South Korea to Reform Asset-Backed Securities Issuances

South Korea is further opening up its asset-backed securities market, abolishing the requirement for issuance to be restricted to companies with a credit rating of BB or higher. It will also allow issuers to use future assets and intellectual property rights to raise funds and allow the use of special purpose companies to issue securitised assets with assets transferred from other entities. 

At the same time, issuers with be required to retain 5% of the risk in the securitised asset and will be subject to new disclosure rules around risk retention. The information provided will be published on a dedicated asset-backed securities platform with the Korea Securities Depository, which has been in operation since earlier this year. 

The changes, which are due to be submitted to the country’s National Assembly within weeks, come at a time the level of asset-backed securities issuance in the country continues to fall. The issuance of asset-backed securities in Q3 was down 31.5% year-on-year, mostly due to the fact the state-run mortgage agency, Korea Housing Finance Corp, cut down on its issuance of mortgage-backed securities. 

The value of ABS issued in Q3 was 12.8 trillion won ($10.8 billion). These reforms follow efforts last year that also sought to relax ABS issuance rules to stem declining ABS issuances.