builders, along with Korea Development Bank, NH Investment & Securities and Korea Investment & Securities.

Last December, KHFC issued KRW 400 billion in its first P-CBO through credit enhancement by the Housing Finance Credit Guarantee Fund.

Securities firms will underwrite corporate bonds issued by construction firms. Then a Special Purpose Company (SPC), with granting of credit by Korea Development Bank, will issue the AAA rated ABS (Asset Backed Securities) based on corporate bonds. KHFC will guarantee the payment of principal of P-CBO.

In return for the credit guarantee, KHFC will take the unsold apartments that homebuilders own as collateral.

The maturity of P-CBO is 3 years and those builders participating in the liquidity pool will be able to raise funds at a relatively low interest rate of 6.89% on average.

A KHFC official said, “Home builders who are facing difficulties with liquidity due to the uncertain capital market are expected to substantially resolve their problems through our credit guarantee.” He added, “KHFC will continue to fulfill its role as the safety net in order to prevent potential uncertainties in the financial market.”