[Gwanga in] Reasons Why Hana Bank Union Fund Lost 2 Billion Won and Turned Away from Mirae Asset

Mirae Asset Sends Beneficiary Notice
Senior Investors GIC and Deutsche Bank Recover Investments
Bank of Korea Union to File Complaint with Financial Supervisory Service

The Korea Bank Labor Union has become embroiled in internal controversy after investing 2 billion KRW of its union struggle fund in an overseas real estate fund, which is now highly likely to be written off as a total loss. It was revealed belatedly that the former union of the Bank of Korea invested a large sum, about half of the total struggle fund in 2019, in a high-risk real estate fund, resulting in a total loss, sparking a blame game between the current union and the former one. In particular, Mirae Asset Securities, the fund distributor, has been delaying the loss notification despite the total loss being virtually confirmed, prompting the Korea Bank Labor Union to take a tough stance, even considering filing an incomplete sales lawsuit against Mirae Asset in the future.

According to the financial industry on the 1st, Multi Asset Asset Management, a subsidiary of Mirae Asset Group, sent a beneficiary notice on May 11 regarding the 'Multi Asset Specialized Private Real Estate Investment Trust No. 4,' informing investors about the progress of the senior collateral property sale and future response plans. As the fund sold faced a near-total loss crisis, and investors' protests surged, the company provided guidance on the upcoming procedures.

This fund invested in 2019 in mezzanine (subordinated) loans for the Hong Kong office building 'Goldin Financial Global Centre (GFGC),' but due to increased vacancy rates caused by COVID-19 and the intensification of political conflicts in Hong Kong, real estate prices declined, and the investment has not been repaid even after maturity. Notably, GFGC signed a sales contract at 5.6 billion Hong Kong dollars, an amount sufficient only to repay the principal and interest balance of the senior lender, leaving subordinated investors, including the Korea Bank Labor Union, to bear the losses, escalating conflicts. Senior investors such as Singapore's sovereign wealth fund GIC and Deutsche Bank can recover their investments, but the Korea Bank Labor Union, as a mezzanine investor, faces a total loss.

In the notice, Mirae Asset stated, "Mirae Asset Securities, the domestic mezzanine lender's agent bank, has appointed a local Hong Kong law firm to devise various response plans and is considering litigation against the senior lender as one of the options." It added, "Due to Hong Kong's legal system, where litigation lawyers and advisory lawyers are separate, an additional litigation lawyer will be appointed." Furthermore, "After reviewing the litigation strategy and the likelihood of success with the litigation lawyer, a decision will be made on whether to proceed with litigation against the senior lender," and "Mirae Asset Securities will initially bear the legal advisory costs and will prioritize settlement from any recovered amounts."

According to the Korea Bank Labor Union, the sales contract was signed between the senior lender and the new buyer 'Goldstone Asset,' but the investment company 'Hundred Gain,' which had bid but failed to pay the balance, filed a lawsuit to reclaim the forfeited bid deposit. Ultimately, on April 12, a lawsuit hearing was held between the senior lender and Hundred Gain, and on April 27, the ruling was made, with Hundred Gain losing the case, resulting in the deletion of Hundred Gain's existing stock purchase agreement (SPA) from the land registry. Mirae Asset had sought to increase recovery by selling all mezzanine bonds invested by domestic investors, including the Korea Bank Labor Union, to Hundred Gain, but this has also become difficult.

As the situation showed no signs of improvement, Mirae Asset belatedly began damage control. The Mirae Asset representative who sold the fund told the Korea Bank Labor Union, "If the new buyer pays the balance by the end of May, the property will be lost, making it highly likely that the investment will be written off, and in-depth discussions on how to handle this issue can be held," adding, "We will visit on May 30 to explain the fund recovery plan." Mirae Asset also explained that since the company plans to file a lawsuit, the case's progress would accelerate. However, the explanation scheduled for the 30th of last month did not take place. Mirae Asset stated, "The matter is complicated with lawsuits and other issues, so no conclusion has been reached yet, and it is still ongoing."

Yu Hee-jun, chairman of the Korea Bank Labor Union, said, "The struggle fund is about 3.7 billion KRW, and the loss of 2 billion KRW accounts for 54%, which is a significant amount," adding, "As a mezzanine investor, it does not seem easy to recover the investment." Chairman Yu also said, "Union members who believed the possibility of loss was low are feeling shocked and betrayed," and added, "We will closely examine whether there were any signs of incomplete sales during the fund contract process with Mirae Asset Securities, consider related lawsuits, and also plan to file complaints with the Financial Supervisory Service."