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[Exclusive] Meritz Securities bond sale raises W1.2tr on path to become ‘mega IB’

Asset manager sells W1tr bonds to meet debt guarantee rules

Meritz Securities' office in Seoul. (Yonhap)
Meritz Securities' office in Seoul. (Yonhap)



Asset management firm Meritz Securities recently sold more than a trillion won of property bonds in a bid to meet government rules that require securities firms to lower debt guarantees, according to sources Tuesday.

The Seoul-based firm last week sold bonds worth 1.2 trillion won ($983 million) to institutional investors and insurance firms, sources said. Some of the buyers are said to include KDB Life Insurance, IBK Pension Insurance, and Tongyang Life Insurance.

The latest bond sale is part of the firm’s efforts to meet an legal standard that requires securities firms to reduce their debt guarantees in real estate project financing below 100 percent of equity capital by July 2021.

The amount of its debt guarantees reached some 8 trillion won late last year, approximately 220 percent higher than 3.7 trillion won of its equity capital. Local securities have ratios of 71 percent on average.

“The deal was aimed at scaling down senior bonds as investors seek less risky investments amid the coronavirus outbreak,” said an industry source on condition of anonymity.

“To further reduce the guarantee-to-equity ratio, Meritz will try to sell additional property bonds in the coming months.”

The company said the latest deal was part of its usual business operations.

The bonds sale is also deemed to be linked to its planned transition to a mega investment bank -- owning 4 trillion won in equity capital. Any violation of financial rules can become a hurdle for Meritz’s plan to become the nation’s sixth mega investment bank.

Among its competitors in the IB race are Shinhan Securities and Investment and Hana Financial Investment. Shinhan Securities and Investment, which already met the requirement last year, has yet to apply to be registered as an investment bank as it has been reeling from a fund fiasco linked to hedge fund company Lime Asset Management and its troubled funds.

Hana Financial Investment is seemingly gauging the right timing for applying to the Financial Services Commission, presumably because of the coronavirus pandemic, which is posing a serious challenge across industries.

“There is no need to rush, and the company will take enough time to file the application,” a spokesperson from Hana Financial Investment said.

The nation has so far five asset management firms operating as mega investment banks -- Mirae Asset Daewoo, NH Investment and Securities, Korea Investment and Securities, KB Securities and Samsung Securities.

The mega IB status allows financial firms to issue a promissory note with a maximum limit of 200 percent of its equity capital with a maturity of one year of less, which enhances their ability to raise funds.

By Kim Young-won (wone0102@heraldcorp.com)
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