KHFC pitching to sell Korean-won mortgage debt to overseas institutions

State-run Korea Housing Finance Corp. (KHFC) expects to pull in 300 billion won ($255 million) from Singapore’s United Overseas Bank (UOB) in securities backed by mortgage, which could be the first case of foreign institutional investment in Korean mortgage asset.

According to industry sources on Sunday, UOB is currently courting KHFC to invest 300 billion won or possibly even more on won-dominated mortgage-backed securities (MBS) offered by the state agency. The Singaporean bank is expected to finalize the deal by the end of this month, said a KHFC official.

KHFC previously sold debts in dollar and euro.

KHFC, the country’s sole issuer of residential mortgage-backed securities, plans to invite low-income home owners to refinance their mortgage loan from later this month, which would allow the borrowers to move to fixed-rate loans from floating-rate loans. For this, KHFC will sell 20 trillion won of bonds backed by the mortgages.

Industry experts project KHFC’s new mortgage bonds would attract more offshore investment. It is reported that DBS Bank, Singapore’s another major commercial lender, already has expressed interest in the bonds.

Separately, KHFC will issue 1 billion euro ($1 billion) in covered bonds, which are collateralized against a pool of high-quality liquid assets such as MBS and government bonds. The institution anticipates selling the bonds at below 1 percent abroad.

Market experts noted KHFC’s sale of bonds to international investors not only allow the institution to sell debts at a more favorable rate but also helps lower the stress on the local debt market from the new bond offerings.

KHFC currently has an outstanding balance of $2.5 billion on covered bonds and it is mulling issuing more covered bonds, said a KHFC official.

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