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(Bloomberg) — S&P Global Ratings on Friday revised its rating outlooks to negative on two companies, saying their investments in the real estate market could pose problems for South Korean brokerages.
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The assessor said, “The credit risk of overseas alternative investments is significant,” and changed his view on both Mirae Asset Securities and Korea Investment Securities from stable to negative. “Financing for domestic real estate projects is adding to the burden.”
Seoul’s fund managers have been among the biggest investors in commercial buildings in Europe and the United States in recent years, but the sector’s real estate crisis left them with assets whose values have plummeted. In housing, construction company Taeyeon Construction’s debt restructuring has left authorities scrambling to prevent a repeat of the crisis caused by the developer’s default 18 months ago.
As of last year, brokerage firms’ exposure to foreign alternative investments averaged about 30% of their shareholders’ equity, according to S&P. Most of that was high-risk subordinated debt capital. The ratio of guarantees and loans for domestic real estate project finance was approximately 33%.
The rating agency said Korean companies may need to put in place additional financial provisions. The long-term BBB ratings of both companies have been confirmed.
“Exposure to real estate project finance in South Korea is primarily in the form of guarantees on short-term asset-backed commercial paper,” the report said. “If these instruments are not rolled over, companies may be exposed to potential credit and liquidity risks.”
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