Financial Supervisory Service, "Lime Redemption Postponed Funds Totaling 1.6679 Trillion Won"

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[Asia Economy Reporter Eunmo Koo] The Financial Supervisory Service (FSS) has announced the interim inspection results related to the redemption suspension incident of Lime Asset Management's funds. The inspection revealed that redemptions were suspended in 4 parent funds and 173 sub-funds, and the loss rates for 2 parent funds and their related sub-funds, for which audits have been completed, were also calculated. Notably, the losses of 29 sub-funds that entered into total return swap (TRS) contracts with securities firms and leveraged were significant, with 3 of these funds expected to incur total losses.

◆ Redemption Suspension of 4 Parent Funds and 173 Sub-Funds Totaling KRW 1.6679 Trillion

On the 14th, the FSS announced the interim inspection results based on these findings. According to the FSS, redemption suspensions occurred in 4 parent funds and 173 sub-funds managed by Lime Asset Management. The 4 parent funds primarily invest in alternative investment assets, with a total custody amount of approximately KRW 1.72 trillion. KRW 940 billion and KRW 300 billion were invested respectively in 'Pluto FI D-1 (hereafter Pluto)', which mainly invests in domestic private bonds and mezzanine assets, and 'Tetis 2 (hereafter Tetis)'. The 'Pluto TF-I (hereafter Trade Finance Fund)' and 'Credit Insured 1' invested approximately KRW 240 billion and KRW 250 billion respectively in overseas assets such as promissory notes (P-notes) and overseas trade receivables.

The custody amount of the 173 sub-funds was KRW 1.67 trillion, which, including securities firms’ TRS, invested KRW 1.72 trillion in the parent funds. The sub-funds were sold by 19 distributors, with Woori Bank (KRW 357.7 billion), Shinhan Financial Investment (KRW 324.8 billion), and Shinhan Bank (KRW 276.9 billion) accounting for 64.0% of total sales.

By investor type, individual accounts numbered 4,035 (KRW 994.3 billion), and corporate accounts numbered 581 (KRW 673.6 billion). Among individual sales of KRW 994.3 billion, the top three sellers were Woori Bank (KRW 253.1 billion), Shinhan Bank (KRW 169.7 billion), and Shinhan Financial Investment (KRW 120.2 billion). Among corporate sales of KRW 673.6 billion, the top three sellers were Shinhan Financial Investment (KRW 204.6 billion), Shinhan Bank (KRW 107.2 billion), and Woori Bank (KRW 104.6 billion).

◆ Pluto Fund 46%, Tetis Fund 17% Losses on Redemption Suspension... Some Sub-Funds Expected to Incur Total Losses

Lime Asset Management also disclosed the loss rates for two parent funds with redemption suspensions totaling KRW 1.2 trillion. Lime stated that as of the 18th, the loss rates for the Pluto and Tetis funds are expected to be 46% and 17%, respectively, compared to the previous day. Particularly, the losses of 29 sub-funds that leveraged through TRS contracts with securities firms were significant, with 3 of these funds expected to incur total losses.

Lime held a collective investment asset evaluation committee meeting and confirmed the loss rates by maintaining the existing valuation methods for assets evaluated at market or fair value, while using the recovery rates provided by Samil Accounting Corporation as the main basis for assets evaluated at book value.

Lime further stated, "For beneficiary certificates subscribed to these funds, if the asset management companies of the funds, Raum Asset Management and Port Korea Asset Management, adjust the base prices through the collective investment asset evaluation committee, the adjusted base prices will be sequentially reflected in the base prices of these funds."

Meanwhile, the losses of 29 sub-funds that leveraged through TRS contracts with securities firms were particularly large. Three funds?'Lime AI Star 1.5Y No.1', 'Lime AI Star 1.5Y No.2', and 'Lime AI Star 1.5Y No.3'?incurred total losses following the adjustment of the parent fund’s base price.

Lime explained, "The significant decline in the base prices of these funds was due to the use of TRS with a leverage ratio of 100%. The value of the assets included fell below the margin, so currently, there is a possibility that the customers’ fund contributions will be entirely lost."

However, the Trade Finance Fund, which invests in overseas assets, holds promissory notes of overseas companies, and it is expected to take a considerable amount of time to complete the audit. The FSS explained, "The principal of the P-notes invested by the Trade Finance Fund (USD 500 million) is linked to the losses of five overseas trade finance funds. If the investment losses of these five overseas trade finance funds exceed USD 200 million, the Pluto TF-1 fund may also incur total losses."

Additionally, the 'Credit Insured 1' fund’s final decision will be made based on the audit results of the three parent funds. The FSS confirmed that the Credit Insured fund invested in the Pluto fund (KRW 71.9 billion), the Trade Finance Fund (KRW 3 billion), and P-notes (KRW 47 billion).

Previously, Samil Accounting Corporation suggested a recovery rate range of 50-65% for the Pluto fund, which has a fund valuation of KRW 937.3 billion, and 58-77% for the Tetis fund, valued at KRW 242.4 billion. The audit for the remaining parent fund, the Trade Finance Fund, is ongoing, with results expected by the end of next month.

This content was produced with the assistance of AI translation services.