Korea to Review Freeze on Notes Tied to Singapore Firms

Financial regulators in South Korea are reviewing why investors in some structured notes are being prevented from withdrawing their money, according to a person familiar with the matter.

The Financial Supervisory Service is looking into at least 278.9 billion won ($234 million) of such securities bought by South Korean individuals and companies that are linked to account receivables of certain Singapore-based trading companies, said the person, who asked not to be identified because they aren’t authorized to speak publicly on the issue. The underlying assets were managed by TransAsia Private Capital Ltd., a Hong Kong-based alternative asset management firm, and at least 100 billion won has been halted from redemptions thus far, the person said.

Korean regulators are trying to figure out if the Singapore firms are having any difficulties with regard to repayments, the person said, after the coronavirus pandemic triggered a collapse in global trades. They are also checking whether the companies bought insurance covers, said the person. A spokesperson for FSS declined to comment on the matter.

Falling interest rates have pushed Korean investors, notably individuals, to jump into derivative-linked products that carry massive risks. While it’s the investor’s responsibility to read up on the risks of an investment, the nation’s watchdogs have probed whether those products were sold without enough information provided to buyers or whether they had design flaws.

Insurance Cover

Seoul-based KB Securities Co. sold about 107 billion won of the notes in question, the person said. These were supposed to be tied to trade-finance assets insured by insurance companies with a solid credit rating, according to another person with knowledge of the matter, who asked not to be identified.

TransAsia didn’t respond to an email and two calls made to its Hong Kong office seeking comment. KB Securities will do its best to protect investors and retrieve clients’ money as soon as possible, a spokesperson said by phone, confirming the freeze on withdrawals.

The structured notes sold carry a one-year maturity and guarantee an annual return of about 4%, compared with a record-low benchmark interest rate of 0.5% in Korea, according to a report from the Edaily newspaper earlier.

©2020 Bloomberg L.P.

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