Litigation looms over foreign trade finance fund debacle

A looming legal battle between a top insurance firm and an issuer of derivative-linked securities raises concerns over the financial product -- whose underlying asset, a trade finance fund, had deferred redemption.

Samsung Life Insurance, which sold over 53 billion won ($47 million) worth of DLS products through a privately pooled fund, is awaiting court proceedings against NH Investment & Securities, the brokerage firm that issued the DLS for the seller, the company said Wednesday.

A Samsung Life spokesperson said it had filed suit against NH Investment & Securities in December, declining to comment further on the ongoing legal conflict.

This comes as the fund investing in the DLS was frozen in August 2020 due to a pandemic-driven liquidity crunch of the underlying asset. The DLS issued by NH Investment track the performance of a trade finance fund managed by Hong Kong-based Universe Asia Management.

The liquidity issue has been in the spotlight as Universe Asia failed to secure repayment from Magma Capital Resources, a beneficiary of Universe Asia’s short-term trade loan for its spot gold trade.

Samsung Life had pooled a combined 95 billion won from investors to invest in the trade finance fund.

Of that amount, 53 billion won came through the DLS issued by NH Investment, while some 42 billion won went to a vehicle by Seoul-based PacificBridge Asset Management for the same underlying asset. The board of the nation’s largest life insurer by assets agreed to compensate investors for half of the principal last year.

Samsung Life urged NH Investment to share the pain from the fund freeze.

“As an issuer of the product, NH Investment is responsible for proactively ironing out the problem,” a Samsung Life spokesperson said.

An NH Investment spokesperson said the company had hired a law firm in Hong Kong and was looking to take legal action to get reimbursement for the losses of the trade finance fund.

By Son Ji-hyoung (consnow@heraldcorp.com)