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By Bloomberg

The head of Mirae Asset Global Investments Co., which sold the first ever bonds by a South Korean fund manager, said the company will take advantage of a loosening in capital rules to finance hotels and acquisitions.

“We see tourism as a growth industry and are preparing for an increase in Chinese tourists,” Chief Executive Officer Jeong Sang Kee said in a telephone interview in Seoul. “If we see a 7 to 8 percent return with 2.5 percent funding costs, we count it as a potential investment. After the rule change, we expect overseas M&A and alternative investments to grow.”

The nation’s third-biggest asset manager, with some $62 billion under management, raised 100 billion won ($91 million) on Dec. 10 to help finance construction of a Four Seasons Hotel in Seoul. The AA rated company sold three-year notes yielding 2.499 percent and five-year notes that pay 2.796 percent, compared with 2.697 percent for similar Korean corporate notes.

Mirae Asset undertook its debut bond sale after Korea’s Financial Services Commission cut capital requirements that had forced the industry to park money in deposits rather than make its own investments. The fund manager, which also bought a Four Seasons Hotel in Sydney last year, is investing in tourism as Chinese visitor numbers to Korea surge, jumping 39 percent in the first 10 months of this year.

The Financial Services Commission redefined the test for asset management firms’ capital adequacy, from one based on gross risk to one focused on operational risks, such as trading errors. As a result they won’t need as much capital in reserve.

Extra Funds

The FSC expects the rule change, which replaces the so- called net capital ratio with a minimum capital requirement, to enable some large asset managers to use extra funds for investment or overseas expansion, according to a Sept. 25 statement.

“Asset managers will be able to opt to make investments and increase capital for their own purposes rather than simply passively investing their clients’ money,” said Kim Jong Min, a research fellow at Korea Capital Market Institute in Seoul. “This should help to develop the industry.”

Mirae Asset held 1.1 trillion won of total equity as of June 30, the most among the country’s asset managers, according to data from Financial Supervisory Service. Samsung Asset Management Co., the nation’s biggest money manager, had 213 billion won of total equity.

Upward Trend

Four Seasons Hotel Seoul is projected to open in Sept. 2015 near Gwanghwamun in the central business district, according to Mirae’s Jeong. The development will include a 25-story building with seven underground floors, according to a statement from Four Seasons Hotels & Resorts on Sept. 4, 2013.

“The new hotel can be differentiated because there are only a few five-star or six-star hotels in the central business area of Seoul,” said JoAnn Hong, a research and consultancy director at Savills Korea Co. in Seoul. “The performance of the Seoul hotel market should be good in 2015. The number of Chinese tourists is expected to increase so long as nothing happens to worsen relations between Korea and China.”

Mainland Chinese tourists made more than 100 million international trips in the first 11 months of this year, topping the total for all of 2013, according to data from the China National Tourism Administration.

The number of Chinese visitors to South Korea increased to 5.2 million in the first 10 months, almost 44 percent of the total, according to data from Korea Tourism Organization.

Seoul-based Mirae Asset increased its issue size by 30 billion won after receiving 140 billion won of orders, according to a Dec. 4 regulatory filing. The yield on five-year AA rated corporate notes has fallen 104 basis points to 2.68 percent this year through yesterday.

“The company sold bonds at a favorable premium considering it’s a debut sale,” said Lee Kyoung Rok, Seoul-based credit analyst at Daewoo Securities Co., a unit of KDB Financial Group Inc. “Mirae has made various global investments whose performances have been good, plus, it holds sizable equity compared to other asset managers. I don’t think it’s risky from a credit perspective.”