HF issues first statutory covered bonds in Asia

- Significant savings on funding costs expected -

On July 9, 2010, Housing & Finance (HF, CEO Joo-jae Lim) announced that it has made a successful inaugural issue of US$500m of covered bonds with a 5.5-year maturity and priced at 1.96% over mid-swaps* (4.15%). The significant over-subscription by international investors almost reached US$2.75 billion, five times the scheduled amount (US$500m). The regional representation of international investors was 49% North America, 38% Asia, and 13% Europe.

* Mid-swap: average of the fixed rate received and that paid in exchange for Libor at the U.S. interest rate swap market

Covered bonds are debt securities backed by primed assets such as mortgages. HF is the only entity legally allowed to issued covered bonds in Korea. Investors have both a preferential claim against a pool of assets and a claim for reimbursement against HF.

Though offering only 119% in collateral, HF's issue of covered bonds received a rating of Aa3 from Moody's, which is one notch higher than the sovereign ratings, and achieved significant savings on funding costs. "Despite recent signs of instability in the international financial market, our covered bonds were well received by international investors due to their legal stability and the soundness of their collateral assets," said an HF official. "The funds raised through the issue of the covered bonds will be used to supply low-interest Bogeumjari mortgage loans. Following this successful issue, we expect that discussions on Korean financial institutions' overseas issue of covered bonds will begin in full swing," he added.