Shinhan and Lotte Diversify Funding with Overseas ABS and Kimchi Bonds
South Korean card companies, including Shinhan Card and Lotte Card, are increasingly turning to overseas asset-backed securities (ABS) and kimchi bonds (foreign currency-denominated bonds) to diversify their funding sources and mitigate financial pressures. This strategic shift comes amid market volatility, a slowdown in consumption, and rising procurement costs.
Expanding Funding Horizons
Shinhan Card issued US$250 million (approximately KRW 365 billion) in overseas ABS at the end of last month, utilizing credit card receivables as underlying assets. These securities have an average maturity of 3 years and 6 months and were fully underwritten by Societe Generale [1]. The raised funds will be allocated to repaying existing loans and bolstering operating capital.
Lotte Card followed suit in January, issuing US$300 million in ESG Overseas ABS, likewise backed by credit card receivables with a 3-year average maturity. Societe Generale also participated as an investor in this transaction. Lotte Card implemented a currency and interest rate swap contract to manage exchange rate and interest rate risks, and intends to use the proceeds to support financial inclusion for low-income families [1].
Hyundai Card has also entered the foreign currency market, issuing ₩20 million (approximately US$15.7 million) in kimchi bonds in January with a one-year maturity. These funds will be used for general operating expenses.
Industry-Wide Trend and Challenges
This move towards diversified procurement aligns with a broader industry trend. Card companies are facing challenges in maintaining profitability due to reduced merchant fees and increasing procurement costs driven by interest rate fluctuations. Managing delinquency rates and maintaining financial soundness further necessitate increased procurement stability.
The primary benefits of investing in overseas ABS and foreign currency bonds include reducing reliance on the domestic market, diversifying maturity structures, and accessing a wider investor base. Even though, companies must carefully manage costs associated with foreign exchange hedging and dollar liquidity conditions.
Future Outlook
Other card companies are also considering similar strategies. KB Kookmin Card stated the importance of timely procurement plans given increased bond market volatility and will explore overseas borrowing options like overseas ABS and syndicated loans. Woori Card and Hana Card also plan to pursue overseas procurement and the issuance of overseas ABS later this year.