South Korea will allow below investment-grade companies to issue asset-backed securities (ABS) while reinforcing investor protection for the higher-yield corporate debt, according to the Financial Services Commission.

Under the outline to improve ABS system, credit requirements will be removed for the seller, paving the way for companies at BB or lower in credit rating to issue debt backed by their assets.

The authority proposed to introduce risk retention rule that requires asset holders to share a portion – about 5 percent – of ABS credit risk to enhance integrity of the securitization.

The securities are type of debt backed by financial assets such as loans and cash receivables.

The FSC plans to diversity risk retention method and exempt and ease regulatory barrier on high-grade assets such as public institution guaranteed securities to prevent unnecessary market contraction.

The FSC will establish an integrated ABS information system that will provide information on ABS issuance, filing, and credit evaluation to boost transparency. Non-registered ABS will also have to unveil key information to allow transparency on financing subject and basic asset record.

To diversify fund-raising means for below investment-grade companies, credit eligibility for the seller. The move can allow 70 percent increase in the issuer. Securitization of assets held by the central and local governments and civilian lenders also will be allowed.

The authority also will study including invisible assets such as intellectual property rights and royalties for securitization.

The revisions will be ready within the first half.

By Pulse

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