Shares of Meritz Financial Group surged more than 5% in a single session after its brokerage unit, Meritz Securities, won approval to issue short-term notes. Firms licensed for the business can raise up to 200% of their equity capital, giving Meritz Securities a base to manage roughly 16 trillion won. Investor demand has gathered as expectations grow that the corporate finance business where the firm has shown strength will gain momentum.
According to the Korea Exchange, Meritz Financial Group closed at 132,600 won on the 28th, up 5.57% from the previous session. The stock held firm throughout the day, in contrast to the broader market: the KOSPI ended at 6,889.74, down 191.18 points, or 2.70%, falling back below the 7,000 mark for the first time in four sessions. The gain is attributed to Meritz Securities being designated a comprehensive financial investment business operator with more than 4 trillion won in equity capital, which came with approval for the note issuance business.
Meritz Securities had 8.35 trillion won in equity capital as of the end of June on a separate basis. Because licensed operators can raise up to 200% of equity capital, a simple calculation gives the firm a base to manage about 16.7 trillion won. Meritz Securities has built strength in real estate project financing (PF) and corporate finance. Investor sentiment gathered on the view that the firm can now expand aggressively on the back of sharply increased assets under management.
Licensed operators, however, face a requirement to channel at least 10% of the funds raised into venture capital. Because that means pursuing equity investments in unlisted startups and mezzanine investments in KOSDAQ-listed companies, the firm must build capability in those areas as well. A recent surge in domestic and overseas sovereign bond yields, which raises the difficulty of generating returns, is another challenge. In the Seoul bond market that day, the yield on three-year treasury bonds closed at 4.119%, up 11.3 basis points from the previous session. One basis point equals 0.01 percentage point.
An investment banking industry official said conditions for the note issuance business have deteriorated because it is not easy to generate stable returns while investing in assets riskier than government bonds. The official said the key task will be identifying corporate finance assets that offer both profitability and soundness, drawing on the competitiveness the firm has built in real estate finance.
