S.Korean insurer Heungkuk delays redemption of dollar bond, adds to credit strain worries

By Cynthia Kim and Rae Wee

SEOUL, Nov 2 (Reuters) - South Korea's Heungkuk Life Insurance has decided to delay buying back its perpetual notes due on Nov. 9, the first such case since 2009, adding to signs of credit strains in Asia's fourth-largest economy.

The insurer said in a stock exchange filing on Tuedsay it had postponed exercising a call option for its $500 billion bond, due to "extremely unstable financial market conditions in Korea as well as internationally, including changes in interest rates."

Such a delay on a bond repayment option on the first call date is unusual. It hasn't happened since South Korea's Woori Bank made a similar decision in 2009 when the market was thrown into extreme volatility.

"Postponing of an optional redemption doesn't mean it's a default, but a factor that increases reputational risk," said Choi Seong-jong, a credit analyst at NH Investment & Securities.

"Heungguk's decision not to exercise its optional redemption is expected to worsen investor sentiment for a while."

South Korea's policymakers have been making concerted efforts in recent weeks to prevent a liquidity crisis after a local developer of the Legoland theme park defaulted.

The nation's financial regulator on Wednesday said the insurer has "no problem making insurance payments (to beneficiaries) and it remains a profitable company with sound management records."

"Heungkuk Life's debt payment delay is not a problem and we are in continuous communication with institutional investors," the Financial Services Commission said in a statement. (Reporting by Cynthia Kim; Editing by Kim Coghill)