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| The KB Securities head office on Yeouido, Seoul / Courtesy of KB Securities |
By Park Jae-hyuk
It's fair to say investing opportunities aren't entirely bounded by geography. If investors are attracted by reports of emerging economies and even booming growth in other countries, it's no question some investors will invest.
The top principle is that investors just have to know how to get started because the central point of investing in foreign stocks is aimed at diversifying portfolios by actively embracing risks and taking a sizable stake in the growth of other economies.
In the case of KB Securities, South Korea's leading brokerage, a lot of issues need to be addressed before "actually helping" investors, as its apparent incompetency in handling this is raising concern.
Like many other domestic securities companies, KB Securities is eyeing countries in the ASEAN bloc, as the region is widely considered a "safe bet" in terms of minimizing management risks and winning more customers, given the quantity of Korean exporters there.
But KB Securities Vietnam Joint Stock Company was recently punished for allegedly violating Vietnam's securities exchange law, according to the State Securities Commission (SSC) of Vietnam, Tuesday.
The SSC said the Korean securities firm's Vietnamese unit failed to keep complete records, relevant data and documents related to its operations.
"KBSV did not keep documents proving its stock transactions with Duc Quan Investment and Development done between January and August 2019," the Vietnamese regulator said in a statement. The fine imposed on the KB unit was quite small as it has only to pay 70 million dong ($3,000).
The Korea Times asked KB Securities about this issue, but it did not answer.
The imposition of the fine doesn't matter at all. But the implication of the fine is that a stain on the securities firm's reputation.
KB Securities has been the center of controversy over its ambitious real estate investment in Australia, which eventually ended in failure after the company was connected with a fraud case, due to a local borrower's breach of contract. The brokerage firm set up JB Australia NDIS Fund with JB Asset Management last year with the purpose of investing in businesses related to the Australian government's housing policy for the disabled.
For this project, KB Securities amassed 326.5 billion won ($282 million) in investments ― 236 billion won from institutional investors and 90.4 billion won from individual investors ― and JB Asset Management lent the money to LBA Capital so the Australian borrower could buy homes, remodel them and receive subsidies from the Australian government to accommodate disabled people.
However, it was revealed that LBA Capital bought land ― not homes ― as the price of apartment buildings went up because of the continued overheating of the real estate market there. Following the revelation, KB Securities and JB Asset Management took legal action against LBA Capital and retrieved about 85 percent of their investments.
Some sources familiar with this issue alleged KB Securities was also responsible for this case.
"KB Securities was aware that LBA Capital was focusing on real estate development projects, but continued to advise investors that they were making placements against existing assets," a source said. "However, once details of the situation leaked out to the media, KB Securities and JB Asset Management decided to pursue litigation, while LBA Capital fully cooperated with them and provided full accounts of all fund expenditures."
Regarding this issue, KB Securities has been sued by multiple institutional investors after it refused to refund their money. The institutional investors are the Korean Reinsurance Company (Korean Re), the Korea Federation of Community Credit Cooperatives, the National Forestry Cooperative Federation, Korea Investment & Securities and ABL Life Insurance.
"Unlike individual investors, institutional investors have expertise in financial products and ability to take risks from investments," a KB Securities official said.
Its worsening overseas financial performance is another negative factor weighing on its foreign business. According to a regulatory filing by KB Securities, its overseas subsidiaries suffered a 5.52 billion won net loss in the first quarter.
Global credit ratings agencies have also cast doubts on the securities firm's competitiveness.
In May, Fitch Ratings downgraded KB Securities' long-term issuer default rating to BBB+ from A-, with a negative outlook. It downgraded the Korean firm's support rating to 2 from 1.
Moody's Investors Service also placed the ratings of KB Securities on review for a downgrade in April, saying its funding and liquidity profiles have deteriorated significantly over the past two years.
