- NPS faces scrutiny for dollar-buying affecting won
- Legislation needed for NPS to issue dollar bonds
- Bank of Korea urges NPS to consider national portfolio and macroeconomic effects
SEOUL, Dec 9 (Reuters) - A review is underway to examine how South Korea's National Pension Service, the world's third-largest retirement fund, might raise dollars, including by issuing dollar bonds, the welfare ministry said in a statement.
The NPS has faced growing scrutiny over its dollar-buying role in the domestic currency market and has been blamed for contributing to pressure on the won. Legislation would be needed to permit it to issue dollar bonds in the offshore market.
"As the size of the national pension fund expands, the need to diversify foreign currency procurement has been raised continuously, and research on the feasibility of forex bond sales is currently underway," the ministry said.
The NPS has a growing appetite for equity and bond investments abroad, which it has to fund mostly by selling won in exchange for foreign currency in local markets.
The won has weakened nearly 5% against the dollar so far this quarter, which the country's central bank last week attributed to increasing overseas investments by residents and sales of domestic stocks by foreigners.
On Tuesday afternoon, the NPS was suspected of selling dollars into the local dollar-won market, two sources familiar with the matter said, as part of its foreign currency hedging to help counter the won's recent weakness.
The fund has internal rules whereby it can activate currency hedging by selling dollars if the won's average closing exchange rate against the dollar exceeds a certain level.
The NPS declined to comment.
Bank of Korea chief Rhee Chang-yong openly called on the fund to "consider the optimal portfolio for the entire nation" and also to pay attention to "macroeconomic implications," when asked about the fund's role in depreciating the won's value against the dollar during a briefing on November 27.
The finance ministry, which is in charge of dollar-won market policies, declined to comment on the issue.
The state-run pension fund held 882.7 trillion won ($633.86 billion) worth of assets as of the end of June.
The NPS plans to continuously increase the proportion of overseas equities in its portfolio to 38.9% by 2026, up about three percentage points from this year.
Reporting by Cynthia Kim Editing by Ed Davies
Source: Reuters