Securitization in Korea

Abstract

Before 1997, other than few offshore securitization transactions, domestic asset-securitization cases were almost non-existent in Korea.. Although there were strong demands in the financial market for such transaction, it was very difficult to structure the transaction economically viable and free from

uncertainties and legal risks due to various restrictions under the Korean Commercial Code and other trust related laws and regulations of Korea. The Act Concerning Asset-Backed Securitzation Act (the ABS Act) was enacted in September 1998 to facilitate and promote securitization. This ABS Act

substantially removed the then existing legal barriers to securitization of assets. The ABS Act further conferred certain procedural privileges and benefits for securitization that met the requirements set forth under the said Act. While compliance with these requirements is a prerequisite to enjoy the benefits under the ABS Act, the ABS Act does not mandate that all securitization transactions to be subject to it.

However, certain tax exemptions are granted only to those asset-securitization complying with ABS Act.

Although, it is not impossible to structure an asset-securitization that does not comply with the specific requirements or conditions of the ABS Act, such securitization transactions will not be entitled to the

benefits under the ABS Act or the tax reductions and exemptions under relevant tax laws of Korea. Since the enactment of the ABS Act in 1997, securitzation has become one of the most popular financing techniques in Korea and the volume of transactions that have successfully closed since has grown

exponentially over the years. With increasing demand for securitization in Korea, it is expected that the ABS Act will be further fine-tuned as the Korean financial market gains experience and skills in relation

to securitization through trial and error.