Korea Exchange Bank (KEB), which lists commercial banking, securities investment and international banking among its major activities, has invited proposals for its first foray into the cross-border securitization market.
Citibank/SSB, Credit Suisse First Boston, ING Barings, Nomura, SG and UBS Warburg have all pitched for the transaction, although as many as nine may be in the bidding, according to one source. The source added that KEB is expected to announce the mandated bank/s within the next fortnight.
KEB's deal will be backed by credit card receivables, which will make it the third international card transaction to come out of Korea in the last twelve months. Samsung Card launched a $500 million offering via ING Barings in September 2001, which was followed by an equally sized deal from LG Card last December. CSFB and UBS Warburg jointly handled the issue.
If rumours are to be believed, KEB is looking to raise a similar amount from its own offering.
Many securitization experts in the region believe that Korean credit card receivables are going to provide good opportunities for cross-border deals in the coming years and it is easy to see why.
Since the government began actively encouraging the use of credit cards in 2000 (see Swipe my card story below) the market has grown dramatically. In 2001 alone, the Korean market grew by 80% and is now worth around $305 million, with 80 million cards issued in total.
Although KEB's share of the business is relatively small - it has issued around three million cards - it is one of a number of players that ABS professionals hope will seek to emulate what their peers in the United States have done.
Major companies like MBNA and Citibank securitize around half of their receivables, and it is anticipated that Korean firms will wish to replicate their business models. The one potential stumbling block is that some card companies are not being stringent enough with their lending practices, and a significant number of defaults could be lurking round the corner.
One banker agrees, but believes that securitization structures offer enough protection to investors to negate that. "We have to make sure that companies are growing sufficiently and managing credit well enough so existing deals do not deteriorate," he says. "That is why the deals we have already seen have been structured to withstand multiples of any potential difficulties - there is a lot of cushion there."
The cushion the banker refers to mainly consist of third party guarantees from triple-A rated monoline insurers, such as AMBAC Assurance, FSA or MBIA Insurance, which were a feature of the Korean cross-border deals completed in 2001. It is likely one of these players will provide the same cushion on KEB's transaction.
KEB's major shareholder is the Korean government with a 45% interest through its stakes in Bank of Korea and Exim Bank. Germany's Commerzbank owns another third, having acquired its own holding in 1998.
The bank's last visit to the international capital markets was in June 2000 when it issued a $200 million upper tier-2 capital transaction, which was lead managed by CSFB.
