Funding the Advances

Funding the Advances

In FY2025 Korea Asset In Trust's trust-account loan book produced ₩51.5bn of interest income and absorbed a ₩53.4bn increase in its own allowance, while the group's interest expense for the year was ₩39.7bn against ₩34.2bn of operating income — a funding bill incurred on the ₩258.1bn of borrowings the parent raised in 2024, the year the same advance book grew from ₩469bn to ₩819bn and parent cash fell to ₩2.4bn. Trust-account interest was ₩51,451,952 thousand for the year [1]; the allowance carried against those advances rose from ₩107.8bn to ₩161.2bn [2]; consolidated interest expense was ₩39.7bn [3] against operating income of ₩34.2bn [4]; the parent's borrowings went from ₩100.0bn to ₩358.1bn during 2024 while its cash closed the year at ₩2.4bn [5]; and the advance book moved from ₩469bn to ₩819bn over the same twelve months [6].

The debt behind the book is short — ₩390.3bn of the ₩579.2bn outstanding at the end of 2025 falls due during 2026 — and part of it is secured on the advances themselves. Covenants and regulatory ratios are nowhere near binding; price and rollover are the live constraints.

Sources: borrowings at 31 March 2026 from the Q1 FY2026 report [7]; maturity profile and totals from the FY2025 annual report [8]; committed facilities from the FY2025 annual report [9]; interest expense from the 1Q FY2026 results deck [10].

Does the advance book cover the money that funds it?

The ₩53.4bn is not a payment and not a write-off. It is the company's own restatement, made at each year end, of how much of the advance book it still expects to collect, and it is set against a revenue line that is largely accrued rather than received (Provisions and Profit). What matters in this chapter is the sign rather than the size: on the trust-account book alone, FY2025's interest did not cover the year's addition to the allowance held against it.

Netted, the FY2025 combination on that book is minus ₩1.9bn before any funding cost — ₩51.5bn of interest [11] against an allowance that went from ₩107.8bn to ₩161.2bn [12]. On 122,373,926 shares [13] that is ₩16 a share, 0.2% of the ₩8,803 of book value per share at 31 March 2026 and the same 0.2% of the ₩1,077.2bn of consolidated equity behind it [14]. Add the group's ₩39.7bn interest bill [15] — a group-wide figure rather than an allocation to the advance book, though the parent has no other borrowing purpose of comparable size — and the combination is ₩41.7bn, ₩341 a share, 3.9% of book value per share and the same 3.9% of consolidated equity. One further year on the FY2025 terms takes book value per share from ₩8,803 to about ₩8,462, and two years to ₩8,121, or 7.7% of the book value the price is quoted against (Price Against Book).

Three cited facts cut against reading FY2025 as the run rate, and they belong beside the finding rather than after it. Read at group level the sign flips: the capital arm's loan book produced ₩49.2bn of interest [16] against an allowance build of ₩8.2bn, from ₩29.7bn to ₩37.9bn [17], so group lending revenue of ₩100.7bn exceeded the combined ₩61.6bn build across both books by ₩39.1bn. Almost none of the provisioning has been realised as loss — write-offs against loan receivables were ₩253.8m in FY2025 against a ₩63.7bn charge, 0.4% [18]. And the March 2026 quarter ran the other way: ₩133.6bn recovered against ₩70.3bn advanced, a net ₩63.2bn repayment in three months [19].

Where the funding came from

Through 2022 and 2023 the trust company carried almost no debt of its own. Separate-basis borrowings were ₩100.0bn at the end of 2022 and ₩100.0bn at the end of 2023, against cash of ₩121.7bn and ₩79.0bn respectively [20] [21]. Over those same two years the trust-account advance book rose from ₩224bn to ₩469bn [22]. That growth came out of retained earnings and the cash pile.

2024 is where the funding model changes. The advance book went from ₩469bn to ₩819bn, and the parent's borrowings went from ₩100.0bn to ₩358.1bn — ₩258.1bn raised in twelve months — while its cash fell to ₩2.4bn [23] [24]. At group level the same year took borrowings from ₩330.0bn to ₩616.6bn and net debt from ₩215.1bn to ₩595.6bn [25] [26].

Sources: advances from the 1Q FY2026 results deck [27] [28]; group and parent borrowings from the FY2024 and FY2025 annual reports [29] [30] [31] and the Q1 FY2026 report [32].

The average contract rate on that debt moved with the cycle rather than with the company: 3.37% in 2021, 4.97% in 2022, 5.87% in 2023, 5.78% in 2024 and 5.47% in 2025 [33] [34]. The company borrowed most heavily in the two years the rate was highest.

What the funding costs

What the borrowing has changed is the income statement. Consolidated interest expense was ₩15.1bn in 2022, ₩19.5bn in 2023, ₩28.6bn in 2024 and ₩39.7bn in 2025 [35] [36]. This issuer charges interest within operating expenses, so operating income is struck after it: over the same four years operating income fell from ₩146.9bn to ₩34.2bn.

Source: results presentations, consolidated income statement [37] [38].

Two qualifications on that interest line. The first is arithmetic: ₩39.7bn on average borrowings of ₩598bn implies 6.6%, above the 5.47% average contract rate the company discloses; the filings do not reconcile the two, and the gap plausibly holds lease interest, discount amortisation and the capital arm's own funding, none of which is broken out.

The second is more useful. Interest expense is a cash cost and interest income largely is not. In 2025 the group recognised ₩110.3bn of interest income and received ₩94.3bn in cash, while recognising ₩39.7bn of interest expense and paying ₩35.6bn [39] [40]. Across 2023-2025 the group recognised ₩325.4bn of interest income and collected ₩265.4bn, a ₩60.0bn shortfall; on the paying side it recognised ₩87.8bn and paid ₩84.9bn, a ₩2.9bn shortfall [41] [42]. The spread is booked on both sides; only one side settles in cash on schedule.

Price is also where the credit rating lands. The April 2024 public bonds were sold at 6.80% and 6.90%; the February 2025 pair at 5.22% and 5.62% [43]. Korea Ratings cut the grade one notch to A- with a stable outlook on 2 May 2026, citing poor collection of trust-account advances and the drag of interest and credit costs on recurring profitability — a Korean-press report dated after the last filing in this corpus, and not verifiable inside it (Price Against Book). Whether the April and August 2026 maturities were refinanced, and at what coupon, is the first observable test of what that notch costs; neither event falls inside the filings read here.

What falls due

At 31 December 2025, ₩390.3bn of the ₩579.2bn of group borrowings matured during 2026 — 67% of the stack inside twelve months. The shape is not new: a year earlier, ₩400.3bn of ₩616.6bn was scheduled to mature during 2025 [44] [45].

Source: FY2025 annual report, maturity schedule of borrowings [46].

During 2025 the group drew ₩387.8bn of new borrowings and issued ₩170.6bn of bonds, while repaying ₩514.5bn of borrowings and ₩84.0bn of bonds — ₩558.4bn raised and ₩598.5bn repaid against a year-end stack of ₩579.2bn [47]. The group refinances close to its entire debt load every year.

The asset it funds does not work on that clock. The company's own liquidity disclosure states the basis: for trust-account advances on projects that have already pre-sold, liquidity is calculated from the contractual instalment and completion payments; for unsold projects, the advance is treated as recovered only when the trust business terminates — and substandard-and-below assets are excluded from liquid assets altogether [48]. Applying that basis, the parent's own cumulative coverage of liabilities by assets inside three years was 268% at the end of 2023, 82% at the end of 2024 and 86% at the end of 2025 [49] [50]. Two consecutive years below 100% on the company's own measure is the maturity mismatch stated in its own numbers, and it is the reason the funding question is separable from the recovery question that runs through the rest of this report.

What is pledged

Part of the 2024 borrowing was not plain unsecured debt. At the end of that year ₩160bn of face value sat in three facilities named for special-purpose vehicles — KIS KAIT No.1 Dasi 1st (₩70bn, maturing 20 August 2025), No.1 Dasi 2nd (₩30bn, same date) and No.2 Dasi 1st (₩60bn, maturing 20 January 2026) — carried at ₩158.3bn after present-value discount [51]. Against those facilities the group assigned, as security, its statutory claim under Article 46 of the Trust Act to be reimbursed by the trust estate for trust-administration costs [52].

That claim is the legal form of the trust-account advance itself. The security taken by the lenders is the same receivable whose recoverability is a central open question in this company's accounts (Provisions and Profit). At end-2024 the pledged funding was 25.7% of group borrowings.

By the end of 2025 the structure had been consolidated into one facility: KIS KAIT No.3, ₩100bn at 5.30%, maturing 3 August 2026, again secured by assignment of the trust cost-reimbursement claims over specified land-trust projects [53] [54]. It was still outstanding, unchanged, at 31 March 2026 [55]. Pledged funding is now 17.1% of group borrowings. The technique is not an innovation of the downturn — the 2016 IPO prospectus records the same pledge of cost-reimbursement claims over two trust sites in support of a project-specific facility [56] — but the scale is.

Alongside the secured facilities, the parent replaced short paper with term bonds during 2025. Public bonds rose from ₩99.8bn to ₩199.7bn while other borrowings fell from ₩258.3bn to ₩164.3bn [57]. Three commercial-paper facilities of ₩10bn each, drawn at end-2024, are gone from the 2025 note [58].

What is not stretched

The constraints a stressed borrower runs into first are all a long way off. The four outstanding public bonds carry maintenance covenants, and the FY2025 compliance table shows the headroom.

Source: FY2025 annual report, bond management agreement terms and compliance [59].

A fourth covenant restricts a change in the largest shareholder; MDM's holding has not moved (People), and the table records compliance [60]. The security-granted figure of 9.33% of equity is about ₩101bn on consolidated equity of ₩1,083.3bn [61], which is the KIS KAIT No.3 facility. The pledge covenant and the secured facility describe the same thing, and the covenant permits roughly thirty times as much.

The regulatory ratios sit in the same place. The net operating capital ratio was 284% at end-2024, 363% at end-2025 and 364% at 31 March 2026 [62], against a 150% minimum for a category-3 investment business [63]. And the committed bank facilities have gone from being used to being reserve capacity: ₩194.0bn of limits with ₩28.0bn drawn at end-2023, ₩264.0bn with ₩70.0bn drawn at end-2024, and ₩154.0bn with nothing drawn at end-2025 and again at 31 March 2026 [64] [65] [66] [67]. Eleven facilities across nine banks make up those limits; ₩143.0bn of the ₩154.0bn sits at the trust company rather than the capital arm [68].

Set against the two large named maturities of 2026 — the ₩54bn public bond due 29 April [69] and the ₩100bn secured facility due 3 August — the group held ₩153.8bn of cash at 31 March 2026 plus ₩154.0bn of undrawn committed lines [70] [71]. Twice the cover for those two, though not for the full ₩390.3bn 2026 schedule, which requires the bank book to keep rolling.

Where the first quarter points

The March 2026 quarter recovered ₩63.2bn net from the trust-account book, taking it from ₩802.6bn to ₩739.4bn [72] [73]. None of it went to debt. Group borrowings rose slightly, from ₩579.2bn to ₩581.5bn; cash rose from ₩109.5bn to ₩153.8bn, and the parent's own cash from ₩32.7bn to ₩99.2bn [74]. Recoveries were parked, not applied — consistent with pre-funding the April bond and the August facility rather than with deleveraging.

The three-month regulatory liquidity ratio records the same thing from the other direction. It was 909% at the end of 2025 and 197% at 31 March 2026, because three-month liabilities rose from ₩24.2bn to ₩125.2bn as the April maturities entered the window while liquid assets rose only to ₩246.6bn [75]. The 100% floor is still cleared by a wide margin, but the ratio is volatile by construction and reads as a maturity calendar rather than as a condition.

Sources: FY2024 and FY2025 annual reports [76] [77]; Q1 FY2026 report [78]. The capital arm's three-month ratio is not published for 1Q26.

The one measure that has moved consistently in one direction belongs to the capital subsidiary: 284%, 244%, 216% and 139% across 2022 to 2025, against the same 100% floor [79] [80]. Its ₩78.3bn of three-month liabilities is small in group terms, and its regulatory capital ratio is 63% against a 7% requirement [81] — but it is the entity that supplied most of group operating profit in 2025 (Where Book Value Sits), and it funds itself separately.

Reading it, and what would change it

On the disclosed record this is a cost-and-rollover exposure rather than a solvency one. Covenant headroom is measured in multiples, the capital ratios clear their floors by a factor of two or more, the committed lines are undrawn, and the group holds cash and facilities together worth twice the two named maturities of 2026. What has actually happened is that a trust company carrying ₩100.0bn of debt at the end of 2023 took on ₩264bn more within two years to fund advances that recover on construction timetables, and the group's interest bill of ₩39.7bn in 2025 now sits ahead of the ₩34.2bn of operating profit left after it.

The strongest fact against the benign read is the company's own three-year liquidity coverage: 82% and 86% in the last two years, on a basis that already assumes unsold projects repay only at trust termination and excludes substandard assets entirely [82]. Two-thirds of the debt turns over annually against an asset that does not, which makes continued bank and bond-market access a condition of the recovery thesis rather than an assumption behind it — and the rating moved a notch the wrong way in May 2026.

Three things would settle it, each checkable in a specific filing:

The refinancing of the ₩100bn secured facility maturing 3 August 2026 — whether it is replaced, at what rate, and whether the replacement again takes assignment of cost-reimbursement claims. The borrowings note in the Q3 FY2026 quarterly report carries all three.

The average contract rate disclosed in the FY2026 annual report's funding section. It fell from 5.87% to 5.47% across three years of easing policy rates; a rise against a falling policy rate would isolate the cost of the downgrade.

The committed-facility note. ₩154.0bn of limits with nothing drawn is the group's reserve; a fall in the limits, or a drawn balance reappearing, would be the first sign that the reserve is being consumed rather than held. The same note carries whether new borrowing-type origination — which draws on this balance sheet as well as on the risk ceiling (Redevelopment Pivot) — is being funded from cash or from lines.