HUG Suspends Bond Issuance for Capital Expansion... Halting 'Concerns Over Jeonse Loan Expansion'

The Korea Housing & Urban Guarantee Corporation (HUG) abruptly halted its bond issuance schedule. The capital increase of HUG, which operates the Jeonse deposit return guarantee, was interpreted as a signal of expanded Jeonse loans, prompting financial authorities to intervene.

According to the Ministry of Land, Infrastructure and Transport on the 29th, HUG stopped the procedures for issuing bonds (hybrid capital securities) worth up to 700 billion KRW on the same day.

The day before, HUG had submitted a securities registration statement and planned to conduct demand forecasting for institutional investors on the day. However, the financial authorities conveyed the opinion that "additional consultation with related ministries is necessary," leading to the suspension of the process.

A Ministry of Land, Infrastructure and Transport official stated, "This is to request a more detailed supplementation of the necessity for issuing hybrid capital securities," adding, "After supplementation, we will consult with financial authorities and proceed with bond issuance."

HUG's move to issue hybrid capital securities is due to continuous losses caused by guarantee accidents such as Jeonse fraud. The recovery rate of amounts HUG collects from landlords stood at the 8% range from January to August this year. HUG is expected to record a deficit in the 3 trillion KRW range this year, similar to last year.

The problem is that HUG's guarantee limit is linked to its capital, so if accumulated losses reduce the capital, there could be a situation where Jeonse guarantee subscriptions are suspended. HUG's guarantee limit was 70 times its capital but was increased to 90 times last year through a legal amendment, and the statutory capital was also expanded from 5 trillion KRW to 10 trillion KRW.

However, as the aftermath of Jeonse fraud and "Kkangtong Jeonse" (empty Jeonse) continued, HUG pushed for the issuance of hybrid capital securities. Hybrid capital securities have a maturity of over 30 years and, although classified as debt, possess capital characteristics.

HUG's position is that capital expansion is necessary within this year to stably maintain Jeonse guarantees and rental guarantees.

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