Refer Report
A citizen enters the rental damage support center of the HUG Housing and Urban Guarantee Corporation in Gangseo-gu, Seoul on the 17th. Reporter Soobin Han
The Housing and Urban Guarantee Corporation (HUG), an agency under the Ministry of Land, Infrastructure and Transport, has suspended the process of issuing bonds to expand capital. This is because the Financial Services Commission put the brakes on it, saying, “Additional consultation between relevant ministries is necessary.” If capital of more than 1 trillion won is not raised by the end of the year, HUG’s issuance of deposit refund guarantees will be completely suspended. Following the expansion of policy loans such as Stepping Stone, and the issuance of bonds by HUG, the ‘policy mismatch’ between the Ministry of Land, Infrastructure and Transport and the Financial Services Commission appears to be continuing.
According to the Ministry of Land, Infrastructure and Transport and HUG on the 30th, HUG postponed the issuance procedure of new capital securities prepared for up to 700 billion won on the 29th. HUG submitted a securities report to the financial authorities last week and planned to conduct a demand forecast survey targeting institutional investors that day. However, the schedule was disrupted when the Financial Services Commission notified the suspension of related procedures, saying, “Additional consultation between relevant ministries is necessary.”
Regarding this, some interpreted it as ‘the Financial Services Commission opposed HUG’s bond issuance due to concerns about the expansion of household debt.’ If HUG expands capital and increases the deposit return guarantee, it could give a wrong signal to the market that it is expanding lease loans, so the brakes were put on.
However, the Financial Services Commission’s position is that the suspension of HUG’s bond issuance process has nothing to do with policy lending. They said that they only requested supplementation because some deficiencies were found in the data submitted by HUG, but did not oppose the bond issuance.
Chairman Kim Byeong-hwan of the Financial Services Commission said at a press conference that day, “In order for HUG to issue new type of capital securities, it must submit a securities report and recruit general investors accordingly, and it is necessary to faithfully disclose the reasons for (public offering) to general investors. “This is something that HUG and the financial authorities should discuss, and it has nothing to do with policy lending,” he said.
The reason HUG is pursuing the issuance of new capital securities is because the amount of rent deposits (subrogation payments) returned to tenants instead of landlords has increased rapidly in the aftermath of rent fraud and tin rent in 2022. HUG spent 3.5444 trillion won in subrogation payments last year alone, and also spent 3.22 trillion won from January to September this year. On the other hand, the recovery rate is less than 10%. Accordingly, HUG’s capital was halved from KRW 5.5916 trillion in 2022 to KRW 2.0996 trillion at the end of last year.
As the capital fell due to accumulated losses, a ‘red light’ was turned on for the issuance of HUG guarantees. Under the Housing and Urban Fund Act, HUG can only provide guarantees up to 90 times its equity capital, but HUG insiders predict that the guarantee multiple will reach 132.5 times by the end of the fourth quarter of this year. If the capital is not increased through investment or the issuance of new types of capital securities by the end of this year, the issuance of new guarantees, including the lease deposit return guarantee, will be completely suspended from next year.
As concerns grew about the suspension of guarantees due to misalignment between ministries, the Ministry of Land, Infrastructure and Transport and the Financial Services Commission issued an explanatory document on the same day, saying, “HUG’s issuance of new type of capital securities is a measure to secure financial soundness, and there is close consultation between relevant ministries on investor protection and bond market impact.” “We plan to review it through the process,” he said. Regarding the confusion surrounding the expansion of policy loans, he said, “Related ministries such as the Ministry of Land, Infrastructure and Transport and the Financial Services Commission are in close consultation to ensure stable management of the housing market and household debt.”
Source: Korean