Rhyme's Net Assets Plummet by 4 Trillion Won

Operation scale of 2 trillion KRW... 79.8% redemption suspended
Possibility of further reduction due to trade finance fund
Bad Bank participants "Focusing all operations on minimizing investor losses"

[Asia Economy Reporters Jihwan Park and Hyungmin Kim] The scale of Lime Asset Management's private equity fund operations, which reached up to 6 trillion KRW last year, has recently shrunk to around 2 trillion KRW.

According to the Korea Financial Investment Association on the 21st, as of the 17th, Lime Asset Management operates 232 private equity funds, with the net assets of these funds totaling 2.09 trillion KRW. Compared to the record high of 6.2107 trillion KRW on July 23 last year, this means that 4.1205 trillion KRW (66.3%) disappeared over nine months. As of the end of last year, Lime's suspended redemption funds consisted of 4 master funds and 173 sub-funds, totaling 1.6679 trillion KRW. Among the remaining fund net assets, 79.8% are in a suspended redemption state.

The scale of Lime's fund assets began to decline sharply last July when allegations of circular trading of fund returns surfaced, followed by financial authorities launching inspections the next month. In October last year, Lime Asset Management decided to suspend redemptions for 'Pluto FI D-1', which mainly invests in domestic private bonds; 'Thetis 2', which primarily targets domestic mezzanine assets such as convertible bonds (CB); and 'Pluto TF 1' (Trade Finance Fund), which invests in overseas trade finance assets. Concerns about redemption suspension were also raised for the 'Credit Insurance Trade Finance Fund', which invested in the Pluto and Thetis funds.

The decline accelerated this year. The net asset size of the funds, which was 4.1 trillion KRW at the end of last year, dropped by about 2 trillion KRW to 2.1 trillion KRW as of the 17th of this month. This decrease is due to asset value readjustments following the accounting audits of the suspended redemption funds. Additionally, the transfer of some Lime funds and the recent sharp drop in the stock market, which led to downward adjustments of the fund prices, likely contributed to the net asset reduction.

In particular, the loss recognition for master funds such as Pluto and Thetis, which have completed accounting audits, was significant. According to the recoverable amounts disclosed by Lime Asset Management on the 13th based on the audit results from Samil Accounting Corporation, Pluto is valued at 407.5 billion KRW and Thetis at 133.2 billion KRW, totaling 540.7 billion KRW. This is lower than Samil's February valuations of 937.3 billion KRW for Pluto and 242.4 billion KRW for Thetis. Furthermore, in February this year, Lime transferred 70 billion KRW worth of 'Lime Public Offering High-Yield Specialized Private Securities Investment Trust (Mixed Bonds) Series 1-7' to Rico Asset Management.

Lime's net assets are likely to shrink further. This is because Samil Accounting Corporation has yet to finalize the audit results for the Trade Finance Fund. Once the final recovery rate prediction and corresponding price adjustments are made, losses are expected to increase. Currently, individual investor funds invested in the Trade Finance Fund amount to 240 billion KRW. For another suspended master fund, 'Credit Insured 1', assets total 246.4 billion KRW, with about half of these invested across other previously suspended master funds.

Recently, Lime fund distributors have begun discussions to establish a 'bad bank' to sell assets contained in Lime's suspended redemption funds. They plan to decide participating companies by the 22nd and hold a meeting as early as this week to discuss each participant's contribution amount and fund transfer targets. It is known that more capital contributions will be determined according to the sales amounts by distributors such as Woori Bank, Shinhan Financial Investment, Shinhan Bank, Daishin Securities, and KB Securities. A representative from one of the bad bank participants said, "Discussions on the operation method of the Lime bad bank are at an early stage, and there are many aspects to be further addressed," but added, "All operations will focus on the recoverability of the suspended redemption funds to minimize investors' losses as much as possible."

Meanwhile, the Criminal Division 6 of the Seoul Southern District Prosecutors' Office (Chief Prosecutor Sangwon Jo), which is investigating this case, has indicted nine individuals related to the Lime incident so far. On the 10th, the head of the PBS division at Shinhan Financial Investment was arrested and indicted on charges of concealing Lime fund insolvency and selling the products. On the 13th, two drivers who helped the main culprits, former Lime Asset Management Vice President Jongpil Lee and former Star Mobility Chairman Bonghyun Kim, flee were also indicted while in custody. The next day, five individuals who manipulated the stock prices of KOSDAQ-listed companies funded by Lime to pocket tens of billions of KRW were indicted. On the 20th, the prosecution also arrested and indicted Kim, former head of Lime Asset Management's Alternative Investment Management Division, who allegedly assisted Kim's embezzlement and received golf club memberships. However, the whereabouts of former Vice President Lee, who went missing after an arrest warrant was issued in November last year, and former Chairman Kim, who disappeared in January this year during the investigation, remain unknown.