South Korean Tong Yang Securities hit by investor withdrawal

Tong Yang Securities, a subsidiary of Tong Yang Group in South Korea, has seen a significant drop in its subscription rate for its equity-linked securities (ELS) range following rumours of an imminent bankruptcy of the umbrella firm.

According to SRP data, amongst nine ELS products issued by Tong Yang Securities in September, seven were withdrawn before their launch.

A spokesperson at Tong Yang Securities told SRP that there are concerns amongst investors who believe that Tong Yang Securities is at risk as other subsidiaries within the Tong Yang Group have filed for court receivership.

"However, we are securing investors' capital safely," said the spokesperson. "It is the decision of the investors whether they wish to continue investing in ELS products structured by Tong Yang Securities, or whether they want to redeem their capital early before the maturity."

She said that similar withdrawals have occurred in the past, depending on the product structure and the underlying. "I don't think it is merely because of the recent crisis," she added.

Early redemption amounts increased to KRW85bn ($80m) in September compared to KRW9.8bn ($9m) in August and KRW7.4bn ($7m) in July, according to the Korea Securities Depository.

"It is true that we are seeing increased numbers of withdrawn products and early redemptions by investors," a source from a local securities firm told SRP. "The Tong Yang crisis might be one of the reasons, but there are also other reasons such as higher performance of popular indices these days."

Tong Yang Group's financial troubles surfaced following the excessive sale of commercial paper and corporate bonds worth a total of KRW1.7tr ($1.5bn) which prevented the firm from balancing its assets with its debts, according to Financial Services Commission.

The Financial Supervisory Service is currently investigating Tong Yang Financial Services for irregular financial dealings with the three subsidiaries of Tong Yang Group. In addition, Tong Yang Securities is undergoing an exclusive investigation to find out whether there were irregularities in its sales of commercial paper and corporate bonds to investors.