The Korea Housing and Urban Guarantee Corporation (HUG) is set to increase its capital again. It has recorded net losses for three consecutive years from 2022 to last year, and the guarantee limit defined by law has reached its maximum, leaving no room for additional guarantees. The corporation faces a situation where it must increase additional guarantees for project financing (PF) loans and unsold business sites in local areas by nearly 30 trillion won this year. According to the relevant law, the corporation can guarantee up to 90 times its equity capital, so it must increase its capital to expand its guarantee capacity.
According to the government on the 25th, the Ministry of Economy and Finance and the Ministry of Land, Infrastructure and Transport are in the final stages of discussions regarding the capital increase size of the Korea Housing and Urban Guarantee Corporation. The corporation plans to issue new shares through a third-party allocation of paid-in capital aimed at the government, and the government will pay its subscription in the form of equity it holds in the Korea Expressway Corporation. A Ministry of Economy and Finance official noted, "The precise amount and timing of the in-kind investment have not yet been finalized due to ongoing negotiations." The timing for the investment is expected to be as early as next month.
As of the end of last year, the largest shareholder of the Korea Expressway Corporation is the Ministry of Land, Infrastructure and Transport, which holds 79.41% (paid-in capital of 35 trillion 776 billion 2126 won) of the equity. The second-largest shareholder is the Korea Housing and Urban Guarantee Corporation, which has received investment from the Ministry and holds 8.14% (paid-in capital of 3 trillion 5964 billion 7546 won) of the equity.
The reason the government seeks to increase the corporation's capital through in-kind contributions is that the limit on guarantees the corporation can offer is determined by its capital, which has reached its maximum, while the corporation needs to provide more than 30 trillion won in additional guarantees this year. According to the current Housing and Urban Fund Act, the corporation can guarantee up to 90 times its capital (guarantee multiplier). This is a temporary measure to increase the guarantee multiplier, which will be reduced to 70 times the capital starting in April 2027.
As of the end of last year, the total capital of the corporation was 4 trillion 9409 billion 3500 won, meaning its 90 times amounts to 444 trillion 6841 billion 5000 won. The total amount guaranteed by the corporation is 618 trillion 3161 billion won. Excluding additional guarantees or insurance provided by financial institutions or insurance companies in accordance with the relevant laws, which are not included in the guarantee limit, the corporation's limit on guarantees is nearly at its threshold. A corporation official said, "While the corporation's limit for guarantees is still substantial, we cannot disclose how much additional guarantee capacity is available." The industry views that the corporation's available balance for guarantees is nearly exhausted.
Although the guarantee balance has run out, the corporation is in a position to extend more than 30 trillion won in additional guarantees this year. Earlier, the government revealed its plan to expand the corporation's guarantees in the '2025 Economic Policy Direction' announced in January. In the economic policy direction, the government stated that it would "carry out government investments to increase HUG's capital and expand public guarantees for dwellings, PF, maintenance projects, and unsold dwellings in local areas by more than 30 trillion won." This means that it aims to increase guarantees for PF, reconstruction and redevelopment, and unsold business sites by at least 30 trillion won.
The government has invested more than 5 trillion won in the corporation over the past three years (in-kind + cash). According to the National Assembly's Land, Infrastructure and Transport Committee, from 2021 to last year, the total investment by the government in the corporation was 5 trillion 4739 billion won. The government contributed 390 billion won in 2021 and 383.9 billion won in 2023. Last year, the investment included 700 billion won and shares of the Korea Expressway Corporation amounting to 4 trillion won (based on market value).
Despite government support, the corporation's guarantee amount and losses are increasing due to the worsening real estate market, the spread of bad PFs, and the impact of Jeonse guarantees. There are more business sites that need to be guaranteed, but the recovery rates are low and guarantee incidents due to Jeonse fraud are rising. The corporation has recorded net losses for three consecutive years from 2021 to last year. Last year, it recorded a net loss of 2 trillion 5198 billion won, and deficits were also recorded in 2022 (408.7 billion won) and 2023 (3 trillion 8598 billion won). A Ministry of Land, Infrastructure and Transport official said, "There is no disagreement among government ministries regarding the need for a capital increase," adding that "the capital increase will soon occur after inter-ministerial consultations are completed through the Cabinet meeting."