Social Securitisation: a new tool for issuers to deliver a positive impact to communities
Asset-Backed Securitisation (ABS) can raise innovative financing for lower-income individuals and open up a new ESG asset class for issuers and investors.
Corporations from all industry sectors are setting ambitious sustainability objectives for their business. In order to align this strategy with their financing, they are turning to Environmental, Social and Governance (ESG) securities more and more as a major funding source, creating a new investment class in its own right. Until recently, most bond issuances have been ‘green’ financings, with the proceeds earmarked to reduce greenhouse gas emissions or build sustainable infrastructure. However, ESG issuances with social features accelerated during the Covid-19 pandemic as issuers sought to ease its impacts on society, reaching US$147.7 billion in 2020 – rising sevenfold in just one year.1
Pioneering Social ABS
Societe Generale has completed a pioneering Social ABS of credit card receivables for Shinhan Card, South Korea’s largest credit card company. Also, the first transaction of its kind arranged globally by Societe Generale. This KRW 350 billion (US$ 310 million) deal attaches social goals to the use of the proceeds, creating a template for future ESG-focused originators in the securitisation space.
“Social securitisation is a very new asset class and it was important for us to promote innovation in sustainability finance for the asset-backed products market,” said Florence Coeroli, Head of Asset-Backed Products for Asia Pacific at Societe Generale.
Shinhan Card is an affiliate of Shinhan Financial Group, Korea’s largest bank with assets worth US$538 billion.2 This social structure was its first securitisation in 2021, backed by an underlying portfolio of granular high-quality credit card receivables from prime obligors.
Furthering financial inclusion
The transaction’s social feature aligns with Shinhan Financial Group's Sustainable Development Goals (SDGs) Financing Framework.
The issuer’s SDG commitments include a social goal: “all men and women, in particular the poor and the vulnerable, have equal rights to economic resources.” The transaction’s proceeds are dedicated to a financial inclusion programme providing financing for low-to-moderate income people.
Attractive to issuers
Social ABS can attract a wide range of originators because of their flexible structure. “The collateral could be credit card receivables, auto loans or mortgages. What matters is the use of proceeds that need to demonstrate a social benefit, making this format very flexible for our clients to adapt to their specific social impact projects,” Florence adds.
It also complements corporate bond issuance through the diversification of investors and the use of collateral to obtain a competitive funding cost. In other words, Social ABS enables the company to diversify its funding sources, promote its sustainability strategy and also meet investor demand for ESG investments.
“This innovative financing structure delivers a range of benefits. It enables Shinhan Card to deliver on its goal of creating a positive social impact, provides access to credit for an underserved group, and blazes a trail for further Social ABS issuance from the region which is already quite advanced in the social bond market,” says Eugene Kim, director of Asset-Backed Products Asia at Societe Generale.
“We are delighted to pioneer a new financing structure that underlines Shinhan Financial Group’s commitment to the SDGs and drives financial inclusion in Korea. With the support of our ESG-focused banking partners like Societe Generale, we will continue to access global capital markets for our responsible financing activities,” said Mr. Gwan Chul Moon, Deputy General Manager of Finance Team at Shinhan Card.
Supporting clients’ SDG commitments
Societe Generale was sole lender and sustainability coordinator on the transaction. The transaction is well structured to mitigate various risks, including the credit risk of the underlying receivables, through stringent eligibility criteria, credit enhancement and other structural features.
Korea’s robust consumer credit oversight and regulation safeguarding the robustness of the credit card industry has been well recognized by both domestic and international players like Societe Generale in the securitisation market. As a Social ABS, Shinhan’s application of the proceeds to a social cause as well as the impact of such financing will be reported to investors on an ongoing basis.
This deal demonstrates Societe Generale ability to innovate, as well as its leading expertise and structuring capabilities in both securitisation and Sustainable Finance in support of clients’ sustainability goals.