Securities firms seek real estate project financing despite weak market. [Photo by Yonhap]
Large securities firms are looking at real estate financing as lower investment thresholds for some development projects could provide good investment opportunities despite concerns of a weak property market.
KB Securities Co. will partner with large construction companies to raise funds to help cope with non-performing loans, aiming at normalizing strapped real estate project financing (PF) businesses.
Key targets will be projects that are currently stalled at the bridge loan phase. KB Securities plans to carefully choose projects that have good potentials that stalled at the moment due to surges in interest rates and construction costs, and to help them restructure.
Financial investors, including insurance companies and mutual aid associations, are choosing projects alongside the securities firm. Construction companies are joining as strategic investors to handle contingent liabilities. The entire normalization process will be complete when the relevant real estate unit is sold upon construction.
KB Securities plans to raise funds worth about 200 billion won to 300 billion won ($162 million) in the first half of this year as some projects could face maturities in the latter part of the year.
The securities firm also plans to target funds that have seen big losses in overseas real estate markets, to help them seek maturity extension.
“Financial institutions get busier when the economy slows, and we have visions for these projects as we believe that easing liquidity crunches is one of our responsibilities,” KB Securities said.
[Image source: Meritz Financial Group]
Meritz Securities Co. is also seeking project financing opportunities in the local real estate market.
The company has recently agreed to invest 1.5 trillion won, together with Lotte Engineering & Construction Co., to buy asset backed commercial paper guaranteed by Lotte E&C. Meritz Financial Group affiliates will invest 900 billion won into senior loans, and Lotte Property & Development, Hotel Lotte Co. and Lotte Fine Chemical Co. will invest the remaining 600 billion won.
Meritz Financial Group sees the investment as relatively low-risk with decent potential returns, as the financial group is only engaged in “senior” loans, and Lotte E&C and Hotel Lotte will back the interest until the principal and interest are all fully repaid.
“Securities firms had to go through fierce competition to win a bid for a real estate PF project with good potential when the market was robust. Now is rather an opportunity for many securities firms that have the capacity,” one Meritz Securities source said.
Meritz Securities recently recruited 25 new personnel that handled real estate PF at Daol Investment & Securities Co. for its new department.
Such moves by large securities firms are polarizing the real estate financing market.
“Mid-tier or small firms do not have the capacity to handle any more risk, as they have already been engaged in high-risk, mid- or subordinated- PF deals,” one big securities firm executive said. “Due to that, real estate PF businesses tend to be led by large firms with sufficient capacity.”
“Securities firm credit risks are different by the character of their PF loans, such as the location of the projects, and by whether they are senior or junior or subordinated loans. Each firm’s asset quality will be polarized, too,” an analyst at Samsung Securities Co. forecasted.
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