Busan Gimhae Light Rail ABS Issuance... Saving 12.9 Billion KRW in Public Finances Over 21 Years

Shinyong Bojeung Gigeum Increases Guarantee Limit to Issue Additional Asset-Backed Securities
Refinancing Part of Investment with Total 150.8 Billion Won to Reduce Interest Burden

Busan-Gimhae Light Rail Transit. [Yonhap News]

[Asia Economy Yeongnam Reporting Headquarters Reporter Kim Yong-woo] The Busan-Gimhae Light Rail Transit is expected to achieve a financial saving of approximately 12.9 billion KRW over 21 years through the additional issuance of ABS (Asset-Backed Securities).

Following the 2017 business restructuring that converted the Minimum Revenue Guarantee (MRG) method to the Cost Compensation Contract (MCC) method, resulting in a financial saving of 304 billion KRW, further financial savings are anticipated.

Busan City issued ABS worth 150.8 billion KRW as the low interest rate trend in the financial market continued and the credit guarantee limit was expanded due to the revision of the Enforcement Decree of the Private Investment Act.

ABS refers to securities issued based on tangible and intangible securitized assets held by companies, etc.

The interest rate was issued at 2.3%, which is 0.85% lower than the previous 3.15%, with a guarantee from the Korea Credit Guarantee Fund. The weighted average interest rate for the entire refinancing, including changes in external capital procurement conditions (interest rate reduction), decreased from 3.18% before the change to 2.84%, a reduction of 0.34%.

Through this, 75.7 billion KRW of variable interest rate portion and 75.1 billion KRW of fixed interest rate portion were refinanced, lowering the interest on the principal.

Operating the Busan-Gimhae Light Rail Transit at a lower interest rate reduces the interest burden accordingly. When converted over the 21-year operation period of the Busan-Gimhae Light Rail Transit (until 2041), it is expected to achieve a financial saving effect of about 12.9 billion KRW.

Park Jin-ok, Director of the Busan City Transportation Bureau, said, “Following the financial savings achieved by converting the Minimum Revenue Guarantee (MRG) method to the Cost Compensation Contract (MCC) method, we have additionally reduced finances, enabling financial soundness.”