November 23, 2024

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The Goldin Financial Global Centre located in eastern Kowloon Bay, Hong Kong (Goldin Financial Global Centre)

With the increasing likelihood of losses occurring for investors of a fund worth 250 billion won ($197 billion) for a Hong Kong office building managed by Mirae Asset, Woori Bank has decided to provide partial compensation to its clients.

Back in June 2019, Mirae Asset Securities financed the Goldin Financial Global Centre located in eastern Kowloon Bay, Hong Kong, using 250 billion won acquired through mezzanine financing.

The 27-story landmark building with a gross floor area of 900,000 square feet was owned by Goldin Financial Holdings Chairman Pan Sutong at the time. It is located at the Kowloon East waterfront, an emerging central business district in Hong Kong.

Since the building opened in October 2016 with a fair value of 12.5 billion Hong Kong dollars ($1.6 billion), the fair value rose by HK$2.3 billion in 2017 and HK$1.9 billion in 2018.

Approximately 220 billion won of this mezzanine financing was resold as funds to various financial institutions. Multi Asset Global Investments, part of Korea’s Mirae Asset Financial Group was responsible for managing this fund at the time.

Woori Bank was among these institutions, as it marketed and sold this fund to its VVIP clients.

However, due to the sluggish Hong Kong property market, reduced demand for offices amid the COVID-19 pandemic and rising interest rates, it has become challenging to retrieve the investment for the fund. The chairman of Golden Financial was ordered to declare bankruptcy last July by Hong Kong's high court.

The primary lenders of the building, Singapore's investment agency GIC and Deutsche Bank, were able to recover their principal investments through sales of the Goldin Financial Global Centre. However, the remaining investors, including clients of Woori Bank, face the risk of losing a significant portion of their invested funds.

In addition, Multi Asset Global Investments on Tuesday decided to mark down the value of its fund asset by approximately 90 percent in its books, anticipating significant depreciation.

Mirae Asset also announced that it is doing its best to minimize losses for its investor clients.

"We are making the utmost effort to protect our investors through legal procedures and other means, and we plan to promptly inform investors of the details as they become more concrete," a Mirae Asset official said.

In this situation, Woori Bank has decided to take voluntary adjustment measures to compensate for a certain proportion of losses in advance as a means to secure customer trust.

According to industry sources, Woori Bank decided to offer this partial compensation to its clients during a board meeting held at the end of June.

“We will negotiate with our clients individually about the compensation amounts,” a Woori Bank official said.

The official added that the negotiation will be done in accordance with the Financial Supervisory Service’s dispute resolution guidelines.

After completing the process to provide compensation to clients, Woori Bank will consider filing a compensation claim to the fund manager.

By Song Seung-hyun (ssh@heraldcorp.com)