NPS lending stocks worth W718b

The National Pension Service has lent out some 700 billion won ($617 million) worth of its shares to other parties, a lawmaker revealed Tuesday.

NPS is South Korea’s largest investor, with 90 trillion won worth of local stocks. 

According to Rep. Park Yong-jin of the liberal opposition Minjoo Party, the pension fund’s stock loaning has risen steadily from an average balance of 425 billion won in 2013 to 697.9 billion in 2015.

As of June 30, the balance has risen to 718 billion won, with shares in 216 companies loaned out.

The revelation came amid controversy over short selling regulations, following Korea’s introduction earlier this month of a new disclosure rule on such transactions.

Short sellers borrow stocks and sell the shares in the expectation that the prices will fall, enabling them to buy the securities at cheaper prices later when the original owners want their assets back. Short sellers profit from the bearish bets, while the owners earn interest.

Short selling is a legitimate stock trading strategy but it has been widely criticized by retail investors for market volatility and disruption.

“Although there is no data available on how the (loaned) shares are being used, it is a prevailing market view that securities borrowing is for short sale,” the lawmaker said.

Last year, the NPS earned 19 billion won in interest income on the loaned stocks, he added.

The NPS is not a major source of stocks for short sellers, said the NPS.

“Stock lending and borrowing market in Korea was worth 53 trillion won last year. The NPS presence in it is just 1.3 percent,” a NPS spokesperson said.

According to the Rep. Park’s office, 2.61 percent of Hotel Silla’s total outstanding shares, or 1.04 million shares worth 74.5 billion won, are lent by the fund.

Shares in Hotel Silla are trading at around 61,000 won, down from about 140,000 won a year ago.

Other large stock loans extended by the pension fund involve renewable energy firm OCI, aerospace maker LIG Nex1 and mobile messenger operator Kakao.

Earlier this month Korea adopted a new rule that requires investors who short sell over 0.5 percent of any company’s total outstanding shares to report it. The mandatory disclosure rule also applies when the sum of short selling transactions exceeds 1 billion won.

By Lee Sun-young (milaya@heraldcorp.com)