Exotic German Heritage DLS with Korean invest of $445mn to cause major losses

The problematic German Heritage DLS (derivatives-linked securities) that pooled a total 530 billion won ($445 million) from South Korean investors will likely cause massive losses to investors after it has failed to sell underlying assets to meet repayment.

Banjaran Asset Management, Singapore-based fund manager of German Heritage DLS met with the fund resellers in Korea, including Shinhan Financial Investment, on Jan. 29 and advised them to carry out foreclosure or exercise a power of attorney on German Heritage DLS, according to market sources.

German Heritage DLS is an investment product created based on Banjaran Asset Management’s fund invested in convertible bonds issued by a special purpose company that provided loans to real estate development company German Property Group (GPC), formerly Dolphin Trust. GPC pooled investment funds by offering profits on projects of remodeling old buildings in Germany as luxury condominiums. In Korea, total 530 billion won worth of German Heritage DLS has been sold.

The DLS started to mature in July last year but the fund operator has delayed repayments three times already, citing problems of getting authority’s approval for the projects. So far, only 20.6 billion won worth of the fund has been repaid while maturities on 258.6 billion won worth have been pushed back.

Following the delayed repayment, the Singaporean asset manager is now seeking to liquidate GPC’s properties by exercising foreclosure rights.

Maeil Business Newspaper has learned that financial authorities of the United Kingdom and Singapore had already warned of the credibility of the project owner GPC and the risk of the German Heritage DLS sale even before the product went sale in Korea. Also, a local German media report had revealed that GPC was charged with corporate crimes, including embezzlement and money-laundering.

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