Financial Instruments and Markets: A Casebook

12

KAMCO and the Cross-Border Securitization of Korean Non-Performing Loans

Chung Jae-Ryong closed the door to his office. It was late April 2000 in Seoul, and the Chairman and CEO of the Korea Asset Management Company (KAMCO) had an important document to review: a securitization proposal for some of the distressed Korean debt that KAMCO held on its balance sheets. “Bad debt” was a common phenomenon for all South Korean banks since the country's 1997 financial crisis. As a government agency, KAMCO played an important role in rehabilitating the country's banking system. Its mandate was to acquire non-performing loans (NPLs) from troubled financial institutions and dispose of them as quickly as possible.

Several months ago Chung had asked bankers at UBS Warburg and Deutsche Bank to think about offering securitized distressed Korean debt on the Luxembourg exchange. The resulting proposal that Chung now had before him was a complex structured offering that involved dollar denominated notes secured by restructured loans to Korean companies with various forms of credit enhancement. If successful, the $367 milliondeal would be the largest Korean Asset Backed Securitization (ABS) offering ever— and the first international non-performing loan securitization in Asia outside of Japan. Such a deal ought to build international interest in Korean debt, helping to develop both the distressed loan and ABS markets. The offering would also raise KAMCO's regional profile as an NPL specialist and ...