Tourism, aircraft take bulk of 2020 alternatives loss

South Korea's eight leading brokerage companies, including Mirae Asset Securities Co. and Hana Financial Investment Co., are estimated to have booked a combined 840 billion won ($735 million) as losses from overseas alternative investments in 2020, according to a rating agency on Thursday.

Hotels and tourism-related assets took the bulk of the losses at about 500 billion won, with the shortfalls in relation to aircraft investments estimated at 90 billion won, Korea Investors Service (KIS) said in a report. KIS is part of Moody's Investors Service.

Aside from the booked losses, the eight brokerage firms, each with more than 4 trillion won in capital, are exposed to an additional 3.3 trillion won worth of potential losses from overseas alternatives as of the end of last year.

But their increased exposure to overseas alternatives would not mean any immediate rating action by the agency. With ample market liquidity driving the value of their investments higher, their prices will likely rise further as the pandemic is receding, KIS said.

Moreover, the volume of their overseas alternatives remains small relative to their total investments. Their financial structure is solid enough to cover additional shortfalls from the global investments as well, KIS added.

The value of overseas alternatives at the eight brokerage firms has surged almost sixfold over the past three years, standing at 19 trillion won as of the end of 2020, versus 3.3 trillion won at the end of 2017.

The end-2020 figure is equivalent to 43.5% of their combined equity capital of 43.7 trillion won.

Of the 19 trillion won, real estate makes up 11 trillion won, of which the US accounts for half. By asset type, office buildings and hotels represent 70% of the real estate portfolio, or 7.8 trillion won in value.

Equities and subordinated debts take up 73% of the overseas real estate investments, meaning their high vulnerability to asset price fluctuations. For logistics and office buildings, equity and subordinated tranches are more than 80%.

By company, Hana Financial Investment, Meritz Securities Co. and Shinhan Investment Corp. reported higher exposure to overseas alternatives than the average of 43.5%. In particular, Hana's overseas alternatives reached 103% of its shareholder capital, compared with 70% for Meritz.

Mirae Asset's exposure to overseas hotels is worth 1.3 trillion won. Last December, it won a lawsuit against the Chinese insurer in relation to the $580 million deposit it had paid to Anbang Insurance Group for a $5.8 billion deal to buy 15 luxury hotels in the US. 

As of the end of last year, the value of overseas alternatives which have not yet been sold down for more than a year came to 7.8 trillion won at the eight brokerage companies. 
 
Looking ahead, the rating agency said it will keep a close eye on aircraft, hotels and coal investments which it classifies as high-risk segments, while categorizing office buildings and commercial or retail facilities as medium-risk assets. 

Company Name	Investment asset	Amount of Investment Loss as of end-2020
Hana Financial Investment	US hotel	30 billion won
Mirae Asset Securities	US hotel	260 billion won
	Midstream asset and power plant	60 billion won
Meritz Securities	Aircraft	70 billion won
	Residential property in India and Australia	40 billion won
Shinhan Investment	US hotel	76 billion won
	Hong Kong office	20 billion won
Korea Investment & Securities	Hong Kong office	8 billion won
	Aircraft	10 billion won
NH Investment & Securities	US hotel	70 billion won
KB Securities	US office and hotel	60 billion won
Samsung Securities	Office buildings in Japan and Denmark	6 billion won
Source: Korea Investors Service

Write to Eun-jung Kim at kej@hankyung.com
Yeonhee Kim edited this article.