Heungkuk Life says debt is separate from capital raising

Heungkuk Finance Group office in central Seoul on Nov. 3 [YONHAP]

Heungkuk Life Insurance said it has sufficient liquidity to pay off the money it borrowed to redeem bonds last month, and that its recent decision to raise capital was to comply with a regulatory recommendation.

Korea’s eighth largest insurer reported Wednesday that it will raise 280 billion won ($214 million) in capital by issuing new stock with the help of affiliated companies. The process is due to be complete by Dec. 29.

Heungkuk Life Insurance made the decision after it was forced to redeem $500 million of perpetual bonds in November. It initially announced it would not pay the bonds, but did an about-face after the bond market was rattled.

Heungkuk Life Insurance had to borrow 400 billion won in short-term secured loans from commercial banks to pay off the bonds.
“Heungkuk Life Insurance is able to pay off the debt through our profit,” said Park Jong-gap, a spokesperson for the company. “The reason we are issuing new stock is not to pay back the debt but to comply with the risk-based capital ratio.”

The Risk-based capital ratio is the minimum amount of capital required of an insurer to support its operations. The Financial Supervisory Service advises insurance firms to maintain a ratio of 150 percent or higher.

Taekwang Industrial reviewed taking part in Heungkuk’s capital increase, according to local media reports. But it pulled out on Wednesday following criticism from a major shareholder, Truston Asset Management, which holds 5.80 percent of the company.

Taekwang Industrial does not own any shares in Heungkuk, but the two companies share the same largest shareholder: Lee Ho-jin, former chairman of Taekwang Group.

Lee owns 56.30 percent of Heungkuk Life Insurance and 29.48 percent of Taekwang Industrial.

The Seoul-based Truston urged directors of Taekwang to make decisions that put the company’s interests before that of the major shareholder.

BY JIN MIN-JI [jin.minji@joongang.co.kr]