Lotte Non-Life Insurance has postponed plans to redeem 90 billion won (US$63 million) in subordinated bonds following opposition from South Korea’s financial regulator, the company announced Tuesday.
Pulse reported that the South Korean general insurer had intended to exercise a call option on the bonds scheduled for May 8 but reversed course after discussions with the Financial Supervisory Service (FSS), which cited concerns about the company’s solvency ratio.
“We reviewed early repayment as we put the highest priority on protecting investor rights, but after discussions with the Financial Supervisory Service, we decided to postpone early repayment,” a Lotte Non-Life spokesperson told Bloomberg via a text message.
Early this year, Lotte Non-Life submitted a revised capital plan to the FSS, which includes a proposed rights offering and strategic asset sales.
According to financial sector sources, the FSS rejected the redemption plan because the insurer’s payment capacity ratio would fall below the regulatory minimum of 150% under Korea’s Insurance Capital Standard (K-ICS).
Despite the regulator’s stance, Lotte reportedly attempted to proceed with the redemption through individual agreements with bondholders. These efforts were hampered when the Korea Securities Depository refused to share bondholder data without FSS approval.
The company now plans to implement a capital expansion in the second half of the year to meet regulatory requirements before attempting redemption again. Specific details about the capital raising plan have not been disclosed.
“We will execute capital expansion as soon as possible to finalize the prepayment schedule,” the company stated.
The subordinated bonds in question are set to mature in 2030, but contained an early redemption option that Lotte had hoped to exercise.
Market observers note that the situation has sparked concerns about potential instability in the broader subordinated debt market, particularly as other insurers with weak solvency ratios approach their call dates.
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