Korea / Special Sits, Pairs, Index Rebalancing, Clepsydra Capital

Sanghyun Park

I investigate special situations, pairs, and index rebalancing trades in Korea.

Korea / Special Sits, Pairs, Index Rebalancing

Hanwha Life Insurance Placement - KDIC Sell Down Revives Overhang Concern

Event-Driven

<a href="https://www.smartkarma.com/entities/2163" target="_blank" data-smartkarma-citation="entities:2163:1">Hanwha Life Insurance Co Ltd (088350 KS)</a> said in a regulatory filing that it would issue US$1bil worth of hybrid securities (or hybrid bonds) to increase its capital to meet the IFRS 17 accounting requirements. Hanwha Life's board approved it on Feb 28, and the company submitted the regulatory filing on Mar 2. But the company didn't give out details, which it said would be provided later in a separate regulatory filing.<div class="content-highlight">Below is the link of this regulatory filing (DART).<a href="https://dart.fss.or.kr/dsaf001/main.do?rcpNo=20180302800731" target="_blank">https://dart.fss.or.kr/dsaf001/main.do?rcpNo=20180302800731</a></div>This US$ denominated hybrid security (also called Korean Paper) is like a new trend among Korean insurance firms. First, Kyobo Life, Korea's No 2 insurance firm just behind <a href="https://www.smartkarma.com/entities/510" target="_blank" data-smartkarma-citation="entities:510:1">Samsung Life Insurance Co., Ltd (032830 KS)</a>, initiated this trend last year with its US$500mil worth of hybrid securities issuance. Since then Heungkuk Life, the leading mid-sized life insurance firm in Korea, quickly followed suit. Heungkuk Life successfully pulled off its US$500mil worth of hybrid securities issuance last November. KDB Life, another mid-sized life insurance firm in Korea, is also currently working on a US$300mil worth of hybrid securities issuance.<table class="table table-striped"><tbody><tr><td style="width: 229.8px;">US$ denominated hybrid securities issued (or to be issued) by Korean insurance firms</td><td style="text-align: right; width: 90.2px;">Date</td><td style="text-align: right; width: 85px;">Amount</td><td style="text-align: right; width: 57px;">Bond yield</td><td style="text-align: right; width: 78px;">Maturity</td><td style="text-align: right; width: 161px;">Call option</td></tr><tr><td style="width: 229.8px;">Kyobo Life</td><td style="text-align: right; width: 90.2px;">July 2017</td><td style="text-align: right; width: 85px;">US$500mil</td><td style="text-align: right; width: 57px;">3.950%</td><td style="text-align: right; width: 78px;">30 yr</td><td style="text-align: right; width: 161px;">5 yr after issuance</td></tr><tr><td style="width: 229.8px;">Heungkuk Life</td><td style="text-align: right; width: 90.2px;">Nov 2017</td><td style="text-align: right; width: 85px;">US$500mil</td><td style="text-align: right; width: 57px;">4.475%</td><td style="text-align: right; width: 78px;">30 yr</td><td style="text-align: right; width: 161px;">5 yr after issuance</td></tr><tr><td style="width: 229.8px;">KDB Life</td><td style="text-align: right; width: 90.2px;">In progress</td><td style="text-align: right; width: 85px;">US$300mil</td><td style="text-align: right; width: 57px;">-</td><td style="text-align: right; width: 78px;">30 yr</td><td style="text-align: right; width: 161px;">5 yr after issuance</td></tr><tr><td style="width: 229.8px;">Hanwha Life (088350 KS)</td><td style="text-align: right; width: 90.2px;">In progress</td><td style="text-align: right; width: 85px;">US$1bil</td><td style="text-align: right; width: 57px;">-</td><td style="text-align: right; width: 78px;">30 yr</td><td style="text-align: right; width: 161px;">5 yr after issuance</td></tr><tr><td colspan="6" style="width: 701px;">Source: Korea Ratings (re-edited by <a href="https://www.smartkarma.com/profiles/354" target="_blank" data-smartkarma-citation="accounts:354">Sanghyun Park</a>)</td></tr></tbody></table>Among the Korean insurance firms, hybrid securities are regarded as the easiest way to improve their capital adequacy ahead of the IFRS 17 implementation. Why issued in overseas? It is simply because they can get more investors more easily, which generally translates into better bond yields. As can be seen in the following table, Korean won denominated hybrid securities issued by Korean insurance firms carry substantially higher bond yields. Why is it so? It is mainly because the Korea's local regulations make it difficult for local insurance firms to buy other insurance firms' hybrid securities since they won't be recorded as capital in their book. This limits potential buyer pool for locally issued hybrid securities issued by local insurance firms.<table class="table table-striped"><tbody><tr><td style="width: 238px;">Korean won (₩) denominated hybrid securities issued by Korean insurance firms over the last 2 years</td><td style="text-align: right; width: 87px;">Date</td><td style="text-align: right; width: 89px;">Amount</td><td style="text-align: right; width: 98px;">Bond yield</td><td style="text-align: right; width: 31.8px;">Maturity</td><td style="text-align: right; width: 156.2px;">Call option</td></tr><tr><td style="width: 238px;">Lotte Non Life (000400 KS)</td><td style="text-align: right; width: 87px;">Dec 2016</td><td style="text-align: right; width: 89px;">₩52bil</td><td style="text-align: right; width: 98px;">5.3%</td><td style="text-align: right; width: 31.8px;">30 yr</td><td style="text-align: right; width: 156.2px;">5 yr after issuance</td></tr><tr><td style="width: 238px;">Heungkuk Life</td><td style="text-align: right; width: 87px;">Dec 2016</td><td style="text-align: right; width: 89px;">₩92bil</td><td style="text-align: right; width: 98px;">5.7%</td><td style="text-align: right; width: 31.8px;">30 yr</td><td style="text-align: right; width: 156.2px;">5 yr after issuance</td></tr><tr><td style="width: 238px;">Hanwha Life (088350 KS)</td><td style="text-align: right; width: 87px;">Mar 2017</td><td style="text-align: right; width: 89px;">₩30bil</td><td style="text-align: right; width: 98px;">5.6%</td><td style="text-align: right; width: 31.8px;">30 yr</td><td style="text-align: right; width: 156.2px;">5 yr after issuance</td></tr><tr><td style="width: 238px;">Heungkuk Life</td><td style="text-align: right; width: 87px;">Mar 2017</td><td style="text-align: right; width: 89px;">₩35bil</td><td style="text-align: right; width: 98px;">4.933%</td><td style="text-align: right; width: 31.8px;">30 yr</td><td style="text-align: right; width: 156.2px;">5 yr after issuance</td></tr><tr><td style="width: 238px;">Hanwha Life (088350 KS)</td><td style="text-align: right; width: 87px;">Apr 2017</td><td style="text-align: right; width: 89px;">₩500bil</td><td style="text-align: right; width: 98px;">4.582%</td><td style="text-align: right; width: 31.8px;">30 yr</td><td style="text-align: right; width: 156.2px;">5 yr after issuance</td></tr><tr><td colspan="6" style="width: 700px;">Source: Korea Ratings (re-edited by <a href="https://www.smartkarma.com/profiles/354" target="_blank" data-smartkarma-citation="accounts:354">Sanghyun Park</a>)</td></tr></tbody></table>

Hanwha Life Insurance Co Ltd (088350 KS) said in a regulatory filing that it would issue US$1bil worth of hybrid securities (or hybrid bonds) to increase its capital to meet the IFRS 17 accounting requirements. Hanwha Life's board approved it on Feb 28, and the company submitted the regulatory filing on Mar 2. But the company didn't give out details, which it said would be provided later in a separate regulatory filing.Below is the link of this regulatory filing (DART).https://dart.fss.or.kr/dsaf001/main.do?rcpNo=20180302800731This US$ denominated hybrid security (also called Korean Paper) is like a new trend among Korean insurance firms. First, Kyobo Life, Korea's No 2 insurance firm just behind Samsung Life Insurance Co., Ltd (032830 KS), initiated this trend last year with its US$500mil worth of hybrid securities issuance. Since then Heungkuk Life, the leading mid-sized life insurance firm in Korea, quickly followed suit. Heungkuk Life successfully pulled off its US$500mil worth of hybrid securities issuance last November. KDB Life, another mid-sized life insurance firm in Korea, is also currently working on a US$300mil worth of hybrid securities issuance.US$ denominated hybrid securities issued (or to be issued) by Korean insurance firmsDateAmountBond yieldMaturityCall optionKyobo LifeJuly 2017US$500mil3.950%30 yr5 yr after issuanceHeungkuk LifeNov 2017US$500mil4.475%30 yr5 yr after issuanceKDB LifeIn progressUS$300mil-30 yr5 yr after issuanceHanwha Life (088350 KS)In progressUS$1bil-30 yr5 yr after issuanceSource: Korea Ratings (re-edited by Sanghyun Park)Among the Korean insurance firms, hybrid securities are regarded as the easiest way to improve their capital adequacy ahead of the IFRS 17 implementation. Why issued in overseas? It is simply because they can get more investors more easily, which generally translates into better bond yields. As can be seen in the following table, Korean won denominated hybrid securities issued by Korean insurance firms carry substantially higher bond yields. Why is it so? It is mainly because the Korea's local regulations make it difficult for local insurance firms to buy other insurance firms' hybrid securities since they won't be recorded as capital in their book. This limits potential buyer pool for locally issued hybrid securities issued by local insurance firms.Korean won (₩) denominated hybrid securities issued by Korean insurance firms over the last 2 yearsDateAmountBond yieldMaturityCall optionLotte Non Life (000400 KS)Dec 2016₩52bil5.3%30 yr5 yr after issuanceHeungkuk LifeDec 2016₩92bil5.7%30 yr5 yr after issuanceHanwha Life (088350 KS)Mar 2017₩30bil5.6%30 yr5 yr after issuanceHeungkuk LifeMar 2017₩35bil4.933%30 yr5 yr after issuanceHanwha Life (088350 KS)Apr 2017₩500bil4.582%30 yr5 yr after issuanceSource: Korea Ratings (re-edited by Sanghyun Park)

Hanwha Life Insurance - US$1bil Hybrid Securities Issuance Summary