Korea Asset Management Co., a government agency with USD40 billion in assets, expects to increase its use of currency swaps on the back of a planned expansion of its overseas asset-backed securities issuance this year. Issuing ABS overseas is part of a longer-term plan to tap a wider investor base and ensure liquidity for these investors, said C.H. Kim, executive director, securitization department in Seoul. Although it issued overseas last year, it focused more on the domestic market, he added.
KAMCO wants to use swaps to hedge currency risk, Kim said. The overseas bonds will likely be issued in U.S. dollars, while some 90% of its USD40 billion non-performing loan assets are Korean won-denominated. The rest are U.S. dollar- and other currency-denominated, he said, declining to specify which. Its liabilities total some USD18.1 billion, USD4 billion of which are U.S. dollar-denominated and the rest in Korean won. Its assets and liabilities have average maturities of five years.
Last year, KAMCO entered into a U.S. dollar-to-Japanese yen currency swap, Kim said. It also uses domestic interest-rate swaps, he said, declining to reveal the size of its derivatives book.
The agency was formed in November 1997 to help stabilize Korea's economy and aid its recovery from the Asian financial crisis, Fby buying non-performing loans from distressed corporates. The ABS issues securitize non-performing loans.
Relationship and pricing come foremost when choosing counterparties, Kim said. Although it looks for a bank it can trust, pricing typically wins, he added.
