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.
