Korea CDO & ABS 2007

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CDO, ABS market to be further deregulate..

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The Korean government is working to loosen regulations governing structured credit securities such as collateralized debt obligations and asset backed securities in order to raise the liquidity level and to keep investor participation in the market more active, a senior central bank official said yesterday.

Kang Tae-soo, head of the fixed income market team at the Bank of Korea, said the Korean government is working to raise the liquidity ceiling and broaden market participants qualification criteria.

So far, more complex CDOs like synthetic CDOs have been difficult to issue since the so-called special purpose company could not directly make a credit derivative contract with financial institutions.

Speaking at the Korea 2007 CDO & ABS seminar organized by the Pinnacle Group International, Kang said such restrictions should ease later this year.
He also added that the qualifying standards for originators issuing the ABS will be expanded further, allowing smaller financial entities like credit unions and community credit cooperatives to issue the ABS.

Larger financial institutions, state-run companies and a few corporations with high credit ratings have been able to issue ABS.

Kang also said that the government recognizes the need for a more mature junk bond market for better risk management.

CDO is an investment-grade security backed by a pool of bonds, loans, and other assets like ABS, commercial real estate, commodities, foreign exchange, and funds.
CDOs and ABS should become more useful capital delivery tools in the near future when Basel II is implemented in 2008, experts at the seminar said.

With the Basel II, banks will have to manage credit risks more efficiently, making asset liquidity more important an issue; CDOs and ABS will play a bigger part in this, said Chang Young-kyu, head of credit research at Woori Investment & Securities Co.

Transactions [in Korea] have mostly been balance sheet transactions, and market restrictions here more or less veered away local investors away from home market to overseas structured securities market, said Markus Peil, vice president of alternative products at Deutsche Bank.

But I think Seoul market will eventually open up more, offering more complex CDOs with higher yield pick -up. We are also working with the regulatory body here to allow more investors to participate in the market, he added.

By Park Jung-youn
(jpark731@heraldm.com)

2007.07.25?/p>