Hana Financial Group headquarters in downtown Seoul / Courtesy of Hana Financial Group

Hana Financial Group has decided to provide financial support to Hana Securities by issuing hybrid securities amounting to a maximum of 150 billion won ($116 million) at the end of this month, the financial group said on Monday.

Hybrid securities combine features of both debt and equity characteristics, allowing the issuer to redeem the securities after a specific period. In this case, the hybrids have a five-year call option. They are to be issued in the form of a private placement, and Hana Financial Group has decided to acquire the entire amount.

The reason that the financial giant has opted to issue hybrid securities is to maintain the current level of capital adequacy indicators, such as net capital ratio (NCR), while at the same time securing its capital flexibility for future operations. As hybrid securities are recognized in accounting as a form of capital, rather than debt, many financial holdings companies, banks and insurance companies that need to increase their capital ratio choose to issue hybrid securities.

Hana Securities / Courtesy of Hana Securities

So far this year, Hana Securities has posted a cumulative loss of 14.3 billion won. During the third quarter alone, it recorded a net loss of 48.9 billion won, making it the only major subsidiary of Hana Financial Group reporting a loss.

The financial group explained that it has decided to provide liquidity preemptively to its brokerage firm, given that a substantial number of products reach maturity between the end of this year and early next year.

"The issuance of hybrid securities is to raise the brokerage firm's capital adequacy indicators," an official from Hana Financial Group told The Korea Times, Monday.

Securities firms face challenges

With soaring interest rates, increased risks associated with real estate project financing as well as valuation plunges in overseas investment assets, domestic securities firms have been showing an overall poor performance.

Besides Hana, Shinhan Securities, Hanwha Investment & Securities, BNK Securites and Daol Investment & Securities recorded net losses for the third quarter. Yet, Hana Securities posted the weakest quarterly earnings among the top 10 securities firms in terms of equity capital.

Market watchers expect that the current phase of weak performances in the brokerage sector will continue for the time being until the industry undergoes major portfolio restructuring.

"Hana Securities is incurring losses from some of the firm's invested assets, such as real estate project financing and overseas real estate, in which the firm had aggressively expanded investment prior to 2022," Seol Yong-jin, an analyst at SK Securities, pointed out.

"While it is expected that the firm would improve its performances by overhauling portfolios, it appears inevitable that Hana's earnings performance would center more around banking in the short term."