FSS says Tongyang Securities is safe

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FSS says Tongyang Securities is safe

While retail investors agonize over whether their assets at Tongyang Securities are threatened by ongoing liquidity woes at Tongyang Group, a senior official at the country’s financial regulator said yesterday, “There is no need to worry.”

Kim Gun-sop, senior deputy governor at the Financial Supervisory Service, said yesterday: “Even though the liquidity crisis of Tongyang Group worsens, there will be no problem for Tongyang Group to protect its customer assets. We have inspected the overall asset soundness of Tongyang Securities and were able to confirm that customer deposits and investment funds for financial products are managed separately from company assets and are secured safely.”

Kim’s comments were made in a briefing meant to ease investors’ jitters yesterday at FSS headquarters in Yeouido, western Seoul. According to industry sources, Tongyang Securities has received many calls this week from customers who invested in stocks, bonds and funds managed by the securities firm. They wanted to know if they should close their cash management accounts (CMAs) and equity-linked securities (ELS) accounts and pull out their investments.

The company even added a pop-up on its Web site to inform customers that their customer assets, including deposits, bonds and funds, are kept in other public institutions and private financial companies like the Korea Securities Depository and the Korea Securities Finance Corporation. According to the FSS, a total of 49,000 investors have invested in corporate bonds and commercial paper of Tongyang affiliates through Tongyang Securities, and most of them are retail investors. Because of its low credit, the financial investments offered a high annual yield of up to 7.9 percent compared to the average deposit interest rate of 2.75 percent.

Concerns among investors deepened following alarming reports Monday that Tongyang Group, the country’s 38th-largest conglomerate by assets, failed to receive support from its corporate cousin, the Orion Group. Before this year ends, Tongyang Group needs to pay back more than 1.3 trillion won ($1.2 billion) worth of maturing debts, including 310 billion won worth of corporate bonds, 730 billion won worth of commercial paper and 300 billion won worth of short-term loans. Next month alone it needs to find 420 billion won worth of funds to pay back debt.

Previously, the conglomerate was able to pay back debts by selling corporate bonds and commercial papers through its affiliate, Tongyang Securities. However, that will no longer be possible following measures that were announced by the Financial Services Commission in July to normalize the frozen corporate bond market and to prevent low credit quality and high-risk corporate bonds from being traded in the market.

The measures include prohibiting junk-credit rated corporate bonds from being sold by a company through its securities affiliate from next month, which means that Tongyang Group will no longer be allowed to secure funding through Tongyang Securities.

The financial regulator said earlier that Tongyang Group affiliates’ corporate bonds and commercial papers are unqualified in terms of credit ratings to be sold through its securities affiliate.

With the FSS making it clear yesterday that the looming credit crunch of the conglomerate will not affect customer assets managed by its securities arm, shares of Tongyang Securities jumped 2.04 percent yesterday to close at 2,745 won. On Monday, its shares declined more than 14 percent along with other affiliates whose share prices plunged following an announcement by Orion Group that it has no intention to financially aid Tongyang Group now or in the future.

Tongyang Group had reportedly asked Orion Group to provide 14.49 percent of Orion Group shares owned by its Vice Chairman Lee Hwa-kyung as security so that it could issue more asset-backed securities (ABS) but that request was rejected Monday. Issuing ABS would help the conglomerate secure up to 1 trillion won worth of funding to pay back its maturing debt.

BY LEE EUN-JOO [angie@joongang.co.kr]
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