Some 'Lime Repo Plus 9M' Fund Portions Classified as Distressed Funds... 30 Billion KRW of Normal Fund Investments Recovered
IBK: "56% of Fund Investments Prepaid... Total Loss Rate in the 20% Range"
[Asia Economy Reporter Haeyoung Kwon] It has been confirmed that IBK Industrial Bank of Korea, a policy bank, recently sold products incorporating Lime Asset Management's non-performing funds, which had suspended redemptions, amounting to approximately 60 billion KRW. Although IBK Industrial Bank refunded half of the investment, the remaining 30 billion KRW is tied up due to the suspension of redemptions, and investors are expected to bear the losses as principal losses are inevitable. It is also controversial that sales began just before the 'Lime Incident,' which caused significant losses due to fund rollovers.
According to the financial sector on the 20th, IBK Industrial Bank sold the 'Lime Repo Plus 9M' fund worth 60 billion KRW between June and July last year. This fund was sold by IBK Industrial Bank in a trust form based on a product created by Korea Investment & Securities, and it incorporated the 'Lime Pluto FI D-1' fund, which had its redemptions forcibly suspended last year. The fund consisted of 56% Lime Repo High-Quality Bonds 9M fund containing high-grade bonds and 44% of the problematic Lime Pluto FI D-1 fund.
An IBK Industrial Bank official explained, "The investment in the high-grade bond fund was proactively recovered and paid to investors in December last year," adding, "The total loss rate of the current fund is in the 20% range, and the funds invested in the non-performing fund will be paid to investors following the asset manager's repayment plan announcement next month."
IBK Industrial Bank holds the position that half of the approximately 30 billion KRW invested in the Lime Pluto FI D-1 fund can be recovered. The loss rate of this fund is about 46%, but unlike other non-performing funds, there was no Total Return Swap (TRS) contract with securities firms, so investors can receive the remaining amount as is. Some of the problematic Lime Asset Management funds had borrowed from securities firms through TRS contracts, and since securities firms have priority rights, exercising these rights increases the loss rate and reduces the portion that general investors can receive.
The timing of sales is also controversial. IBK Industrial Bank started selling Lime Asset Management funds at the end of June, much later than other sellers, and stopped sales within less than a month after discovering the problem. In contrast, Woori Bank had already recognized the possibility of non-performance in the Lime Pluto fund as early as March last year and judged that a 30% loss could occur based on stress test results.
A financial sector official pointed out, "While other sellers reduced or stopped sales upon recognizing the possibility of non-performance, IBK Industrial Bank, as a policy bank, started sales late and caused significant losses to investors."
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