Experience of Newly Industrialized Economies in ... · PDF fileThe introduction of ABS Act in 1998 Securitization Process under the ABS Act ... by KAMCO 43.2 by Banks 108.1 Troubled

2005. 11.07

Experience of Newly Industrialized Economies

in Securitization : Korea

KFIRIKorea Fixed Income Research Institute

Gyutaeg Oh

ASEAN+3 Workshop on the Rise of Asset Securitization in East Asia

Table of Contents

I. Introduction

II. Financial Restructuring

III. Overcoming Credit Crunch Problems

IV. SME Financing

V. Mortgage Financing

VI. Student Loan Financing

VII. Recent Regulatory Improvement

VIII. A Comment: Demand for Securitization under Asian Bond Market Initiatives

Appendix: Cross Border ABS Deals from Korea

Korea Fixed IncomeKorea Fixed IncomeResearch InstituteResearch InstituteKFIRIKFIRI

Introduction


Maturity and Credit Quality Gap

Asian

Bond

Markets

Asian

Savings

Asian

Issuers

Long-Term

Low Credit Quality

Short-Term

High Credit Quality

One of the major impediments is the credit quality gap between the low credit ratings of issuers and minimum credit requirement of investors

Credit guarantees coupled with securitization could play a significant role in promoting sound and deep bond markets

Securitization facilitates risk reallocation (sharing).

A guarantee agency can rent high rating by providing commercial and political risk guarantees for issuers

WG 2 studies a regional guarantee and

investment mechanism to promote ABMIDevelopment of regional capital markets for stable access to long-term funds to facilitate:

• Private Sector Development or• Sustainable infrastructure projects

Asian Bond Market Initiative and Securitization


Example: SME Securitization – Pan Asia Bond P- CBO

Transaction date: December 13, 2004

The issuance of Japanese yen-denominated P-CBO between Korea and Japan is an important tangible outcome for the endorsement of the Asian bond market and also provides new sources for SMEs of other countries in this region.

The securitization of a portfolio of yen-denominated corporate bonds (Portfolio Securities) of 46 Korean small and medium enterprises (Portfolio Obligors)

Further credit-enhanced by the Industrial Bank of Korea (IBK) and JBIC.

The P-CBO interest rate is 20 to 30 basis points lower than that for Korean won-denominated P-CBO, even after taking the cost of hedging for foreign exchange risks into account.

Similar deals of SME securitization have taken place in Japan and Korea


Establishment of a securitization vehicle

- Onshore ABS SPC

- Trust company

- Offshore ABS SPC

Registration of a securitization plan with the FSC

Acquisition of securitization assets by the securitization vehicle

Appointment of servicer and transaction administrator

Issuance of asset-backed securities

In September 1998, the Asset Backed Securitization Act (the “ABS Act”) was passed.

- The ABS Act provides a means to engage in securitization transactions with legal certainty.

- Tax benefits are conferred on transactions under the ABS Act.

- Processes such as perfection of security interests against third parties are streamlined.

The ABS Act was originally intended to facilitate the disposal of non-performing loans.

Securitization Process under the ABS ActThe introduction of ABS Act in 1998

Korea’s ABS system: Introduction


Introduction Stage

(’99~’00)

Financial Restructuring &

Securitization of NPLs

Developing Stage

(‘00-’01)Financing tools for companies

to overcome flight-to-quality

(maturity concentration) problems

Maturing Stage

(’02~’04)

Deepening of

ABS market

Financing tools for SMEs,

credit card companies

mortgage, student loans,

Future Cash Flow Securitization

& others

Evolution of ABS Market in Korea

0.5

28.6

8.7

1.9

6.9

0.2

4

20.622.2

0.92.5

1

4.6 5.34.6

13.1

19.7

10.512.6

14.4

0.6 1.2 0.9 0.6 0.9 0.83 3.5

9.9 9.6

111

13.4%

25.4%

56.6%

41.2%

8.3%3.2%

0

5

10

15

20

25

30

35

1999 2000 2001 2002 2003 20040%

20%

40%

60%

80%

100%

Securities Card loans Lease, Auto loansAccountable receivables Real-estate Ratio of Credit loans

KRW trillion


Securitization can be an effective policy tool for overcoming credit crunch problems (or credit quality gap)

Public sectors can facilitate securitization

Securitization evolves as market need arises

USA : Mortgage Lease/Cards Junk Bonds/CBOs Future Cash Flows

Korea: NPLs CBOs Cards Future Cash Flows

Lessons from Korean Experiences


Financial Restructuring


32.5 trillion(1997)

18.8 trillion(2001)

Increase : 137.6 (trillion won)

Criterion Change 44.5New 93.1

Decrease : 151.3 (trillion won)

by KAMCO 43.2by Banks 108.1

Troubled Loan by Banks


KDB

Principal and Interest Paymentto subordinated notes

Investors

The issuer

Korea Asset Funding 2000-1 Ltd.

Kamco

The purchaser

Korea 1st International ABS

Specialty Co. Ltd.

Swap CounterpartyYen/US$

Swap

Loan obiligors

Banks

Principal and Interest Payment

Creditfacility

Payment underPut options

KAMCO : NPL resolution


71.4%91%97%70%42%0%(B) / (C)

151,347.642,008.536,931.725,79838,264.18,345.3Total (C)

108,130.338,192.235,89118,036.916,010.2-Banks (B)

43,217.33,816.31,040.77,761.122,253.98,345.3KAMCO (A)

Total20012000199919981997

(billion won)

108,130.338,192.235,89118,036.916,010.2Total

96.7 (0.1)96.7Sales to CRV

23,476.1 (21)2,722.96,877.96,3227,553.3Other

3,276.2 (2.9)1,077.71,504.6693.9Debt – Equity Swap

5,769 (8.6)1,831.13,937.9Direct Sale

16,129.9 (14.4)10,894.14,433.7802.1ABS

30,514.9 (27.3)11,60010,7795,170.7265.2Write off

28,867.5 (25.8)9,969.78,357.95,048.25,491.7Collected

Total2001200019971998

by Banks (billion won, %)

Troubled Loan Disposed


Overcoming Credit Crunch Problems


Currency Crisis (97.11)

Daewoo Crisis (99.8)

SKG & Credit Card Crisis (03.3)

Credit shock Credit shock Credit shock

Market Impact(From Banks to ITCs)

• ABS development to handle NPLs

• Massive Corp. Bond Issuance to RefiBank Debts

• Book value accounting for ITCs

Market Impact• Issuance of P-CBOs

to Refinance Corp Bond Debts

• Rapid Pick-Up of ABS Markets

• MTM accounting for ITCs

• Introduction of bond pricing agents

Market Impact• Plunge of ABS

markets • Realizing the need for

systemic risk monitoring system

• Realizing the Importance of Credit Bureaus and Trustees

Securitization and Credit Crunch in Corporate Bond Markets


Create a systemic risk (due to credit crunch problem)

A temporary problem: Chaebols paid off debts (low interest rate, higher earning, less investment)

0

5,000

10,000

15,000

20,000

25,000

1998/ 1 1999/ 1 2000/ 1 2001/ 1 2002/ 1 2003/ 1 2004/ 1 2005/ 1 2006/ 1

Above A BBB BB-B below CCC unrated

1 billion won

Maturity Concentration (Rollover) Problem


Credit guarantees for a pool of corporate bonds / loans

Combining mechanisms of ABS and credit guarantee

Facilitated corporate financing in a short period of time

Credit Guarantee Services by KCGF

Corporation

Originator(security

companies)

SPC

Investors

KCGF

Banks

bonds

bonds

CBO/CLO

proceeds

proceeds

credit line

cred

it gu

aran

tee


Securitization & Credit Guarantee : P-CBO / CLO Guarantee


Bond Pricing Agencies for Mark-to-Market System

KIS PRICING

Paid-in CapitalKRW 3 billion

BPBPKorea Bond

Pricing

Paid-In Capital KRW 5 billion

Paid-In Capital KRW 4.75 billion

The KSDA monitors these companies

-Nov. 1997: introduce “Mark to Market”-Dec. 1999:KSDA provided Matrix Pricing

- Jun. 2000:3 credit rating agencies launched 3 BPAs under government approval

-Oct. 2000: BPAs began pricing on M2M fund- 2002: M2M applied to Bank’s Trading book, Trust account , Insurance Co.’s special Trust account, securities Co.’s accounts

- Oct. 2003: KDSA stops matrix pricing


SME Financing: Securitization with Credit Guarantee


Insufficient collateral

High transaction cost

Low credit risk assessment ability of financial

institutions

Importance Difficulties

Limited access to formal financing

Number of Companies

Number of Employees

Exports

SME 99% LE 1%

SME 86% LE 14%

SME 43% LE 57%

SMEs in the Korean Economy


Credit guarantees for a pool of corporate bonds / loans

Combining mechanisms of ABS and credit guarantee

Facilitated corporate financing in a short period of time


Corporation

Originator(security

companies)

SPC

Investors

KCGF

Banks

bonds

bonds

CBO/CLO

proceeds

proceeds

credit line

cred

it gu

aran

tee


Securitization & Credit Guarantee : P-CBO / CLO Guarantee


151152004.09.218th Shinbo PartnerSecuritization

8th


9th


6th


7th

428

62

102

77

44

36

No. of firms


5th

1500Total


4th

3022003.11.073rd Shinbo PartnerSecuritization

3rd

1402003.10.132nd Shinbo SME Securitization 2nd

652003.09.061st Shinbo SME Securitization1st

Amount(billion KRW)

Date of IssueTitle of SPC

Total Amount: 1,500 billion KRW

# of firms: 428

Average funding per firm: 3.5 billion KRW

P-CBO Programs for SMEs by KCGF


23 SMEs23 SMEs

Small Business CorporationSmall Business Corporation

SPCSPC

Senior bonds(2yr 8.5billion, 3yr 36billion)

Senior bonds(2yr 8.5billion, 3yr 36billion)

Junior bonds(27.5 billion)

Junior bonds(27.5 billion)

₩Corporate bonds (72billion won)

Asset sales

Investor Repurchased by Small Business Corporation

Credit Enhancementby Korea Housing Bank

(10billion)

Credit Enhancementby Korea Housing Bank

(10billion)

Primary in the sense the program helps SMEs issue bonds

Basic Scheme of 1st P-CBO Program by SBC in 1999


B+460.1 Yen2004.12.13Yen CBO securitization(6th SME Securitization)

8th

B+4393.5 Won2004.10.87th SME Securitization9th

B+740.15 USD2004.12.14Piraruku Fund Ltd10th

B4198 Won2003.05.094th SME Securitization6th

B+3894.4 Won2004.2.275th SME Securitization7th

598

48

131

42

59

52

23

No. of firms

B+

B

B

BB-

BB-

BB

Credit Grade(WAR)

0.35 USD2002.11.14COROvoltin Fund5th

84.7 Won2005.6.308th SME Securitization11th

1,834.7 Won Total

81.5 Won2002.09.063rd SME Securitization4th

0.34 USD2001.12.11KOROmas Fund3rd

160 Won2001.01.312nd SME Securitization 2nd

72.0 Won1999.12.301st SME Securitization1st

Amount(billion)

Date of IssueTitle of SPC

target WAR: BB - B+

Total Amount:1,834.7 billion KRW

# of firms: 598

Average funding per firm: 3 billion KRW

Special attention to

2nd: together with KCGF

8th : ABMI related

P-CBO Programs for SMEs by SBC


Mortgage Financing


Establishment of Korea Housing Finance Corporation (KHFC)

Korea Mortgage Corporation was established in 1999

Establishment of State-run Secondary Mortgage Market EnterpriseKorea Housing Finance Corporation Act enacted in Dec. 2003KHFC officially established on Mar. 1, 2004Korean government & Bank of Korea are sole contributors of the capital

– Current capital base : 376 billion won (Authorized capital : 2 trillion won)

Losses, in excess of reserves, to be covered by the government (KHFC Act)

Major Lines of BusinessPurchases mortgages and issues MBS

– Provides guarantee on MBS (up to 50 times of capital)Purchases mortgages and Issues MBB (Mortgage-Backed Bond)Mortgage Portfolio Business (Issuance of MBS or MBB required)Provides credit lines to lenders to support the origination of mortgages

Issues unsecured Bonds (up to 10 times of capital) and Borrows from financial institutionsPurchases Student Loans and Issues KHFC guaranteed SLBSManages Student Loan Credit Guarantee FundManages Housing Finance Credit Guarantee Fund

– Guarantee for Individuals Chonsei Loan, Home Purchase Loan, Installments Loan

– Guarantee for Housing Builders


Sales of Mortgages Trust Issuance of MBS

Borrowers

Monthly Repayment

of P&I

Servicing Fee

Guarantee FeeTrustee Fee

Lenders(Seller/Servicer)

KHFC Trust(Trustee: KHFC)

Investors

FSC

MBS P&I Repayment

Mortgages

Registration of Securitization Plan, Transfer/Trust

Guarantee on MBS P&I payment

MBS Issuance Structure (1)


KRW 400~500 billion (per issue) Issuance Amt.

KHFC provides 100% Guarantee on MBS P&I payment

Multiple tranches with different Maturities

Sequentially Partially Callable on a quarterly basis

Quarterly MBS P&I Repayment by the exercise of call option

3 yr Bullet tranche without call option, supported by 5 yr Fast-pay tranche

Issuance Structure

Fixed-rate MBS (Quarterly coupon payment)

AAA Credit rating, Listed in KSE, Deposited in KSD, Public Offering

MBS Terms

Trust (Trustee: KHFC)Issuer

Participating LendersServicer

Monthly in principle Issuance Freq.

Mortgages originated by participating lenders under securitization commitment program

Underlying Assets

Detailed terms of MBS issuance : KHFC Web Site (www.khfc.co.kr)

MBS Issuance Structure 2


Mortgage Securitization Business

Analysis of ABS Issuance in 1H, 2005 - 1

Loan

Securities

Card loan

Auto loan, Lease

MBS

Accounts receivable(PF)

Real estate installment payment

7%7%

22%21%

22%

1%

SOC related

As of July 31, 2005

-The first MBS issuance completed in June, 2004

-13MBS Issuances successfully completed (Total 5.7 trillion won)

-6.5 trillion won of mortgages originated (88,928 mortgages)

-Currently mortgages are originated by 21 Approved Lenders


Student Loan Financing


Existing Subsidized Student Loan

Major Characteristics Subsidization of Interest Payment

– Borrowers pays 4.0% p.a. of interest to the banks

– Government subsidizes 4.25% p.a. of interest to the banks

Standardized Student Loan Product– Controlled by Ministry of Education & Human Resources Development

– Loan amount only covers Tuition

– Fixed Interest Rate

– Max. 14 years of Maturity including Max. 7 years of Repayment Period

Held under the Bank’s Balance Sheet– Funded by the Banks’ short-term deposits

– Banks assumes Credit Risks

Major Problems of the old Student Loan Program Government’s excessive burden for subsidizationNeed to support the cost of living besides the tuitionNeed to lengthen the Repayment PeriodMismatch in the bank’s Asset-Liability Management Need to develop stable supply system of student loans

– Heavily depends on the banks’ discretion or business strategy


Student Loan Securitization(SLBS) Program

SLBS Issuance Structure

Sales of Student LoansTrust

Issuance of SLBS

Borrowers

Monthly Repayment of P&I

Servicing Fee

Guarantee FeeTrustee Fee

Banks(Seller/Servicer)

KHFC Trust(Trustee: KHFC)

Investors

FSC

SLBS P&I Repayment

Student Loans

Registration of Securitization Plan, Transfer/Trust

Guarantee on SLBS P&I payment

Student Loan Credit Guarantee

Fund

Guarantee

Guarantee Fee


New Government-Guaranteed Student Loan

Establishment of Specialized Fund for Credit Enhancement

Korean Government established「Student Loan Credit Guarantee Fund」

– July 18, 2005

– To enhance the credit of student loans

– Provides 90% Partial Loss Coverage

Ministry of Education & Human Resources Development directs the Fund

KHFC appointed as the Manager of the Fund

– Borrowers apply for the guarantee through 15 designated Banks

Plans to provide 500~600 billion won of guarantee in the 2nd half of 2005

– From 2006, the Fund will provide 1.5 trillion won of guarantee annually


New Government-Guaranteed Student Loan

Development of Long-term Student Loan Product

No Prepayment PenaltyPrepayment Penalty

Max. 20 years

Max. 10 years of Grace Period determined by borrower’s academic year(grade), sex or the completion of military services

Max. 10 years of Repayment Period

Maturity

Monthly P&I (or Principal only) level payment

Fully Amortizing (No Partial Amortization)Repayment Terms

Fixed Rate

Online Application : 6.95% p.a.

Application at Banks’ Windows : 7.0% p.a.

Some Borrowers, in lower income bracket, entitled to get 0% or 2% Subsidized Loans (Subsidization Period limited to Grace Period only)

Interest Rate


Securitization Commitment Program

Summary Information

The program was developed to facilitate the origination and securitization of Government-Guaranteed Student Loans

Pre-commitment

– KHFC gives pre-commitment to purchase student loans from Banks

– Banks give pre-commitment to originate student loans and transfer them to KHFC

Banks will act as the Servicer of the student loans

KHFC funds the purchase of student loans by issuing SLBS

Current Status

15 Banks started to originate student loans from Aug. 12, 2005

The first Issuance of SLBS to be closed in Oct. 2005


Student Loan Securitization(SLBS)

Summary of SLBS Issuance Structure

500~600 billion won (per issue) Amount

KHFC provides 100% Guarantee on SLBS P&I payment

Multiple tranches with different Maturities

Sequentially Partially Callable on a quarterly basis

Quarterly P&I Repayment by the exercise of call option

Noncallable Short-Term tranches, supported by 5 yr Fast-pay tranche

Issuance Structure

Fixed-rate SLBS (Quarterly coupon payment)

AAA Credit rating, Listed in KSE, Deposited in KSD, Public Offering

SLBS Terms

Trust (Trustee: KHFC)Issuer

15 Banks (Originators)Servicer

Government-Guaranteed Student Loans originated under KHFC’ssecuritization commitment program

Underlying Assets


Expected Effects of the New Program

Reduces the Government’s Financial Burden

More Financially Effective than the old Subsidization Mechanism

Increases the volume of Student Loans

Higher Leverage Effect based on the same Government’s budgetAdditionally supports the cost of living of the borrowers

Replaces Bank Deposits with Long-Term SLBS Issuance in the Bond Market as the MajorSource of Funding for Student Loans

Lengthens the Maturity of Student Loan (Max. 20 years)

Reduces the Repayment Burden of the Borrowers

Contributes to Stable Supply of Government-Sponsored Student Loans


New Regulatory Improvement


ABS related business guideline

Market’s self-regulatory guideline for those engaged in ABS business (from ’05.5)

Clarify the role and responsibilities of ABS related party

Embody device for surveillance among ABS related parties

Strengthen ABS related disclosure

Minimize instability in the ABS market and create an environment

favorable to ABS investment


A Comment:Demand for Securitization

under Asian Bond Market Initiatives


Example: Residential Mortgage Securitization

Building on Existing Programs

Cagamas

Korea Housing Finance Corporation

Hong Kong Mortgage Corporation

Singapore CMBS and Residential Pre-sales

China Construction Bank pilot MBS - authorized.

Mortgages

Mortgage Finance Co

Mortgages

Securitization MBS Vehicles

RegionalMechanismGuaranty

InstitutionalInvestors

Equity & High YieldInvestors


Example: Tuition Securitization/Student Loan Securitization

1.000.000 UF(23US$ Millions Approx.)

Chilean UF

May 9, 2003

8 years

Quarterly

Annual

UF 100.000 for the first 5 years

UF 120.000 (Years 6) 180.000(Years 7); 200.000(Year8)

1 Series

UF 1.000

AA – by the local affiliates of Moody’s, Standard & Poors,

and Fitch.

IFC irrevocably guarantees the due & punctual payment

in UF of the Guarantee Amount.

Initially 30% of principal. Reduces gradually with principal repayment to an amount equal to 25% outstanding principal

Amount:Amount:

Currency:Currency:

Issue Date:Issue Date:

MaturityMaturity

Interest Payment:Interest Payment:

Principal Payment:Principal Payment:

Series:Series:

Nominal Value:Nominal Value:

Rating:Rating:

Guarantee:Guarantee:

Guarantee Amount:Guarantee Amount:

Tuition Securitization by Diego Portales University in Chile

Korea - securitization of student loans similar to Sallie Mae

Philippines – Tuition bonds privately placed

Future tuition cash flows can be securitized to modernize higher educati

onal facilities


SME Securitization

Benchmark: Pan-Asia Bond SME securitization deal

Similar deals of SME securitization have taken place in Japan and Korea

In 2005, Singapore starts SME ACCESS loan Scheme

There seems to be demand for SME securitization in Malaysia, Thailand, and other member countries


Example:Financing Upgrading Public Transportation through Equity & Bonds

Shanghai intends to modernize its bus system

Being more environment-friendly

More comfortable to low-income bus riders

Extending to the inter-city rapid transit system in the Yangtze

Delta improving the city image for the World Expo 2010

The Project

Upgrading 1,000 buses a year for 10 years with an annual investment of US$100 million


Example:Financing Upgrading Public Transportation through Equity & Bonds

How could the regional mechanism support this project?

Initial stage - Enhancing corporate bond readiness by an equity investment of $10 mil.

Improving corporate governance, accounting practice, and financial

management

Improving asset quality and risk profile, balance sheet restructuring

Building strategic partnerships with international industrial leaders

Establishing credit rating track records toward “investment grade”

Second stage - Securitizing future receivables for cross-border bond issuance

Third stage – Equity exiting through a planned IPO

Note that HSBC concluded HK$3 billion deal backed by taxi andpublic light bus loans in 2003.


Thank you very much !

For more information or contact point send e-mail to [email protected]


Appendix:Cross-Border ABS Deals from Korea


____________________Source: Merrill Lynch from rating agencies reports

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

1998 1999 2000 2001 2002 2003 2004

Auto Loan ABS Consumer Credit ABS Equipment Lease ABS CDO MBS Other

(US$)

Korean Offshore ABS New Issuance by Asset Type (1998-2004)


Asset Types in Cross-border Transactions

Residential Mortgages

Auto Loans

Credit Cards Equipment LeasesConsumer Loans

Airline Ticket Receivables

CDOs (SMEs)


PercentageAmount

(billion KRW)Category

100.01,500Total

49.7744.9Subtotal

3.552.5B

4.669B+

6.292.5BB-

14.5217BB

20.9313.9BB+

Non-Investment

Grade

50.3.

21.7

13.6

6.3

4.0

2.4

1.9

0.4

755.1Subtotal

204BBB

326.6BBB-

94.3BBB+

59.4A-

36.3A

28.5A+

6AA

Investment

Grade

Investment Grade : 50.3%

Non-investment Grade : 49.7%

P-CBO Programs: Credit Grade


No

No

No

No

No

No

No

No

No

Receivable

Backed

Local3SB

(Straight Bond)

8 th ShinboPartner

Securitization

8th

Local3SB

(Straight Bond)

9 th ShinboPartner

Securitization

9th

Local3SB

(Straight Bond)

6th ShinboPartner

Securitization

6th

Local3SB

(Straight Bond)

7th ShinboPartner

Securitization

7th

3

3

3

3

3

Maturity

Local

Local

Local

Local

Local

Currency Denominatio

n

SB

(Straight Bond)

5th ShinboPartner

Securitization

5th

SB

(Straight Bond)

4th ShinboPartner

Securitization

4th

SB

(Straight Bond)

3rd ShinboPartner

Securitization

3rd

SB

(Straight Bond)

2nd Shinbo SME Securitization

2nd

SB

(Straight Bond)

1st Shinbo SME Securitization

1st

TypeTitle of SPC

Based on SB

Not backed by receivables

Maturity : 3 years

Currency : KRW

P-CBO Programs: Underlying Assets


3.0%97.0%8th Shinbo Partner

Securitization8th


Securitization9th


Securitization

6th


Securitization

7th


Securitization5th


Securitization4th

3.0%97.0%3rd Shinbo Partner

Securitization3rd

3.0%97.0%2nd Shinbo SME

Securitization 2nd

3.0%97.0%1st Shinbo SME

Securitization1st

JuniorSeniorTitle of SPC

Senior: market

Junior: Issuing Companies

Risk Sharing Structure of KCGF’s SME P-CBO


Minimum credit grade requirement

- SMEs : BB- or above

Ceiling amount for each company, each business group

Strict diversification

Mandatory issuance of junior CBOs

- Sub. CBOs repurchase by companies or SBC

Excess spread (spread account)

- difference between the rates of underlying assets & CBOs

Monitoring using SME credit database

The key is to prevent moral hazard of issuing companies.

Safeguard Measures by KCGF


Combined Rating beforeFiltering & AdjustmentNR

(Not Rated)

Yes

Quantitative Rating

Evaluated automatically

No

Financial Rating

Window Dressing Check

Qualitative Rating

Judged by Analyst

Biz Information Report

Financial RatioFactors

Non-financialQuantitative

Factors

Non-financialQualitative

Factors

Filtering Adjustment

Credit RatingCredit Rating

Industry Rating FAPs(Financial Filtering)

Corporate Credit Rating System (CCRS) by KCGF


5.86%1,12119,124Total

25.00%61.47%22.94%-100%416C

21.71%17.69%12.45%-22.94%33152CC

10.03%11.57%10.70%-12.45%39389CCC-

10.30%9.82%8.94%-10.70%82796CCC

10.21%8.06%7.19%-8.94%1781,744CCC+

7.75%6.74%6.30%-7.19%2182,814B-

5.87%5.86%5.42%-6.30%2043,478B

4.42%4.97%4.53%-5.42%1774,001B+

4.08%4.25%3.97%-4.53%741,813BB-

3.62%3.69%3.42%-3.97%571,574BB

2.57%3.14%2.86%-3.42%321,244BB+

3.91%2.69%2.52%-2.86%14358BBB-

1.47%2.34%2.17%-2.52%4272BBB

1.68%2.00%1.83%-2.17%4238BBB+

0.00%1.68%1.54%-1.83%81A-

0.00%1.39%1.25%-1.54%69A

0.00%1.10%0.96%-1.25%57A+

3.85%0.56%0.17%-0.96%126AA

0.00%0.01%0.03% – 0.17%2AAA

Actual Rate of Default Actual Rate of Default Average Average Estimated Default ProbabilityEstimated Default ProbabilityNo. of Default No. of Default No. of Financial No. of Financial Statements Statements

Credit Rating Credit Rating

CCRS - Estimated and Actual Default Ratio


Established Korea Enterprise Data in Feb. 2005 as a spin-off company of KCGF’s credit information services

Credit bureau specializing in credit information of SMEs

Capital: USD 72 million

Shareholders: KCGF(47.8%), KOTEC, KDB, IBK, KFB, SBC, etc.

Head Office (5 divisions, 2 departments, 19 teams) in Seoul and 8 branches nationwide

Currently providing 8 types of credit information services to domestic and overseas clients

To enhance the quality of the pool, systematic management and analysis of SME credit information is essential.

SME Credit Database – Monitoring tool


No

No

Partial(SB)

No

Yes

Yes

No

Yes

No

No

No

Receivable

Backed

JPY3BW/SB

Yen CBO securitization

(6th SME Securitization)

8th

Local3BW/SB/Loa

n7th SME Securitization

9th

USD5BWPiraruku Fund10th

Local3Loan4th SME Securitization

6th

Local3BW5th SME Securitization

7th

3

5,7,10

3

3

1,2

3

Maturity

Local

USD

Local

USD

Local

Local

Currency Denominatio

n

BWCOROvoltin Fund5th

BW8th SME Securitization

11th

Loan3rd SME Securitization

4th

BW (Bond/

Warrant)KOROmas Fund3rd

SB2nd SME Securitization

2nd

SB(Straight Bond)

1st SME Securitization1st

TypeTitle of SPCCurrency: local/G3

Maturity

3 years for local

5 year for G3

Why 3 years

benchmark corporate bonds has 3 year tenor

extending to 5 years is not economically viable

Structure:three stages

introduction: SB

(2nd with KCGF)

variation: Loan backed by receivables

mature: BW



The main problems are that SMEs in Korea have high default risk

Rating 1 year 2 year 3 year 4 year 5 year 6 year

AAA 0.00 0.00 0.00 0.00 0.00 0.00

AA 0.00 0.00 0.00 0.00 0.00 0.00

A 0.00 0.00 0.00 0.00 0.00 0.00BBB 0.32 0.68 1.11 1.93 3.20 3.20

BB 3.94 6.77 9.12 10.18 11.29 12.48Below B 13.73 17.10 19.44 19.44 19.44 19.44

Investm ent 0.16 0.36 0.60 1.09 1.82 1.82

Speculative 6.50 9.47 11.81 12.59 13.37 14.21Average 2.22 3.41 4.47 5.07 5.82 6.13


Cumulative Default Rate (by Korea Rating, Periods : 1998-2004, unit : %)


Junior Bondholder

(SBC)

Korea Offshore

Interest Reserve Account

Swap Provider (Nomura)

Credit Facility Provider (IBK) Bond Issuer Note Issuer

Seller and Korean

Arranger (Daishin)

Shareholders

International Arranger (Nomura)

Portfolio Obligors

Security Trustee (HSBC)

Investors Note Guarantor

(JBIC)

3 years Interest +

Senior Fees

Issue Proceeds

(¥)

Senior Notes

Interest Rate Swap

Security Trust Deed

Issue Proceeds

(¥)

Senior Notes Note Principal

Guarantee (¥)

Portfolio Securities +

Mezzanine Bonds Subscription Price

(¥)

Purchase Price (¥) +

Mezzanine Bonds

Credit

FacilityIssue Proceeds (¥) + Subordinated Note

Senior Bond + Subscription Price

Junior Bond (¥)Subscription Price (¥)

Purchase Price

Warrant

Portfolio Securities

Mezzanine Bonds + Subscription Price

(¥)

Pan Asia Bond: Yen-denominated P- CBO

Documents

Experience of Newly Industrialized Economies in ... · PDF fileThe introduction of ABS Act in 1998 Securitization Process under the ABS Act ... by KAMCO 43.2 by Banks 108.1 Troubled