As JR Global REIT, the first overseas real estate REIT listed on the domestic stock market, applied to the court for rehabilitation after failing to repay its bonds, the financial authorities are closely examining JR Global REIT's past disclosures.
In particular, the authorities are said to be closely reviewing the company's financial condition at the time it issued corporate bonds. They appear to have in mind a past case in which MBK Partners issued bonds even after recognizing the possibility of a credit rating downgrade for Homeplus Co..
As JR Global REIT's financial condition deteriorated rapidly, it issued 120 billion won in corporate bonds in Feb. last year, followed by another 60 billion won in July.
According to the financial industry on the 3rd, the Financial Supervisory Service formed a joint inspection team of related agencies led by the Ministry of Land, Infrastructure and Transport starting on the 28th of last month and is conducting a special inspection of JR Global REIT. The FSS personnel assigned to the joint inspection team include staff from investment firm inspections and disclosure reviews.
The authorities are reviewing the REIT's management status and whether the company properly reflected investment risks in past disclosure materials such as business reports. In particular, they are looking into whether JR Global REIT caused undue losses to investors by issuing additional bonds as its financial condition worsened.
Previously, MBK issued asset-backed electronic short-term bonds (ABSTB) and commercial paper (CP) even though it knew in advance the possibility of a credit rating downgrade for Homeplus Co., and the authorities believed that such decisions may have harmed investors.
If violations of the Financial Investment Services and Capital Markets Act are identified in this inspection, the FSS plans to take action in consultation with the Ministry of Land, Infrastructure and Transport (MOLIT).
JR Global REIT filed for corporate rehabilitation (court receivership) on the 27th of last month. A decisive factor was the decline in collateral value during the refinancing process of the overseas core asset, the Finance Tower in Brussels, Belgium.
When the local lender group that provided the loan triggered a "cash trap," citing a decline in real estate value, tying up all rental revenue to be used first for principal and interest repayment, the funding stream was cut off.
With cash depleted to pay interest on domestic public and private bonds and as the maturities of 40 billion won in subordinated corporate bonds and 60 billion won in public bonds came due, JR Global REIT opted for corporate rehabilitation.