Aegis Asset Management Real Estate Fund Transparent Disclosure Highlighted
Providing Accurate Information to Investors Stabilizes Corporate Bonds
The honest disclosure by Aegis Asset Management regarding the real estate fund for the 'Mall of K' building in Gwangjin-gu, Seoul, known for housing 'Konkuk University CGV,' is being talked about in the industry.
According to the financial investment industry on the 28th, Aegis Asset Management issued an ad hoc disclosure on the 21st titled "Aegis Retail Real Estate Investment Trust No. 194 (hereafter Fund 194) Asset Sale and Fund Status," stating, "It is expected that there will be insufficient funds to pay the loan interest due on the interest payment date in June."
Aegis Asset Management further stated, "We are doing our best to raise subordinated loans to secure funds for loan interest payments, but it is quite difficult to raise additional loans," adding, "We are also negotiating with the major lenders to extend the payment date for the tranche loan interest, but it is facing difficulties."
Fund 194 is a real estate fund established in June 2018, holding the Mall of K in Jayang-dong, Gwangjin-gu, Seoul, where Konkuk University CGV is located, as its asset.
Aegis Asset Management explained, "The cumulative effects of declining market rents, prolonged vacancies in competing commercial facilities near Konkuk University Station, and continued high interest rates are impacting the fund," adding, "After the loan extension, the sharply increased loan interest and essential costs for operating this fund are becoming difficult to bear."
The industry is calling this disclosure, which revealed an undesirable situation months in advance, a "brave disclosure."
The market impact was significant enough that bond prices fluctuated due to misunderstandings that Aegis was experiencing a liquidity crisis at one point.
The yields on the 14th and 15th series of public corporate bonds issued by Aegis Asset Management (A-) soared to the 10% range annually on the 25th. Considering that both bonds were originally issued with a coupon rate of 7.2% per annum, the market traded them at over 3 percentage points higher.
Bond prices and yields move inversely. As more investors wanted to sell Aegis Asset Management bonds issued at a 7.2% coupon rate, the trading price, which had been around the face value of 10,000 KRW, plummeted to about 9,700 KRW. Although the fund’s cash shortage and the company’s finances are separate matters and are accounted for separately, the market reacted sensitively.
Subsequently, after CEO Lee Gyuseong of Aegis Asset Management announced in an interview with a media outlet that the owner family’s share sale would be put on hold for the time being, the corporate bond prices recovered. As of the 28th, bond prices have risen above 10,000 KRW, exceeding face value.
A financial investment industry official said, "Recently, incomplete sales of investment products such as ELS or overseas real estate funds have become negative issues in the industry, so asset managers need to be proactive in ad hoc disclosures related to fund management to protect investors," adding, "In market conditions like these, providing accurate information is important, and this disclosure case by Aegis deserves attention within the industry."
Meanwhile, on the 25th, Aegis Asset Management issued 48 billion KRW worth of hybrid capital securities (unregistered, non-guaranteed private bonds with detachable warrants). They were divided into two parts of 15 billion KRW and 33 billion KRW, offering interest rates of 8.1% and 8.2%, respectively. This was a measure to maintain the debt ratio within 100% depending on the existing perpetual bonds situation and is reported to be unrelated to liquidity securing.
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