KDB Financial Group may make its affiliate KDB Asset Management a top hedge fund manager by offering a string of hedge fund products for domestic investors and investors in Asia and, in the long term, globally.

Chairman Kang Man-soo said the KDB Financial Group will try to make KDB Asset Management a top hedge fund manager not only in Asia but in the world under the group’s strategy to strengthen the replacement investment, the area of investment with great potential for growth through consultations with global replacement investment management firms.

David Jun, co-representative of KDB Asset Management at a forum held on Sept. 6 at the DLI 63 Building in Yeouido, Seoul, said the global economic growth rate hovers around 2 percent now and it is now hard to imagine growth backed up by plenty of liquidity leverage like there was before 2008.

“The global economic trends as they are, we need hedge fund products that can do well even in the age of economic uncertainty, overcoming various variable factors,” Jun said, noting that there still are many factors that can change the global economy.

Under these conditions, KDB Asset Management will offer the KDB Korea Best and KDB Korea Best Hybrid on Sept. 19, funds that are tailor-made to withstand all kinds of adversities in the current global financial conditions, regardless of what the KOSPI Index shows, CEO Kang said.

In November, the asset management firm will introduce the KDB Asia Best and KDB Asia Best Hybrid to investors in Asia, Jun said, adding that the asset management firm will make these hedge fund products part of its key products to secure a base for its kick off of hedge fund operations from early next year.

In the meantime, Fitch ratings has affirmed Korea-based Korea Development Bank’s (KDB) Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘A+’ and Short-Term Foreign-Currency IDR at ‘F1’ with a stable outlook. 

KDB’s ratings reflect the agency’s expectations of an extremely high probability of government support and are equalized with South Korea’s sovereign ratings. Article 44 of the KDB Act obliges the Korean government to replenish any deficits at KDB if its capital reserve funds fail to cover them. KDB, a wholly owned subsidiary of KDB Financial Group (KDBFG), is effectively 100-percent owned by the government, given that KDBFG is 9.7 percent directly and 90.3 percent indirectly owned by the government through Korea Finance Corporation (KoFC; ‘A+’/Stable).

KDB and KDBFG have a privatization plan and are committed to commencing initial sales of KDBFG shares by May 2014 as per the KDB Act. To facilitate privatization, they have tried to acquire a commercial bank or financial group, but have so far been unsuccessful. Fitch believes that mergers and acquisitions are unlikely to happen under the current administration.

If the government starts the initial sale of KDBFG’s equity interest, a specific guarantee clause would be activated. Under Article 18-2 of the KDB Act, the government would guarantee foreign-currency debt with a redemption period of no less than one year, outstanding as of the first selling date although the amount is subject to the National Assembly’s approval.

KDB’s asset quality has deteriorated since the global credit crisis, recording a precautionary-and-below loan ratio of 5.3 percent in Q1 of 2011 (system average 4.3 percent), compared with 4.2 percent in 2009 and 2.1 percent in 2008. Property developers’ project financing (PF) amounted to 2.3 percent of the total loan book, with a non-performing loan ratio of 2.1 percent of total PF loans in Q1 of 2011.

Under the memorandum of understanding (MOU), the Export-Import Bank of Korea (Eximbank) and KDB will cooperate to support local companies win more bids for big overseas projects, they said in a statement.

“The MOU is expected to create synergy for both policy lenders and boost local companies’ overseas expansion,” Eximbank and KDB stated. The two state-run banks are set to hold regular meetings and exchange human resources as part of the agreement.