HF Issues Asia’s First Euro Social Covered Bonds
- HF internationally recognized for delivering greater social value by improving housing welfare
Korea Housing Finance Corporation (HF, CEO Lee Jung-Hwan) stated on October 25, 2018, that it successfully completed issuing 500 million euros of social covered bonds (bonds with dual recourse)*, a first in Asia.
* Covered bonds are debt securities issued by a financial institution, which are secured by a pool of mortgages or other prime assets. Covered bonds provide investors with both recourse against the issuer and a preferential claim against the underlying cover pool over third-party claims.
The covered bonds are issued with a maturity of five years and a coupon of 0.765%, equivalent to a spread of 40 basis points over a five-year euro mid-swap rate (0.365%). They have the narrowest spread among euro-denominated bonds issued by Korean institutions and companies this year. It is assessed that the covered bonds were issued into the new market at a minimal premium considering the conservative tendencies of European investors. By type of investor, ▲ fund and asset management firms accounted for 60% of the paper, while ▲ banks took 24% and ▲central banks 16%.
The covered bonds, in particular, were issued in a social bond* framework, as HF was recognized internationally for its state-sponsored mortgage loans and loan securitization business that have improved the housing welfare of low- and middle-income households and have enhanced stability in the nation’s housing finance market.
* Social bonds are special-purpose bonds issued to raise capital for funding projects designed to achieve socially responsible goals. The use of the funds raised by social bonds is restricted to projects with a positive social impact, such as housing welfare and welfare projects.
Since its issuance of Asia’s first statutory covered bonds in 2010, HF has issued dollar covered bonds six times as part of its efforts to diversify its funding sources. This was its first euro benchmark covered bond issuance.
With the launch of the social covered bonds, HF has entered the European market, where most of the covered bond investors are based, thereby expanding its investor base and securing a low-interest fund-raising channel based on stable demand for covered bonds.
An HF officer said, “Taking advantage of our high credit rating as a state-run financial institution and the remarkable soundness of the underlying assets, we were able to raise the funds at a rate 57 basis points lower than the domestic market rate. We expect that the bonds will serve as a benchmark for Korean paper in the Euro market, contributing to stimulating the issuance of covered bonds in the nation’s banking sector.”