Lime Asset Management Faces Exit Process... Establishment of Bad Bank

[Asia Economy Reporter Koh Hyung-kwang] Banks and securities firms that sold Lime Asset Management's funds are pushing to establish a 'bad bank' to recover Lime's distressed funds, which were suspended for redemption last year. A bad bank is a temporary institution operated to handle a financial company's non-performing assets. The recovery of Lime's distressed funds will be handled by the newly established bad bank, and Lime Asset Management is expected to be effectively phased out of the market.

According to financial authorities and the financial investment industry on the 20th, 19 Lime fund sellers will hold a meeting at the Financial Supervisory Service in Yeouido, Seoul, in the afternoon to discuss plans for establishing the bad bank. The sellers plan to discuss which companies will participate in the bad bank establishment, the amount of capital, whether to handle only distressed funds or transfer all Lime funds, among other issues. If the Lime bad bank is created, it will be the first bad bank in Korea in the form of an asset management company.

The newly established bad bank will play the role of selling assets contained in Lime's redemption-suspended funds to raise money to return to investors. Each seller, including Woori Bank, Shinhan Financial Investment, Shinhan Bank, Daishin Securities, and KB Securities, plans to determine their investment amount based on their sales volume. It is known that financial companies with larger balances of redemption-suspended Lime funds will contribute more to the bad bank. Woori Bank, Shinhan Financial Investment, and Shinhan Bank account for more than 60% of the total sales amount.

Once the bad bank is established, it is expected to acquire four main (mother) funds in their entirety: Lime's trade finance fund (Pluto TF-1), mezzanine fund (Tethys 2), private bond fund (Pluto FI D-1), and Credit Insured Fund (CI) No. 1. The customer money contained in 173 sub-funds that invested in these four mother funds amounts to 1.6679 trillion won. The new asset management company will be staffed by executives and employees selected by the Lime fund sellers.

Discussions on establishing the bad bank asset management company appear to have been triggered by the 'Star Mobility incident.' Despite the redemption suspension, there was evidence that nearly 20 billion won from the fund flowed to Kim Bong-hyun, former chairman of Star Mobility, who was identified as Lime's 'money source.' Sellers began considering the establishment of the bad bank since January, when it became known that some funds from the redemption-suspended funds were transferred to Star Mobility. An industry insider said, "So far, discussions have been mainly among major sellers, and the operational method needs further discussion," adding, "Above all, the Lime bad bank will focus all efforts on recovering distressed funds after its establishment."

According to financial authorities, even if the bad bank handling Lime's distressed funds opens, Lime's registration will not be immediately canceled or its business suspended. The Financial Supervisory Service plans to proceed with disciplinary procedures based on the Lime inspection results conducted last year. After the Financial Supervisory Service's disciplinary committee determines the level of sanctions, the results will be reviewed and approved by the Securities and Futures Commission under the Financial Services Commission. Currently, the highest level of sanction, registration cancellation, is considered likely.