Mirae Asset Securities’ Financial Structure Can be Worsened

Concerns are being raised that the financial structure of Mirae Asset Securities Co. can be worsened due to the decline in finance liquidity and additional loans taken out in the process of a merger with KDB Daewoo Securities Co. in the future.

In regard to Mirae Asset Securities, Korea Ratings said on Dec. 29, “The company will need to secure additional liquidity and additional loans, in addition to capital secured by issuing new stocks, in order to take over KDB Daewoo Securities. In this case, its finance liquidity can deteriorate, or it can lead to a financial burden due to repayment and interest costs.”

Korea Ratings expected that actual borrowings will reach 5.09 trillion won (US$4.35 billion) after the merger, even if there are no additional loans during the merger process between Mirae Asset Securities and KDB Daewoo Securities. It also said that short-term borrowing, including call money and loans, among them will increase to 4.39 trillion won (US$3.76 billion). Park Gwang-sik, appraisal specialist at Korea Ratings, said, “As Mirae Asset Securities has decided to take over KDB Daewoo Securities, positive effects are expected, such as an increase in market dominating power and the diversification of its business portfolio. However, there are also negative factors in terms of finance liquidity and capital adequacy.”

Korea Ratings also forecasted that Mirae Asset Securities has 1.02 trillion won (US$876.85 million) more of excess cash than the actual borrowings before the merger but the figure will be 3.59 trillion won (US$3.07 billion) short of the actual borrowings after the merger. The leverage ratios – the standard of how to measure the capital soundness of securities firms – of Mirae Asset Securities and KDB Daewoo Securities stand at 712.4 percent and 710 percent, respectively, before the merger, but the figure will increase to 906.6 percent after the merger.

Regarding Mirae Asset Capital Co., Park also said, “As the company has participated in a paid-in capital increase for Mirae Asset Securities, its financial burden is mounting. In addition, it has the burden of purchasing redeemable preferred stocks of its subsidiary Mirae Asset Life Insurance Co.” He added that there is a need for monitoring in the future. Earlier, Mirae Asset Capital publicly announced that it will invest 316.7 billion won (US$271.03 million) in the paid-in capital increase for Mirae Asset Securities.