Washington, DC, May 2, 2003—
The International Finance Corporation, the private sector arm of the World Bank Group, announced a 52 billion won ($41.7 million) investment in mortgage-backed securities issued by Korea Mortgage Corporation. Support for the transaction is part of a broader strategy by IFC to develop and modernize the housing finance sector in emerging markets through model transactions that encourage further investment by others.
IFC’s new investment in KoMoCo MBS 2003-1 follows a successful investment in Korea’s first MBS issue in 2001. MBS 2003-1 consists of senior tranches amounting to W310 billion ($245 million) with maturities of six months to 12 years and a subordinated 16-year tranche of W1.0 billion ($0.8 million). Each tranche is backed by won-denominated mortgage loans and collateralized by residential properties located in Korea. IFC hedged its foreign exchange risk in MBS 2003-1 through dollar-won swaps. The proceeds of the MBS will be used mainly for the construction of small apartments for low-income residents.
This transaction is the eighth MBS issued by KoMoCo since April 2000. In all, KoMoCo has arranged transactions equivalent to $2.3 billion in mortgage-backed securities that are listed on the Korea Securities Exchange.
“This model transaction offers 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,” said Javed Hamid, IFC director of East Asia and the Pacific. The transaction is a key part of a global strategy to support the establishment and development of best practice in private secondary mortgage market companies. “Companies such as KoMoCo 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,” said Karl Voltaire, IFC director of Global Financial Markets.
KoMoCo, Korea's first specialized secondary home mortgage market entity, was established in September 1999 with IFC's assistance. Its domestic shareholders are the Kookmin Bank, Korean Ministry of Construction and Transportation, Korea Exchange Bank and Samsung Life Insurance. A Merrill Lynch affiliate, Merrill Lynch Global Emerging Markets Partners, L.P., has a 8.89 percent equity stake in KoMoCo alongside IFC's 8.89 percent. Merrill Lynch has been instrumental in providing KoMoCo with a technical assistance package encompassing operations, information technology, and capital markets development. As a shareholder and a board member of KoMoCo, IFC will continue working closely with the company.
The mission of IFC is to promote sustainable private sector investment in developing countries, helping to reduce poverty and improve people's lives. IFC finances private sector investments in the developing world, mobilizes capital in the international financial markets, helps clients improve social and environmental sustainability, and provides technical assistance and advice to governments and businesses. Since its founding in 1956 through FY02, IFC has committed more than $34 billion of its own funds and arranged $21 billion in syndications for 2,825 companies in 140 developing countries. IFC's worldwide committed portfolio as of FY02 was $15.1 billion for its own account and $6.5 billion held for participants in loan syndications.
