South Korea’s Meritz Securities Co. is seeking to increase its equity capital to above 3 trillion won ($2.68 billion) in a bid to meet the requirement of becoming a mega investment bank set by the government.

According to multiple sources from the investment bank industry on Friday, Meritz Securities has been in contact with institutional investors including major local pension funds, mutual aid associations, and insurance firms to pool in new investment of up to 700 billion won in the form of redeemable convertible preference shares (RCPS). The company is known to be proposing diverse maturity curve for the RCPS investment - from three to 10 years depending on market demand. The investment is expected to deliver an annual return of three to four percent.

An unnamed official from Meritz Securities said the company has been considering various capital-increasing options such as issuing RCPS shares as part of mid- to long-term strategy. No details, however, have been confirmed yet, the official added.

The company won’t issue new issues in common shares that could undermine the stockholding of existing shareholders by increasing the supply. The company is also mulling acquiring a reasonably-priced brokerage firm to become bigger.

Last year, Meritz Securities raised 253 billion won in net profit and 78.9 billion won in the first quarter ended March this year, allowing its return on equity to remain in the high 10 percent level which is high enough to repay RCPS interest and principal.

Meritz Securities is the country’s seventh-largest brokerage with 1.89 trillion won equity capital as of the first quarter of this year. Recently, the company bought a 100 percent stake in its sister company Meritz Capital Co. through stock transfer bolstering equity capital to 2.3 trillion won, just 700 billion won short of joining the large-investment bank category in Korea.

Meritz Securities plans to draw investors before the end of June and have its scheme approved in a board of directors meeting. Current capital market law grants a brokerage with 3 trillion won or more equity capital the title of a comprehensive finance and investment business entity, allowing it to provide corporate lending services and act as a prime broker providing large trading services.

By Kang Doo-soon and Han Woo-ram

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