‘A큐온·Hanguk’ Successively... Capital Company Secures Funds by Selling Operating Assets

Capital companies such as Accuon Capital (formerly KT Capital) and Korea Capital are securitizing non-performing-free normal bonds to raise funds. Capital companies, which have become in need of liquidity due to project financing (PF) defaults, are utilizing asset securitization as an alternative to high-interest capital bonds. As concerns over insolvency in the secondary financial sector grow and funding costs rise, this method of asset securitization is expected to continue increasing.

According to the investment banking (IB) industry on the 21st, Accuon Capital raised funds by securitizing operating assets worth around 120 billion KRW, with Korea Investment & Securities as the lead manager. The method involves transferring sufficiently collateralized assets without delinquencies among the operating assets held to a trust at Woori Bank, and then issuing securitized securities backed by trust beneficiary certificates issued by Woori Bank.

원본보기 아이콘

To raise funds, Accuon Capital transferred 3,221 cases of general loans, leases, and installment finance claims to the trust. The average value per claim is approximately 39.36 million KRW. Among the total sold assets, general loans account for the largest portion at 52%, followed by lease claims (28%) and installment claims (20%). The sold assets amount to nearly 5% of Accuon Capital’s total operating assets of 2.3 trillion KRW as of the end of the first quarter of this year.

Accuon Capital is known to hold a large volume of claims targeting Doosan Group affiliates, having merged with the former Doosan Capital. Accordingly, among the sold claims, many include collateral loans, leases, and installment finance related to construction machinery, industrial vehicles, and machine tools purchased from Doosan affiliates. All of these are normal bonds without delinquencies.

Earlier, Korea Capital also securitized financial claims worth 325 billion KRW to raise funds using the same method. This accounts for over 9% of its total operating assets. Similar to Accuon Capital, it sold the assets to a trust at Woori Bank and then securitized the trust beneficiary certificates, with Korea Investment & Securities and KB Securities acting as lead managers.

The reason capital companies choose asset securitization as a liquidity strategy is due to increased financial burdens from PF defaults and a deteriorating capital bond issuance environment caused by rising market interest rates. Several capital companies, including these two, are facing a phase where delinquencies and overall non-performing assets are increasing due to PF defaults.

Accuon Capital’s watch-listed assets overdue by more than one month amounted to 253.7 billion KRW as of the end of the first quarter this year, increasing by over 100 billion KRW from around 130 billion KRW in 2022 within a year. Korea Capital has also seen a rapid increase in the proportion of watch-listed assets among PF loans recently. A capital company official stated, "While financial burdens generally increase as defaults rise, increasing new assets through asset securitization can dilute the default ratio."

High interest rates have also acted as a trigger for asset securitization. The recent bond (capital bond) issuance rates for Accuon Capital and Korea Capital are formed at the mid-to-high 5% range. Accuon Capital’s funding rate is somewhat higher than Korea Capital, which has the Military Mutual Aid Association as its parent company. Accuon Capital’s major shareholder is Agora L.P., created by the Hong Kong-based private equity firm Baring PEA. Baring PEA was sold to the Swedish private equity firm EQT Partners.

A bond market official said, "There is a widening gap in funding rates between bank-affiliated capital companies, which can receive sufficient support from affiliates in emergencies, and non-bank capital companies," adding, "As PF defaults in the secondary financial sector emerge one by one, the gap in funding rates among capital companies will continue to widen depending on whether they have sufficient buffers against defaults."

For this reason, it is known that several capital companies besides these two are exploring ways to raise funds through asset securitization. An IB industry official forecasted, "During the expansion of PF defaults over the past one to two years, the maturity of borrowings has shortened around some capital companies. Rather than responding to all maturity volumes of existing bonds through bond issuance, more capital companies are expected to appropriately utilize asset securitization to raise funds for maturity repayments."

© The Asia Business Daily(www.asiae.co.kr). All rights reserved.