KIC mulling injection of more funds into BOAKorea Investment Corp., Korea’s sovereign wealth fund, will decide next week whether to make an additional investment in BOA-Merrill Lynch, it said.
In 2008, the KIC invested $2 billion in Merrill Lynch, but it suffered heavy valuation losses worth around $1.5 billion due to the global financial crisis. Merrill Lynch was later purchased by Bank of America Corp. (BOA).
It was estimated Merrill Lynch’s shares on average were around $29. However, it recently fell to around $7. As a result the loss rate is estimated at roughly 76 percent.
“Shares of BOA-Merrill Lynch seemed to hit rock bottom but it may take some time before people see gains,” Choi Chong-suk, chief executive at KIC, was quoted as telling reporters in Washington.
Even as the KIC suffered heavy losses, the sovereign wealth fund re-invested $78 million using part of the dividend income from its original investment this year.
It said earlier that it plans to closely watch the global economy and financial markets for investment opportunities.
Choi said the fund plans to hold a meeting on Wednesday to decide whether to make an additional investment in the BOA.
Market watchers said that as the global financial markets have been rocked by the first-ever U.S. credit downgrade and euro zone debt fears, the KIC’s potential investment is feared to incur further losses if BOA’s share prices suffer a setback.
Touching on the recent decision by Moody’s Investors Service to downgrade the BOA’s credit rating, Choi said there seemed to be no fundamental credit problems with the bank.
Choi, meanwhile, said that the KIC plans to invest around $200 million in Chinese currency-denominated assets as there is a high chance that the value of the yuan will rise.
“There is a high possibility that the value of the Hong Kong dollar or yuan will appreciate,” he said. “The KIC plans to kick start investment in yuan assets in the future.”
The KIC was established in July 2005 to manage part of Korea’s foreign reserves entrusted by the government and the Bank of Korea. It had more than $35 billion in assets under management as of the end of December.
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