Heungkuk Life Insurance Exercises Call Option Late... Other Insurers Proceed as Planned

"Prices of New Capital Securities for Banks and Financial Holdings Also Recover"
"Foreign Currency Bond Market to Stabilize to Some Extent"

Heungkuk Life Insurance Seoul Jongno-gu Headquarters Photo by Yonhap News

[Asia Economy reporters Changhwan Lee and Yoonju Hwang] Heungkuk Life Insurance has decided to exercise the early redemption right (call option) on its $500 million overseas hybrid capital securities scheduled for the 9th. Heungkuk Life Insurance hastily changed its decision after delaying the call option exercise, which caused turmoil in the financial market, including a sharp drop in bond prices of Korean companies in overseas markets. The market expects that the exercise of Heungkuk Life Insurance's call option will alleviate some of the financial market instability.

Heungkuk Life Insurance announced on the 7th, "We have decided to exercise the call option on the $500 million overseas hybrid capital securities issued in November 2017."

The company had postponed the call option exercise on the overseas hybrid capital securities on the 1st due to difficulties in raising funds amid a sharp rise in benchmark interest rates. Following this decision, the prices of foreign currency-denominated bonds issued by domestic companies plummeted in the overseas bond market, significantly worsening investment sentiment toward Korean bonds.

As investment sentiment toward Korean bonds sharply declined, raising concerns that overseas fundraising by Korean companies would become significantly more difficult, financial authorities intervened to encourage Heungkuk Life Insurance to exercise the call option.

The Financial Services Commission and the Financial Supervisory Service held a meeting with the life insurance industry on the 3rd to discuss support measures for Heungkuk Life Insurance. At this meeting, financial support through other financial institutions was discussed. Heungkuk Life Insurance plans to raise the $500 million through its own funds, financial support from its major shareholder Taekwang Group, issuance of repurchase agreements (RP) with commercial banks, and loans from other insurance companies.

A Heungkuk Life Insurance official said, "We plan to first gather as much of our own funds as possible, then raise the remaining amount through RP issuance or loans from other companies."

The market viewed Heungkuk Life Insurance's decision positively. The prices of foreign currency-denominated bonds of Korean companies, which had sharply declined, are expected to rebound, and foreign investors' investment sentiment toward domestic companies' bonds is also anticipated to recover to some extent.

Choi Seongjong, a researcher at NH Investment & Securities, said, "Prices of hybrid capital securities of banks and financial holding companies, which had weakened due to Heungkuk Life Insurance's failure to exercise the call option, have shown signs of recovery since yesterday. I believe the foreign bond market will stabilize to some extent."

It is also expected that other insurance companies will follow suit in exercising their hybrid capital securities call options. Following Heungkuk Life Insurance, DB Life Insurance plans to exercise the call option on its 30 billion won hybrid capital securities, postponed to May next year, as scheduled on the 13th of this month. Companies such as Hanwha Life Insurance and KDB Life Insurance, which have call options on hybrid capital securities scheduled for the first half of next year, also plan to exercise their call options as planned.

An official from the insurance industry emphasized, "Due to the Heungkuk Life Insurance incident, the possibility of other insurance companies not exercising their hybrid capital securities call options has almost disappeared."

Song Mijeong, a senior researcher at Korea Ratings, explained, "Heungkuk Life Insurance's decision to exercise the hybrid capital securities call option will have a stabilizing effect on the previously unsettled market. In particular, since the timing of the call option exercise for insurance companies is approaching soon, the possibility of non-exercise has decreased, which helps restore confidence in the bond market."

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