Covered Bonds
Local commercial banks Kookmin Bank and Standard Chartered Bank are looking to issue covered bonds from April, when the issuance is scheduled to be allowed by law.
Banking industry participants are paying great attention to their covered bonds, but the key lies in the coupon rate. The issuance is expected to be successful when the coupon rate is lower than those of Korea Development Bank (KDB) and Industrial Bank of Korea (IBK) bonds.
According to industry sources, Kookmin Bank is considering whether to turn its covered bonds issued five years ago and maturing this year into statutory covered bonds, or to replace them with foreign currency bonds. The issue amount was US$1 billion at the time, and the bank has to seek conversion means. It has already coped with the US$550 million portion by means of a swap and is mulling over issuing won-denominated covered bonds, because the purpose of the statutory covered bonds is to convert the interest rate structures of mortgage loans from variable to fixed.
Standard Chartered is also considering issuing covered bonds. It is currently examining the market interest rate and is going to select a lead manager and carry out some investor surveys once the legal system is established. “It is thought that the preparation will be made in earnest from April,” it explained.
Back in 2011, Standard Chartered had tried to issue covered bonds via the Korea Housing Finance Corporation. The amount was planned to be US$1 billion, but the issuance was postponed due to some problems during the course of negotiations with the financial authorities. It issued covered bonds worth US$500 million in March last year, and is planning to issue more on its own once that type of bond becomes statutory. The issue amount is estimated to be US$500 million.