[Sponsored Report] Hyundai sets a financial example

G-20 financial leaders have recently been introduced to Hyundai Capital Service’s asset-backed securities (ABS) as an exemplary case of long-term, market-based financing. Hyundai Capital’s ABS was recognized last month in the meeting of G-20 Finance Ministers and Central Bank Governors in Cairns, Australia, and the International Organization of Securities Commissions’ (IOSCO) annual conference in Rio de Janeiro from Sept. 29 to Oct. 2.

This has been the first time the Korean financial industry has been selected as an example for IOSCO’s research and presented to G-20 leaders. IOSCO is an international body of securities regulators that suggests standards for the global securities sector.

Last year, market-based, long-term financing for small and medium enterprises (SMEs) and infrastructure was selected as the key strategy for economic growth and job creation at the G-20 Summit in Russia. The global financial crisis in 2008 sparked a need to improve access to financing in developed and emerging markets.

Hyundai Capital’s continuous and regular issue of cross-border ABS has proven its stability to international investors. Currently, 7.9 percent of its 17.5 trillion won ($16 billion) fund balance comes from offshore ABS and 26.4 percent from offshore bonds. The company has maintained the portion of its ABS in its total funding requirement around 15 to 20 percent to prepare for economic difficulties.

Hyundai Capital’s ABS was one of 19 cases selected worldwide as a good example of stocks, bonds, infrastructure financing, and investment funds and asset securitization for SMEs. According to the IOSCO, the company’s ABS was chosen for its advanced quality; it successfully reduced the funding cost and diversified the types of loan products in addition to providing new solutions for the issuers to access direct foreign investment.

ABS refers to a security whose payments and value are backed by a pool of underlying assets of the financial institute or the corporation serviced by the cash flow of assets. The illiquid assets with high enough property value are securitized and then gain liquidity. Hyundai Capital securitized the pool based on auto loans, the company’s biggest assets, originated by credit specialist companies, to issue ABS to international investors. Hyundai Capital Services has issued cross-border ABS every year since 2002 to overcome the limitation and volatility of the domestic market. The strong performance and conservative lending of auto loans allowed for the high rating of securitized tranches.

In 2005, the company became the first Korean credit finance corporation to issue foreign bonds, such as Samurai bonds and Euro bonds. In 2009, right after the global financial crisis, Hyundai Capital was the only Korean company that succeeded in issuing foreign bonds. Earlier this year, the company’s local corporation in the United Kingdom (HCUK) issued ABS worth 531 billion won in the local capital market. The total amount of ABS added up to 5.2 trillion won.

The company’s ABS, which is an ideal combination of the auto and financial industry, has been praised by Financial Services Commission and the Financial Supervisory Service as a model case for a domestic financial company to expand abroad, according to the company.

Hyundai Capital expects this year’s selection as an exemplary case from the G-20 and IOSCO will help the company’s competitiveness become recognized to the financial specialists worldwide.

Richard Lamb, the director of Asia’s structured finance division in the Bank of Tokyo-Mitsubishi UFJ, commented that the company’s ABS was worth benchmarking.

“Hyundai Capital Service’s ABS is a popular product accepted by international investors and the selection as a model case by an international body is not a surprise,” said Lamb.