This article was published on Jan. 21, 2025, at 6:11 a.m. on the ChosunBiz MoneyMove site.
As funds investing in buildings in Germany and Belgium face total loss, investors are turning their attention to Kiwoom Asset Management's Netherlands office fund, which has a loan maturity next month. This fund raised its loan interest rate for extension in September 2024 and recently changed its local investment structure. However, the revenue still shows a negative return of 60% to 70%.
On the 21st, according to investment banking (IB) industry sources, Kiwoom Asset Management disclosed that it changed the local investment structures of its four funds, including Kiwoom Heroes Europe Office No. 1-4, which invest in the office building "Queens Towers" in Amsterdam, Netherlands, on the 13th. These funds have a loan maturity scheduled for Feb. 6, amounting to 71 million euros. They altered their investment structure as a prerequisite for extension at the request of senior creditors, approximately three weeks ahead of the deadline.
Initially, these funds held 100% of the equity securities of the local special purpose company (SPC) in the Netherlands, "Maxima Dutch SPV 1 B.V." (hereinafter Dutch) and 85.33% equity in "Maxima Propco II B.V." (hereinafter Propco). This structure allowed Dutch to ultimately own Queens Towers by retaining the remaining 14.67% equity in Propco.
Recently, however, these funds established a new local SPC in Luxembourg, "Maxima LuxCo 1-4 S.à r.l." (hereinafter LuxCo). Simultaneously, they transferred all their holdings in Dutch and Propco to this entity on the 8th. Each investment trust owns 100% of LuxCo's equity, and through this, Kiwoom Asset Management claims it maintains ownership structure over Queens Towers located in Amsterdam, Netherlands.
However, the IB industry views that this structural change favors creditors rather than investors. It's regarded as reasonable to assume that creditors would not propose a structure benefiting Kiwoom Asset Management as they are extending the loan maturity for the third time. An IB industry insider noted, "With the scheduled timelines continuously extending, it seems (the creditors) are accumulating fatigue," adding, "We need to examine the contract details, but it's highly likely that the new investment structure is not favorable for the fund."
This is not the first time these funds have postponed their loan maturity date. The loan maturity originally set for August last year was extended by four months to Dec. 6 of the same year, and then increased by two more months. During this process, the loan interest rate soared from a fixed rate of 1.46% to a level adding 3% to 5% over the three-month European Interbank Offered Rate (EURIBOR). The EURIBOR refers to the short-term interest rate applied between banks for loans within Eurozone countries. These funds are also discussing changing SPC to extend the maturity date by an additional 21 months.
Kiwoom Asset Management believes there should be no significant issues with the loan extension since the prerequisites have been met, but the investors' perspective differs. Due to the occurrence of "cash tarp," distribution payments have stopped since March of last year, and the significant drop in prices has created an uncertain situation regarding revenue.
This fund, which was evaluated for its stability due to its major tenant being the Employment and Labor Organization (UMV), a public institution under the Netherlands Ministry of Social Affairs and Employment, has significantly lost value similar to other overseas real estate funds due to rising European benchmark interest rates and decreased transaction demand.
According to the most recent asset revaluation conducted by Kiwoom Asset Management, the price, which was 129.733859 million euros (approximately 194.03774 billion won) at the time of acquisition, has decreased to 85.2 million euros (approximately 127.43023 billion won), marking a decline of about 34%. Since the legal fair value of the fund's assets is reassessed annually, there is a time lag from the actual value decrease.
Reflecting the results of Kiwoom Asset Management's asset revaluation based on prices as of Aug. 1 of last year, the base price of these funds fell sharply from 981.92 won to 282.49 won overnight. Investors' revenue also plummeted by 71.2% in a single day, declining by 64% from the established date. Currently, the revenue for these funds since their inception until the previous day stands at -63.38% to -63.62%. On a six-month and one-year basis, it reached -71.57% to -71.89%.
Another IB industry representative explained, "Kiwoom Asset Management borrowed an amount approximately 1.5 times that of general investor funds to purchase Queens Towers, which has resulted in a greater loss rate than the decline in building prices." They noted that places which expressed interest in bidding last year also offered about half the purchase price, leading to the halt of sale procedures to avoid total loss of investment.