KIC, Korean fund to invest $130 mn in US hotels-backed mezzanine debt: report

Korea Investment Corporation (KIC) and the country's Local Finance Association will invest a total of 153 billion won ($130 million) in U.S. mezzanine debts secured by Four Seasons, Fairmont and Ritz-Carlton hotels, a local newspaper reported on Nov. 28.

KIC will contribute 130 billion won and the association will put 23 billion won into the mezzanine debts issued for seven hotels of the top hotel chains in commercial hubs, such as Arizona, California and Texas, the Maeil Business Newspaper said, citing unnamed investment banking sources.

The joint investment, targeting a 7~8% annual return, underscored efforts by small-sized South Korean pension and savings funds to join hands with the sovereign wealth fund in chasing overseas assets. In the lack of global networks and expertise, many of South Korean public funds with less than 1 trillion won ($ 851million) in assets had limited access to offshore targets.

Further, the mezzanine debt investment may reflect expectations of a U.S. economic recovery as President-elect Donald Trump pledged to implement easier fiscal policies to boost economy, the daily added.

KIC and the finance association, which oversees disaster insurance and savings money for South Korea's local governments, will sign a preliminary agreement on the offshore investment on Nov. 30.

Earlier this month, the Teachers’ Pension said that it had teamed up with KIC to invest in a U.S. warehouse portfolio fund for an undisclosed amount, marking their first joint investment since the two funds reached a tentative agreement last year to seek overseas deals together.

Separately, South Korea loosened regulations on the KIC this month to allow small-sized public funds to entrust money to the sovereign fund. Under the revision, the minimum amount for entrustment to the KIC was lowered to 100 billion won ($86 million), or one tenth of the previous 1 trillion won.