Washington, D.C., June 7, 2001—In a
groundbreaking transaction that will stimulate more affordable long-term
loans to homebuyers and develop a modern, transparent, and efficient housing
finance sector in Korea, the International Finance Corporation is making
its first investment in emerging market mortgage backed securities (MBS)
with a Won 54 billion (US$41 million) investment in MBS 2001-1 issued by
the Korea Mortgage Corporation (KoMoCo). IFC is the first ever foreign,
and lead, institutional investor in an otherwise entirely domestically
placed MBS issue.
KoMoCo, Korea’s first specialized secondary home mortgage market entity,
was established in September 1999 with IFC’s assistance. Its domestic
shareholders are the Korean Ministry of Construction and Transportation,
Kookmin Bank, Housing and Commercial Bank, Korea Exchange Bank, and Samsung
Life Insurance. A Merrill Lynch affiliate, Merrill Lynch Global Emerging
Markets Partners, L.P., took a 10 percent equity stake in KoMoCo alongside
IFC’s 10 percent. Merrill Lynch is also providing KoMoCo with a
technical assistance package encompassing operations, information technology,
and capital markets development.
The MBS 2001-1, consisting of a senior tranche of W228 billion ($174.4
million) and a subordinated tranche of KRW9.7 billion ($7.4 million), is
backed by Won-denominated mortgage loans and collateralized by residential
properties located in Korea. This is the fourth MBS issued by KoMoCo
over a twelve month period which saw KoMoCo arranging about $1.2 billion
equivalent MBS, listed on the Korea Securities Exchange. IFC hedged
its foreign exchange risk in MBS 2001-1 through US$/KRW swaps. Being
the first foreign investor in a Korean MBS, IFC has paved the way for other
foreign investors to follow.
IFC’s Board has authorized the Corporation to provide $85 million equivalent
in credit enhancements to support mortgage-backed and corporate debt securities
to be issued by KoMoCo. IFC plans to continue working closely with
KoMoCo to assist with future MBS issues.
Javed Hamid, Director of IFC’s East Asia and the Pacific Department, said
that the project is part of IFC's push to develop and modernize the housing
finance sector in emerging markets through investments in model transactions
that other investors may wish to follow. He added that it was an
efficient way of channeling long-term financing from institutional investors
in MBS to retail home mortgage borrowers in emerging markets—most of whom
are low and middle income families.
Cesare Calari, Director of IFC’s Global Financial Markets Group, said
that the transaction is a key part of IFC's global strategy to support
the establishment and development of best practice in private secondary
mortgage market companies. Companies such as KoMoCo, he added, can
broaden the housing finance sector in emerging market countries and diversify
the pool of investment instruments, particularly local currency-denominated
long-term fixed-income securities.
The mission of IFC, part of the World Bank Group, is to promote sustainable
private sector investment in developing countries as a way to reduce poverty
and improve people's lives. IFC finances private sector investments in
the developing world, mobilizes capital in the international financial
markets, and provides technical assistance and advice to governments and
businesses.