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The Housing Finance Practice Group KoMoCo Presentation

The Housing Finance Practice Group KoMoCo Presentation. By Jean-Marie Masse May 18, 2001. Points for Discussion. KoMoCo in the contest of IFC’s investments in Korea financial sector July 1998-2001 Chronological events on KoMoCo project

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The Housing Finance Practice Group KoMoCo Presentation

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  1. The Housing Finance Practice GroupKoMoCo Presentation By Jean-Marie Masse May 18, 2001

  2. Points for Discussion • KoMoCo in the contest of IFC’s investments in Korea financial sector July 1998-2001 • Chronological events on KoMoCo project • Criteria of selection for Foreign Technical Partner (FTP) • Some afterthoughts

  3. Phase 1: Initial Stage • July 1998: IFC prospective mission to Korea to study the housing finance market • December 1998: MoCT (Ministry of Construction and Transportation) and Housing & Commercial Bank (H&CB) invite IFC to participate in competing new secondary mortgage market entities • January 1999: IFC selects MoCT project, and subsequently H&CB joins IFC • April 1999: MOU signed amongst 3 large banks, 1 insurance company, 1 investment trust management company, MoCT and IFC toestablish KoMoCo

  4. Phase 2: KoMoCo establishment and IFC TA • May 1999: Japan/IFC TF grants US$300,000 to fund a TA program. Maureen Bolton, Michael Bevier, Korean lawyers are hired successively to craft/review KoMoCo business plan; legal, regulatory, & supervisory framework • October 1999: KoMoCo incorporated with W100 billion K (US$85 million) and licensed as financial institution. KoMoCo owns 45% and warehouses 15% for IFC • November 1999: Second MOU signed IFC/MoCT/Sponsors to launch search of FTP

  5. Phase 3: FTP Search • December 1999: Info memo circulated to 9 potential FTP & announced on REUTERS • December 1999: MBS Law enacted by Korean Parliament • March 1999: Macquarie Bank and Merrill Lynch Consortium submit final FTP proposal. On 3/30/00 IFC Board approves US$15 million equity investment and US$85 million credit enhancement facility to support MBS placement • Switch of leading FTP candidate from Macquarie Bank to ML

  6. Phase 4: ML Consortium selected • August 2000: Pam Lamoreaux ex-COO of Hong Kong Mortgage Corp starts in Seoul as Senior Resident Advisor (SRA) posted by ML • October 2000: Closing of equity investment. IFC and ML own 10% each of KoMoCo. Finalization of extensive TA package worth US$1.2 million. • December 2000: KoMoCo ends the year with US$1.2 billion MBS issued in May, September, De3cember 2000. 40 staff. • January 2001: Jim France succeeds Pam as SRA.

  7. Phase 5: KoMoCO On-going Business • March 2001: Michael BeVier nominated by IFC as KoMoCO Board representative • May 18, 01: IFC buys for W 54 billion (US$42 million) MBS Won-denominated, and swap all cash flows for US$ with UBS and JP Morgan Chase. Tranches purchased are 1; 1.5; 2; 2.5; 4.5 year maturity; placed through public offering; and listed on Korea Stock Exchange; indicative credit rating above BBB by FITCH. Long Term tranches are sold to life insurance, pension funds, semi-governmental organization • IFC became first non-domestic institutional investor to purchase MBS in Korea.

  8. After Thought • Source of mortgage for KoMoCo comes from National housing Fund – needs to diversify => opportunity for IFC to establish a primary home mortgage origination company tailored to feed KoMoCo with home mortgages to securitize • May be FTP search was overdone/IFC is well fitted to lead in emerging market • Overall a good illustration of institution building/deepening and broadening of financial sector including long term fixed income securities • IFC established very strong lings with various partners involved in the project – some could be leveraged globally

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