Korea¡¯s $7-bn overseas alternative investments classified highly risky

South Korean investors who experienced a heavy burn last year from exotic overseas derivatives are exposed to additional $7 billion losses from overseas alternative assets due to pandemic toll on properties and payables from hospitality and air travel industries.

According to the Financial Supervisory Service on Monday, alternative investments that 22 Korean securities firms have made overseas so far amounted to 48 trillion won ($44 billion). Of the total, 2.7 trillion won worth held by local securities firms and 4.8 trillion won worth resold to investors are classified as contingent assets with default risk.

An alternative investment refers to an investment in any asset class other than conventional equity – stock and bond – and cash. Examples include private equity funds, real estate properties and commodities. Assets on default risk indicate assets that have potential to log losses from overdue debt repayment. Those that carry high default risk are placed on the watch list category.

By alternative asset class, 23.1 trillion won had been invested in real estate properties as of the end of April 2020, and 24.9 trillion won in special assets, or those excluding securities and real estates, as of the end of June. Of these, 31.4 trillion won worth or 65.4 percent had been resold to investors and 16.6 trillion won worth (34.6 percent) directly held by securities firms.

Securities firms have put 7.5 trillion won worth (4 trillion won in overseas real estates and 3.5 trillion won in special assets) assets in a default risk group. That is 15.7 percent of total alternative investment made abroad.

Of the 4.8 trillion won worth problematic overseas alternative assets resold to investors, derivatives linked securities accounted for nearly half or 2.3 trillion won.

The Financial Supervisory Service warned that more overseas alternative investments could go bad, especially those invested in hotels, aircraft and trade finance bonds that have taken a bigger hit from the Covid-19 economic fallout than other industries.

Korean investors invested mainly in properties – 12.2 trillion won in offices and 4.5 trillion won in hotels. Investment in overseas infrastructure also is large with 10.1 trillion won made in power plants and 4.3 trillion won in harbors and railroads.

The most popular country for Korean investors¡¯ overseas alternative investment was the United States with 17.7 trillion won (37 percent), followed by the United Kingdom with 5.2 trillion won (11 percent) and France with 4.2 trillion won (9 percent).

[¨Ï Maeil Business Newspaper & mk.co.kr, All rights reserved]