HF Issues AAA Euro Social Covered Bonds

- Acquiring the ECBC Covered Bond Label, HF raises its standing in the global financial market

Korea Housing Finance Corporation (HF, CEO Lee Jung-Hwan) stated on June 12, 2019, that it successfully issued 500 million euros of social covered bonds*.

  * Covered bonds are debt securities issued by a financial institution, which are secured by a pool of mortgages or other prime assets. Covered bonds provide investors with both recourse against the issuer and a preferential claim against the underlying cover pool over third-party claims. 

In particular, the covered bonds achieved an AAA rating from international credit rating agency S&P, a first for a South Korean euro covered bond. Its triple A rating, two notches higher than the nation’s sovereign credit rating, was largely thanks to its overwhelmingly sound underlying cover pool and its legal and structural stability. 

HF also won the European Covered Bond Council (ECBC)’s Covered Bond Label*, gaining international recognition that HF’s covered bonds are as legally and structurally stable as ECBC’s European traditional covered bonds.

  * The ECBC was created in 2012 to establish a unified set of disclosure standards for covered bonds whose structural features vary depending on their nation and issuing institution and to improve investor convenience.

The covered bonds are issued with a maturity of five years and a coupon of 0.107%, equivalent to a spread of 25 basis points over a five-year euro mid-swap rate (-0.143%). They have the narrowest spread among euro-denominated bonds issued by a Korean institution or company so far. 

The transaction gained sizable orders from a total of 78 European central banks and large asset management investors. By investor type, they are broken down into ▲ central banks and international organizations (36%); ▲ asset management institutions (32%); and ▲ banks, insurers, etc. (32%).

As with its CB issuance last October, HF issued covered bonds in a social bond* framework. The funds raised will be used solely for the provision of state-sponsored mortgage loans to low- and middle-income households in real need of buying a home. 

  * Social bonds are special-purpose bonds issued to raise capital for funding projects designed to achieve socially responsible goals. The use of the funds raised by social bonds is restricted to projects with a positive social impact, such as housing welfare and welfare projects.  

An HF officer said, “We’ve attracted keen interest from central banks and international organizations with a strong taste for AAA-rated, highest credit quality bonds and also from socially responsible investors (SRI) highly conscious of environmental, social, and governance (ESG) factors. We will continue to provide liquidity into the euro market, working to lower our coupon rate down to the level of AAA-rated covered bonds issued by European countries.”