Following the total loss on Korea Investment Real Asset Management's (Hantu Real Asset) Blind Bridge Development Fund No. 1, it has been confirmed that investors in the 39.5 billion won No. 2 fund also took about a 50% loss due to an event of default (EOD) on the investment asset. EOD is when a creditor demands early repayment of a loan extended to a debtor before maturity. It is a mechanism designed to prevent investment losses from growing.
Of the seven total investment assets, six are in EOD, and three of them were recognized as losses. The remaining two business sites, which are also regional apartment bridge development projects in North Jeolla and South Chungcheong, are expected to incur greater losses.
According to the investment banking (IB) industry on the 21st, Hantu Real Asset sent a notice on Dec. 18 last year to investors in the "Korea Investment Development Bridge Blind Private Investment Trust No. 2" (Blind Bridge No. 2) fund stating that, based on a fair value assessment of the investment asset, part of the investment asset had been written down.
According to the notice, the fund's base price for retail investors in Blind Bridge No. 2 (Type 1 revenue securities) fell about 46.8%, from 903.85 to 480.74.
The Blind Bridge No. 2 fund was created to invest in bridge loans secured by land purchased for development projects, project financing (PF) loans, and secured loans primarily backed by real estate. Korea Investment & Securities Co. sold this fund in June 2022, and Hantu Real Asset is managing it.
Of the total fund size of 39.5 billion won, 31.6 billion won (Type 1 revenue securities) was raised from retail investors and professional investors. Retail investors invested at least 300 million won per person. The remaining 8 billion won (Type 2 revenue securities) was seeded with Hantu Real Asset Management's own capital.
Through the Blind Bridge No. 2 fund, Hantu Real Asset made investments in a total of seven development business sites from June 2022 to March 2023. However, due to the real estate downturn and deterioration in the PF market, the projects were delayed and it struggled to recover principal and interest. In the end, the principal and interest on the loans the fund invested in were not repaid, and EOD occurred at six of the seven sites.
Hantu Real Asset said it determined recovery of the fund's investment was unlikely and wrote off more than about 60% of the total investment asset. However, up to 20% of the principal is being absorbed first by Hantu Real Asset Management's Type 2 revenue securities, leaving the Type 1 revenue securities held by retail and professional investors with a loss of about 46.8% as of now.
To date, Hantu Real Asset has written off three investment assets totaling 24.1 billion won. Specifically, these are the Ulsan Hwajeong-dong multifamily housing development bridge loan (10 billion won), the Yongsan Hangangno 2-ga office development bridge loan (8 billion won), and the Pyeongtaek I-Park officetel collateralized loan (6.1 billion won out of 7.7 billion won).
The Gunsan Gaejeong-dong multifamily housing development bridge loan in North Jeolla (5.5 billion won) and the Hongseong County multifamily housing development bridge loan in South Chungcheong (7 billion won) also remain in EOD.
A Korea Investment & Securities Co. official said, "Six of the seven investment asset sites in the Blind Bridge No. 2 fund are in EOD," adding, "The prospectus includes guidance on the risk of principal loss." The official added, "The example yield condition table also states, 'Actual returns may differ depending on market conditions. Future returns are not guaranteed.'"