1228 Companies Eligible to Issue ABS Following Credit Restriction Removal

Financial Services Commission Reduces Review Period to 5 Business Days... Legislative Notice Expected Within First Half of the Year

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[Asia Economy Reporter Park Jihwan] The financial authorities' decision to allow the issuance of asset-backed securities (ABS) by general companies with credit ratings below BB is expected to enable companies with short business histories and low or no credit ratings to raise funds more easily. Approximately 70% of capital market users who were previously unable to issue ABS are expected to newly enter the market.

According to the financial authorities on the 18th, the expansion of the range of companies eligible to issue asset-backed securities (ABS) aims to abolish the uniform credit rating requirement for general corporations and allow various companies with high-quality assets to participate in the system.

General corporations have a credit rating restriction (BB or higher), so companies with low credit ratings or no credit rating cannot issue ABS. However, with the abolition of the ABS issuance requirement (BB rating), startups and small and medium-sized enterprises (SMEs) with credit ratings below 'BB', as well as speculative-grade corporations (BB+ or lower), will be able to issue asset-backed securities (ABS) in the future.

The number of companies eligible to issue ABS currently stands at 358 (BB rating or higher), but it is estimated to increase to 1,228 once the credit restriction is removed.

Funding costs will also be reduced. The registration securitization review period is expected to be shortened from the previous 10 business days to within 5 business days. A Financial Services Commission official explained, "Since securitized securities are issued based on the quality of the underlying assets rather than the company's credit rating, uniformly restricting companies' credit ratings may be considered excessive."

Various securitization structures will also be allowed. It has been explicitly permitted for special purpose companies (SPCs) to directly acquire assets from an unspecified number of asset holders for securitization. This is expected to lay the foundation for revitalizing the securitization of accounts receivable and corporate bonds from multiple creditors, as well as the securitization of bonds from SMEs with lower credit ratings.

The qualifications for asset managers will also be revised. Currently, asset managers are limited to comprehensive credit information providers, asset holders, and those specializing in asset management (AMCs), but in the future, those licensed for debt collection will be allowed to perform asset management tasks. However, it is stipulated that asset managers must comply with the Credit Information Act when conducting debt collection, and a duty of care for asset managers and task contractors will be newly established.

The Financial Services Commission plans to start revising the 'Asset Securitization Act' based on the discussions held at the meeting on the same day. They aim to announce the legislative proposal within the first half of the year and complete the revision of subordinate regulations as quickly as possible.

Sohn Byungdoo, Vice Chairman of the Financial Services Commission, said, "Asset securitization is a means for companies to securitize various assets they hold and raise funds under favorable conditions," adding, "To become a system that various companies can actively use, comprehensive institutional improvements, including amendments to the Asset Securitization Act, are necessary."

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