KB Financial Group injects $385.6 million into S.Korea’s real estate PF

South Korea’s KB Financial Group on Monday said it will provide liquidity support for the domestic market for real estate project financing (PF) through the issuance of collateralized debt obligation (CDO) worth 501.5 billion won ($386.8 million).

A CDO is a structured financial tool in which PF bonds backed by a pool of loans and other assets are bundled together and reissued as one-year bonds through a special purpose company (SPC).

In the CDO scheduled for Wednesday, Kookmin Bank, KB Securities and KB Insurance will participate first with 281.5 billion won, followed by KB Capital and KB Securities with 100 billion won and KB Savings Bank and KB Securities 120 billion won.

Funds raised by issuing CDOs go toward refinancing short-term bridge loans with maturities of three to six months for real estate development in the Seoul metropolitan area in which large construction companies participated as builders, turning such loans into those with a maturity of one year at market interest rates.

A bridge loan is an ultra-short-term loan in which a developer provides land as collateral to raise funds for buying a business site or receives on the condition of providing credit from participating contractors. The loan is thus a "bridge" that allows the launch of construction for a project targeted by a PF loan.

This move by KB Financial Group allows builders to continue development projects by securing liquidity and the conglomerate to discover outstanding candidates for new investment.

Write to Bo-Hyung Kim at kph21c@hankyung.com