German Heritage DLS Issuer Files for Bankruptcy Proceedings... Shinhan Reviews Priority Principal Repayment

Bankruptcy Confirmation Likely to Lower Recovery Value Due to Fire Sale
Shinhan Investment Corp to Hold Board Meeting on 9th to Discuss Priority Compensation

[Asia Economy Reporter Haeyoung Kwon] Bankruptcy proceedings have begun against a German developer that received funds from German Heritage Derivative Linked Securities (DLS) sold in South Korea worth 530 billion KRW. If the bankruptcy is confirmed, there is a high possibility that assets will be sold at a low price, increasing investors' concerns about principal losses. Shinhan Financial Investment, which has the largest sales volume, is considering a plan to compensate investors up to 50% of their principal.

According to the financial sector on the 11th, Singapore-based Banzaran Asset Management has initiated bankruptcy proceedings against the local developer German Property Group (GPG), which received investment funds from the German Heritage DLS, due to default.

The German Heritage DLS is a product that invests in projects purchasing German cultural assets such as barracks, monasteries, and castles, and developing them into luxury residential facilities. In South Korea, securities firms and banks sold about 530 billion KRW worth. However, due to difficulties in local development projects, repayments have been repeatedly delayed, causing unpaid investment funds to exceed 200 billion KRW. Banzaran Asset Management attempted to conclude a comprehensive power of attorney (PoA) agreement to receive broad authority from the developer GPG, including the sale of investment assets, but failed to reach an agreement with GPG and has now initiated bankruptcy proceedings against the developer.

A Shinhan Financial Investment official stated, "We received notice from the asset manager that bankruptcy proceedings against the German developer have begun and that asset sales due to default will take place. However, since we informed GPG that if a PoA is signed by the 17th, the bankruptcy application will be halted, there is still a possibility for negotiation."

If the bankruptcy of the local developer that received the German Heritage DLS investment funds is confirmed, investors' concerns about principal losses are expected to increase further. If the asset manager directly proceeds with asset sales, there is a high possibility of maximizing asset sale value and recovering principal and interest as much as possible. However, typically, bankruptcy trustees appointed by the court tend to be relatively passive in maximizing sale value.

Meanwhile, Shinhan Financial Investment held a board meeting on the 9th to discuss measures to prioritize relief for German Heritage DLS investors. It is reported that they discussed a plan to compensate up to 50% of the damage amount to investors who have not received repayment by maturity.

On the other hand, Shinhan Financial Investment sold the most German Heritage DLS, amounting to 379.8 billion KRW, from June 2017 to December 2018 (based on sales balance). It is understood that a significant portion of the DLS investment products sold by Shinhan Financial Investment do not even have collateral set. According to internal data from Shinhan Financial Investment, only 9 out of 17 cases have confirmed normal collateral. The remaining 8 cases are in uncertain states regarding normal collateral setting, such as presumed normal, registration in progress, or temporary collateral provision.

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