Australia archive facility’s 29-yr debt attracts $60 mn from Korean insurers

A group of South Korean insurers will invest 69 billion won ($60 million) in 29-year senior debt secured on Australia’s National Archives Preservation Facility in Canberra, attracted to its long maturity, as they are keen to extend asset durations ahead of a new accounting standard introduction in 2021.

The investment also comes after South Korea’s top financial regulator cut reserve requirements by half for insurers’ cross-border infrastructure assets, or social overhead capital (SOC), from June.

Hyundai Investments Co. Ltd., wholly owned by Hyundai Marine & Fire Insurance Co. Ltd., is pooling 69 billion won from major South Korean insurers to invest in the senior debt, according to investment banking sources on August 16.

The asset manager will set up a fund for the debt investment on August 17.

The senior debt of the archive facility, opened in June, is expected to generate returns in the low-4% range, given currency hedging costs. It seems lower than those from recent overseas alternative investments by South Korean institutional investors.

But its long maturity and the 30-year lease contract signed with the National Archives of Australia outweigh such a low expected return.

High credit ratings of Australia’s Federal Government at AAA also ease the burden of reserve requirements for the insurers’ investment.

“SOC as an asset class offers more advantages to insurance companies with respect to weighted average maturity management than real estate funds which need to be sold or refinanced, five to seven years after capital commitment,” a Hyundai Investments source told the Korean Investors.

The property is classified not as real estate, but as SOC.

“In particular, this investment is more attractive to insurance companies because of its super-long maturity,” he added.

The International Financial Reporting Standard (IFRS) 17, which mark assets and liabilities to market, is set to come into force in 2021.

An Australian real estate developer is an equity investor in the archive building, valued at around 100 billion won. It houses paper and audiovisual records, as well as a digital archive.

Both principal and interest payments for the senior debt will be made during the lease period.

South Korean asset owners have been piling into Australian properties for niche investments, diversifying beyond the US and European real estate.

By Daehun Kim

daepun@hankyung.com