Yuanta Securities Korea has decided to issue hybrid capital securities (perpetual bonds) for the first time to shore up capital. The total size is 170 billion won, and the proceeds will be used to repay commercial paper (CP) and short-term electronic bonds.
As profitability has deteriorated due to weak performance in real estate project financing (PF), the company is seen as seeking to increase equity and strengthen its net capital ratio (NCR) by issuing perpetual bonds to better manage financial soundness.
According to Yuanta Securities Korea on the 18th, the company will issue a first private placement of hybrid capital securities worth 110 billion won and a second private placement worth 60 billion won. Fifteen institutions, including Heungkuk Life Insurance (60 billion won) and Hana Capital (17 billion won), will underwrite the offerings, with subscription and payment both taking place the same day.
Hybrid capital securities are marketable securities that have characteristics of both stocks and bonds and are recognized as equity for accounting purposes. The hybrid capital securities to be issued by Yuanta Securities Korea all have a 30-year maturity, with call options at five years and seven years, respectively. The coupon rates are 5.0% and 5.7% per year, respectively. As these are privately placed hybrid capital securities, Yuanta Securities Korea is said to have directly approached institutions.
On the 6th, the board approved an issuance limit of 300 billion won for hybrid capital securities. The company plans to decide whether to issue additional amounts under the remaining limit by the end of this year after assessing market conditions. The funds secured this time will be used to repay CP and short-term electronic bonds maturing between the 18th of this month and December.
Yuanta Securities Korea has reported weak results in recent years. Due to the deterioration of its main revenue source, the real estate PF-related business, net income, which was 150.6 billion won in 2021, halved to 73.1 billion won last year. Cumulative net income through the third quarter this year is 62.4 billion won. The company has set aside 28.9 billion won in loan-loss provisions this year and is also pursuing branch rationalization by closing branches and shifting functions to hub locations.
For securities firms, the more capital they have, the more advantageous they are in winning large deals, investing overseas, and entering new businesses. Also, as capital increases, the net capital ratio (NCR), which shows the amount of risk-weighted assets relative to equity, rises, reducing regulatory risk and improving capacity for operations.
In general, small and midsize securities firms have smaller profits and face difficulty raising funds externally, so their pace of capital expansion tends to be slow. However, with this hybrid capital securities issuance, Yuanta Securities Korea increased its equity by 10.2% to 1.8358 trillion won from 1.6658 trillion won. NCR will also improve to 705% from 628% as of the end of June.
The company said that after this hybrid capital securities issuance, it will strengthen its ability to sell financial products to generate stable revenue. A Yuanta Securities Korea official said, "We will expand our investment banking sales base and broaden investment opportunities in wholesale and trading to enhance the overall profitability of the company."
Chief Executive Officer Luo Zhipeng of Yuanta Securities Korea said, "With this hybrid capital securities issuance, Yuanta Securities Korea has been able to create the conditions to take a step beyond its existing stable revenue base," adding, "We will work to enhance capital adequacy based on our strengthened capital and focus on diversifying revenue sources so that we can improve the competitiveness of each business institutional sector."