Securities Industry Launches First Phase of Hoean Fund with 100 Billion KRW Scale

[Asia Economy Reporter Minji Lee] The corporate bond stabilization fund (Hoan Fund), established by the securities industry to assist non-investment grade companies in repaying their corporate bonds, has begun preparations for full-scale operation. The securities industry plans to raise 100 billion KRW initially out of the total 440 billion KRW fund to support companies struggling with corporate bond maturity repayments.

Financial Services Commission Chairman Eun Sung-soo is announcing measures to stabilize the financial market related to COVID-19 at the briefing room of the Government Seoul Office in Jongno-gu, Seoul, on March 24. Photo by Moon Ho-nam munonam@

According to the financial investment industry on the 16th, 23 securities firms along with four related institutions including Korea Securities Finance and Korea Exchange have agreed to contribute 80 billion KRW and 20 billion KRW respectively for the first payment. Although it was initially expected that the entire 440 billion KRW would be paid at once, due to the financial difficulties of securities firms amid the spread of COVID-19, the plan was changed to raise funds in stages.

The Hoan Fund was established by the securities industry to participate in the rapid corporate bond underwriting system. The rapid corporate bond underwriting system refers to KDB Industrial Bank’s purchase of bonds from companies facing difficulties in refinancing corporate bonds due to the spread of COVID-19, with 10% of these bonds allocated to the Hoan Fund.

The government estimates the amount of corporate bonds maturing that require support at 5.5 trillion KRW. Among this, the Industrial Bank plans to purchase 4.4 trillion KRW (80%) of corporate bonds, excluding 20% that companies will repay on their own. Of this amount, 2.2 trillion KRW (50%) will be covered by credit guarantee fund-backed securities (P-CBO) from the Korea Credit Guarantee Fund, 10% (440 billion KRW) will be allocated to the Hoan Fund, and 40% will be purchased by creditor banks.

Hanwha Asset Management was selected as the fund manager. Hanwha Asset Management plans to operate the fund by investing in mezzanine securities such as bonds with warrants (BW) and convertible bonds (CB). A financial investment industry official said, “After forming a ‘Bond Review Committee’ and receiving applications from each company, the underwriting volume will be determined through review, and then the fund will be operated in earnest,” adding, “All preparations for operation have been completed.”

The industry expects that once the rapid corporate bond underwriting system begins, support will be provided for non-investment grade corporate bonds rated A and below. This is because corporate bonds rated A to BBB, which were not eligible for support from the Bond Market Stabilization Fund (for AA grade and above), will be covered. Hwa-jin Lee, a researcher at Hyundai Motor Securities, said, “If the corporate bond stabilization fund is executed and the Bank of Korea purchases corporate bonds through the SPV, the credit market will generally warm up,” adding, “However, caution will remain for companies heavily affected by COVID-19 and those with relatively high proportions of related loans.”

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