[Corporate Financing] 'Leverage Regulation Limit' KB Capital, 300 Billion Auto Loan Securitization

[Asia Economy Reporter Lim Jeong-su] KB Capital is securitizing 300 billion KRW worth of auto installment loans (Auto Loans). This move aims to reduce its leverage ratio (total assets to equity ratio), which is approaching the regulatory limit of 10 times.

According to the investment banking (IB) industry on the 20th, KB Capital will issue asset-backed securities (ABS) worth 276.1 billion KRW on the 27th. The company will sell new car installment receivables and loan assets worth 300 billion KRW on a principal basis to a special purpose company (SPC), which will then issue ABS backed by the repayment principal and interest as underlying assets.

KB Securities, an affiliate of the same group, is in charge of managing the fundraising. KB Securities plans to issue senior ABS worth 245 billion KRW and mezzanine ABS worth 31.1 billion KRW through the SPC and sell them to institutional investors. Including the funds raised from the ABS issuance, a total of 306.6 billion KRW will be paid to KB Capital as the asset sale proceeds. NongHyup Bank provided a credit line of up to 10 billion KRW for the senior ABS.

KB Capital's large-scale asset securitization is aimed at managing its leverage ratio. As of the first half of this year, KB Capital's total assets stood at 12.1404 trillion KRW, and equity capital was 1.274 trillion KRW. The leverage ratio corresponds to 9.53 times. The leverage ratio rapidly increased during the asset expansion process, approaching the regulatory level of 10 times.

To expand assets, a capital increase or asset sale is necessary. If KB Capital issues ABS, equity capital will be maintained at 1.274 trillion KRW, and total assets will decrease to approximately 11.84 trillion KRW. At the same time, it will secure over 300 billion KRW in cash liquidity to be used as operating funds. The leverage ratio will also drop to about 9.29 times.

Financial authorities are reviewing adjustments to the leverage limits for credit finance companies, including capital companies that showed vulnerability in fundraising due to the COVID-19 pandemic. If leverage regulations are tightened, KB Financial Group, the 100% major shareholder of KB Capital, will need to inject capital or conduct additional securitization. KB Capital received a capital injection of 50 billion KRW from KB Financial Group in March.

An industry insider predicted, "Adjustments to fundraising or business strategies will be necessary in response to the financial authorities' regulatory strengthening measures."

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