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  Korea Report - November 2008
  Author : Hwang & Co     Date : 08-12-09 10:18     Hit : 53775    
Topics.

-Barrack Obama's victory brought mixed expectations to Koreans.
-President Lee had a series of summit with the leaders of USA and South American countries, on the sideline of G20 economic summit.
-US beef made brisk debut in Korean market.
-NK announced a disagreement on the verification method of its nuclear program.
-NK suspended the inter-Korean joint project after a series of threatening to SKorean conservative government.
-Korea's GDP growth shrunken.
-Parliament started to discuss the national budget of KW273.8 tril for 2009.
-BOK started to sell $4 bil out of $30 bil currency swap line with USFR.
-Korea's construction sector dipped deep in trouble.
-Nation's auto industry fell into turmoil.
-KWon kept weakened to break through 1500 barrier against USD.
-BOK lowered its key interest rate to 4%.
-Tide of cancellation swept the shipbuilding market.  
-Hanhwa paid performance bond to acquire controlling stake in DSME.
-C&Heavy applied "workout program" to creditor banks.

GOVERNMENT AND SOCIETY

Koreans hailed America for making history by choosing Barack Obama as its first black president. But expectations were mixed over the changes that the next US leader would bring to the peninsula. Liberal Koreans were highly hopeful that he will put an end to unilateralism in US foreign policy and deliver sweeping reforms to unbridled Wall Street capitalism, hoping for peninsular peace, which prioritizes dialogue in dealing with NK. Conservatives expressed concern about progressive values that are being newly inspired by the liberal president-elect.
President Lee Myung-bak and political leaders welcomed Obama's election, expressing hopes for strengthening ties between 2 allies and expecting no major changes in overall relations. But Obama is expected to shift the course in dealing with NK and the Korea-US free trade agreement. He has even indicated his willingness to meet NKorean leader Kim Jong-il if conditions mature. Obama and his aides several times expressed skepticism toward the Korea-US FTA, calling for a renegotiation to reduce damage to American carmakers. Obama has criticized a deal with SKorea that has yet to be ratified, saying it does not adequately address an imbalance in auto trade. SKorean sold 772,482 vehicles in USA in 2007, while the US sold 6,235 in SKorea.
A top Korean FTA negotiator said the renegotiation of the Korea-US FTA is out of the question. Government authority said that any attempt to revise the deal will undermine international confidence in USA. Lee said Washington may have nothing to gain from a renegotiation because the pact already addressed issues concerning auto tariffs. President Lee called on the GNP to ensure parliamentary approval of the Korea-US FTA within this year.

President Lee Myung-bak and US president-elect Barack Obama agreed, in a telephone conversation, to further enhance the bilateral alliance between 2 countries and to closely cooperate in addressing the global financial crisis and NKorean nuclear issue.
President Lee Myung-bak, in a keynote speech at the G20 economic summit, called on world leaders to conclude a long-delayed accord to reduce subsidies and tariffs, warning that trade protectionism will hurt emerging markets. Lee, French President Nicolas Sarkozy and several other heads of state have called for sweeping reform of the IMF and the establishment of a new global financial system to keep pace with recent changes in the global economy.
President Lee and Brazilian President Lula da Silva in Brasilia agreed to boost bilateral economic cooperation and closely work together in preparing measures to tide the world over the global financial crisis. They also promised to push for a FTA between Korea and MERCOSUR, the South American trade bloc comprising Argentina, Paraguay, Uruguay and Brazil. Lee visited Brazil after attending the Group of 20 summits in Washington. 2 countries and Britain were selected to form a troika of moderator countries to prepare policy agenda for the next G-20 summit slated for April in London. Lee asked the Brazilian president to support Korean firm' participation in Brazil in areas of mineral resources, oil development, plant construction, shipbuilding, bio-fuels, automobiles and green energy industries. Brazil plans to build 8 nuclear power plants by 2030. It plans to lay a 520-km-long high-speed railroad. The project financing deal reached in Sao Paulo between Korea Export Insurance Corp and Petrobas could facilitate the winning of future orders by the Brazilian oil producer and refiner.
Korean President Lee Myung-bak and Columbian President Alvaro Uribe agreed to push for a FTA between 2 countries during their bilateral summit held on the sidelines of the APEC forum. 2 leaders also shared the view that SKorea and Columbia should continue to expand bilateral exchanges and investments on the basis of their traditional friendship that dates to the 1950-53 Korean War. Columbia was the sole Latin American country, sending 5,100 troops to the war.
Lee and his Peruvian counterpart Alan Garcia agreed to begin negotiations on a FTA in the first half of 2009 and closely cooperate in overall economic fields, including the Peruvian government¡¯s massive infrastructure expansion projects. 2 leaders agreed to push for the combination of Korean capital and technology with Peruvian energy and natural resources.

A joint study on the ecosystem, forests and cultural properties of the Demilitarized Zone was launched to assess the condition of the off-limits area. A series of examinations by a 20-member research team will be made in all parts of the DMZ through 2010. The team focused its research on 9 areas: topography/scenery, vegetation, plant life, birds, mammals, fish, amphibians/reptiles, land insects and freshwater invertebrates. Government decided to push for the creation of an eco-friendly peace park in the demilitarized zone between 2 Koreas and use the data found in this study to devise an eco-system protection plan for the area in the future.

The government is preparing a massive tax refund, amounting to some KW600 bil ($430 mil), after the Constitutional Court ruled that the current property tax law which imposes a 1-3% tax on households which own real-estate with a combined value of KW600 mil or more is partially unconstitutional. The households which paid the comprehensive property tax in 2006 and 2007 would be eligible for the tax refund. The government will assess and return the difference between the amount previously collected and the amount levied under the revised law. The court also said that a household with a single residential house would be exempt from the tax when law revision was complete. It would lift the tax floor to KW900 mil and drop the tax rate to 0.5-1%, but details regarding the revision have yet to be decided in the National Assembly. Some 200,000 taxpayers are expected to receive the tax refund.

General Electric Healthcare and the University of Pittsburgh Medical Center, which together operate a medical business, plan to take their current model abroad. The University of Pittsburgh Medical Center serves 30,000 patients annually in more than 40 centers in western Pennsylvania and manages 2 cancer centers in Ireland. The first nations identified are Germany, Greece, South Korea and Turkey. Ground will be broken on the first center next year. The University of Pittsburgh Medical Center will run the centers, which will offer chemotherapy and other types of radiation therapy. GE will provide medical equipment.

The National Institute for International Education is recruiting 608 native speakers of English as assistant teachers at public schools from next March. To meet the increasing demand for native-speaking English teachers in provincial regions, it has continued to expand recruitment, expecting the demand to rise to 1,500 next year. By 2010, the Education Ministry plans to place at least one native English teacher in each of the 2,900 middle schools in the country. About 4,300 native English teachers were working at elementary and middle schools as of April.

Korea became the largest export market for US beef in Sept as local buyers moved to stockpile the meat in anticipation of greater demand down the road. The exports to SKorea reached $89.24 mil or 28% of the total for the month. It comes just 3 months after Seoul lifted its ban on US beef imposed in late 2003. A new import deal signed in April sparked massive protests by concerned consumers here. The $29.7 mil worth beef were bought by Japan, Mexico imported $77.91 mil worth of US beef, while Canada bought $58.93 mil in Sept. The country¡¯s top 3 discount store chains, Lotte Mart, E Mart and Home Plus decided to resume sales of US beef.

Korea is ranked 10th in brand power worldwide in 2008, the same position as last year, while Samsung Electronics topped the list of local companies with its brand value estimated at KW11 tril for the ninth straight year, with Hyundai Motor and LG Electronics coming in second and third at KW5 tril and KW4.3 tril, respectively.

2 Korean Air pilots have become the first women to qualify as plane captains since the country began operating private jets in 1948. Currently under the government's regulation, a pilot has to fly over 4,000 hours to be qualified as a plane captain, as well as pass a series of exams that test one's ability to control jets. Both joined Korean Air in 1996. There are currently about 1,700 captains in Korea.

SKorea's 2-0 win over Saudi Arabia in qualification for the 2010 World Cup in Riyadh was one of the team's best results in years, and a seventh successive appearance at the World Cup looks a good deal closer. It had been 19 long years since the Korean team last defeated Saudi. Korea positioned 2 points clear at the top of Group Two after 3 matches. Iran has 5, while Saudi Arabia and NK each have 4. UAE sits in last place with a single point.
Kim Yu-na captured her fifth straight Grand Prix event and second of the season as she defended her Cup of China title by dominating her rivals in the free skate. The 18-year-old, who had won the short program earlier, scored 128.11 in the free skate, boosting her total to 191.75 and edging out Miki Ando of Japan by more than 20 points. Kim claimed the Cup of China last year and was coming off her fourth straight Grand Prix title at last month's Skate America. She secured a spot in the Grand Prix Final scheduled for next month in Korea.
Shin Ji-yai won the Mizuno Classic for her second LPGA Tour title and ninth international victory of the year, and easily held off Mayu Hattori at Kinetsu Kashikojima. The Women's British Open winner and the first player to sweep the Korea LPGA Tour's 3 majors in a season, Shin got her second victory of the year in Japan.
Shin Ji-Yai, 20-year-old, won the $1 mil top prize at the LPGA's season-ending ADT Championship, 2 weeks after her win for Mizuno Classic at the 6,523-yard Trump International course. Shin followed her major triumph by taking the biggest prize in women's golf by one stroke over Australian veteran Karrie Webb.

NORTH KOREA AND NATIONAL DEFENSE

NK¡¯s nuclear ambitions have alarmed US leaders during the past 2 decades. President-elect Barack Obama will inherit a tougher challenge, trying to persuade NK to surrender its existing plutonium stockpile and atomic weapons in exchange for peace and security guarantees. Obama dismissed Republican rival John McCain's criticism at a presidential debate that it is naive to meet with NKorean leader Kim without preconditions, saying Bush's reluctance to deal directly with NK resulted in the NK's detonation of its first nuclear device in 2006 and the quadrupling of its nuclear weapons to 8 by the end of Bush's 8 years in office. President Lee said he is not opposed to US President-elect Barack Obama holding a summit with NKorean leader Kim after taking office. Lee is still willing to meet with NKorean leader as often as possible.

NK said it will not allow outside inspectors to take samples from its main nuclear complex to verify its accounting of past nuclear activities. It is contradicting statements by US officials last month following a breakthrough deal about how to verify a list of nuclear programs submitted by NK in June under a disarmament pact. NK has agreed to give up its nuclear weapons but has bickered with the USA over verification, insisting on strict measures to ensure Pyongyang is not hiding any active atomic programs. US officials said last month that NK had agreed to allow atomic experts to take samples and conduct forensic tests at all of its declared nuclear facilities and undeclared sites on mutual consent. Pyongyang also said only its Yongbyon atomic complex is subject to verification, and inspections can take place only after it receives all energy aid promised from its negotiating partners.
In Feb 2007, NK agreed to disable Yongbyon and declare all its nuclear programs as a step toward their ultimate dismantlement. In exchange, the North was promised energy aid worth 1 million tons of fuel oil and other concessions, including removal from the US terrorism list. About half of the promised aid has been provided so far, while the North has completed 8 of 11 required steps to disable the nuclear complex. Pyongyang has claimed the pace of energy shipment does not match that of its disabling work.

NKorean state media released photos of leader Kim Jong-il smiling on a seat in the VIP box of a football stadium, while another photo showed the football field. The photos are the second set released by the North, apparently to show the leader is doing well after reportedly suffering a stroke in mid-Aug. Kim, 66, has been out of public view since Aug 14. Kim failed to attend the state funeral for former vice president Pak Song-chol and did not appear at a Sept 9 parade marking the country's 60th anniversary. SKorean officials suggested he underwent brain surgery following a stroke around mid-Aug, but was recovering well. The government spokesman said Seoul has found no unusual moves in the North with regard to the state operation.

The SKorean government plans to establish a KW9.9 bil ($6.7 mil) trust fund in the World Bank next year in the form of a "Fragile States Fund," through which South is to provide organizational development assistance. If NK joins the international organization, Seoul will support its infrastructure projects through a loan, or a joint fund with other members, or a multilateral donation.
The problem in NK is a chronic food shortage, as the result of strained relations with neighboring countries and years of flooding. Aid workers reported the increasing infant mortality and declining birth weights of new babies. 20-40% more patients with digestive disorders caused largely by poor nutrition. The UN World Food Program reached similar conclusion that more than 70% of NKoreans were found to be supplementing their diet with weeds and grasses foraged from the countryside. These are some of the same signs that augured the mid 1990s famine that killed as many as 2 million people, 10% of the population.
The Unification Ministry presented the National Assembly with a KW1.25 tril ($947 mil) budget proposal designed to boost Seoul's relations with NK for next year, allocating KW809 bil ($612 mil) to provide 400,000 tons of rice and 300,000 tons of fertilizer to NK for humanitarian purposes. KW300 bil ($227 mil) will be allocated to finance inter-Korean economic cooperation projects, such as the Gaeseong industrial complex and other projects.

The SKorea-USA Combined Forces Command celebrates its 30th anniversary. SKorean and American defense ministers agreed at a Security Consultative Meeting in 1977 to form a combined command. Since its establishment, the CFC has played a leading role in joint military trainings, which are aimed at honing the defense capability of the combined forces. During the early stages of the CFC, the US forces held operational control in both war and peacetime, but peacetime strategic control was handed over to Seoul in 1994 and wartime control is due to be handed over by 2012, when the combined command will be disassembled. There are 28,500 US soldiers stationed here to prevent aggression by the North. Pyongyang has around 70% of its military forward-deployed at the demilitarized zone separating the 2 Koreas.
USA will withdraw 24 Apache attack helicopters from SKorea next year, to make the unit available for rotational deployment to Iraq and Afghanistan. USA plans to send 12 A-10 attack aircraft and 2 MH-53 helicopters to SKorea next March to temporarily replace the departing Apaches and provide greater combat and deterrent capabilities.

The North's Red Cross withdrew its representatives from the office in the border village of Panmunjeom and disconnected all cross-border phone channels with its SKorean counterpart, in protest to Seoul's joint proposing of a UN human rights resolution against NK. Pyongyang had repeatedly threatened to shut down the Gaeseong industrial complex should SKorea continue to send balloons carrying anti-North pamphlets onto the North's soil. NK's state media reiterated its call for SKorea to implement 2 summit accords, saying the fates of the stalled tourism and cooperation programs hinge on Seoul's attitude. NK has denounced the conservative Lee government for negating the summit declarations signed by his 2 liberal predecessors and Kim Jong-il.
The North made the threat as it harshly criticized SKorean President Lee for making remarks in a meeting with SKorean correspondents based in Washington after a summit of G-20, saying that SKorea¡¯s ultimate goal is to reunify the Korean Peninsula under free democracy. NK denounced Lee¡¯s remark as tantamount to a declaration of war against it.

UN committee approved a draft resolution calling for improvement in human rights in NK. The resolution is the first of its kind initiated by SKorea, which had been reluctant to endorse or initiate any resolution on NK¡¯s human rights records for fear of provoking the North. The former liberal Roh Moo-hyun government abstained on a vote for a similar resolution in 2005, voted for it in 2006, soon after NK¡¯s detonation of its first nuclear device, then stepped back to abstain this year. NK denounced SKorea, categorizing the South¡¯s vote as an act against unification.

The SKorean government made a request to civic organization to refrain from distributing the pamphlets in NK, Fighters for Free NK and other organizations that have been leading the distribution refused to comply. NKorean defectors' organizations and several other conservative groups here have sent helium-filled balloons to NK with tens of thousands of pamphlets containing criticism of the North's dictatorship and rumors of its leader Kim Jong-il's illness. The North has grown increasingly sensitive toward anti-communist pamphlets in the wake of Kim's latest illness. The problem is government has no legal grounds to make the groups halt the leaflet spreading.

NK notified SKorea that it will suspend inter-Korean tourism in Gaeseong and the cross-border train service starting Dec 1 in protest of Seoul's policy toward Pyongyang. The North also told the ministry it will halve the number of SKorean staff allowed to stay in the Gaeseong industrial park for operation. The measures could mean the suspension of all inter-Korean joint projects, except for the Gaeseong Park. It also demanded that SKorea withdraw 50% of its workers and staff members from the industrial park by the end of Nov. The North is also closing the Military Demarcation Line it had opened for the train operation. However, the North said it will retain the business activities of SKorean firms at the industrial park.
Seoul expressed regret over the North's measures and urged Pyongyang to return to dialogue to resolve worsening relations between 2 sides. Government vowed to calmly deal with the North's renewed provocation, placing top priority on the safety of SKoreans staying in the North. The government expected around 1,500-1,700 out of the 4,168 staff at the Gaeseong industrial park holding residential passes to remain in Gaeseong after Dec 1. But experts believe that the closure of industrial park in Gaesung would be a difficult decision for the North, as the complex is a lucrative source of cash for the isolated state. Currently, 83 small sized SKorean garment and other labor intensive plants are operating at the complex with about 35,000 NKorean workers employed.

Korean Navy ship, a 4,500-ton Kanggamchan destroyer, will be dispatched to the Somali waters to take action against piracy attempts. The destroyer, one of Korea's six KDX-II-class warships, is likely to head for the Gulf of Aden early next year. 5 Korean ships have been abducted by Somali pirates since 1996. The Kanggamchan will be joining the Combined Maritime Forces, a multinational naval force formed of naval ships from some 20 nations.

ECONOMY AND POLICY

The nation's economic growth slowed in the third quarter to its lowest level in 3 years as the global slowdown hurt the nation's major exporters and manufacturers. GDP expanded 3.9%, the worst performance since the second quarter of 2005. IMF significantly lowered its prediction for Korea's economic growth rate for next year to 2.0% from its earlier prediction of 3.5% in Oct and 4.3% in July.
The state-run think tank, KDI, projected that Korea's GDP growth will decline to 3.3% next year from an estimated 4.2% this year. Export growth will plummet to 3.2% from an estimated 20.4% this year and the current account will swing back to a surplus of $8.6 bil in 2009 from an $8.2 bil deficit in 2008, as import growth will plunge to 0.1% from 27.8%.

Moody¡¯s Investors Service predicts the current global financial turbulence will not affect Korea¡¯s sovereign rating with current A2 with a stable outlook, given its sufficient foreign reserves and strong fiscal position. Fitch Ratings has lowered its outlook for Korea's sovereign rating from "stable" to "negative," in its special report on the credit status of 17 emerging countries, including SKorea, China, Taiwan and Malaysia. The agency has affirmed its sovereign rating for SKorea at "A plus," as the Korean government had responded "quickly" and "in a focused manner" with sweeping measures, including a $30 bil foreign-currency swap facility with USA and a $100 bil state guarantee for banks' foreign debts.

The Finance Ministry submitted in late Sept a KW273.8 tril budget plan for 2009 to the National Assembly for approval, based on the projection that the economy would grow 5% next year. Out of the KW11 tril additional fiscal spending plan, the government will pump KW4.6 tril into infrastructure projects, invigorating provincial economies. Another KW3.5 tril will go to ease the financial strain of SMEs and small business owners. Another KW1.9 tril will be allocated to support low income households and provide more money to local governments.
The government plans to seek parliamentary approval to increase funds for the Korea Export Insurance Corp to cover export insurance by KW40 tril ($31 bil). That would bring the total to KW170 tril in 2009. To achieve the $500 bill export goal, Seoul will aggressively support key industries through tax incentives and human resources support.
The nation's 2 credit guarantee agencies, Korea Credit Guarantee Fund and Kibo Technology Fund, will raise their guarantee bars on loans by small firms up to 95% next year from the current 85%-level, a guarantee equivalent to an additional KW1 tril ($752 mil). In addition, 2 agencies will provide about KW3 tril worth of liquidity to the corporate bond markets in a bid to improve liquidity for small and medium-sized enterprises. The move is part of the government's broader plan to provide liquidity of about KW4.3 tril to SMEs faltering from KIKO (knock-in knock-out) currency option derivatives amid the global credit crunch. 13 major commercial banks provided KW289 bil in liquidity to 145 SMEs during Oct 13 - Nov 7 by extending new loans or rolling over existing debt. A total of 571 companies suffered losses from KIKO contracts, with their combined losses topping some KW1.69 tril as of the end of Aug.

Korea's exports plunged 18.3% in Nov on year, the fastest deceleration since Dec 2001. All export items plummeted in Nov due to plunging prices and falling consumption, except ship exports which surged 34.7%. Imports fell 14.6% on year, mainly due to the 15.4% decrease in oil prices. In the first 11 months of 2008, the nation logged a trade deficit of $13.3 bil. Korea¡¯s trade volume exceeded $800 bil for the first time this year. The trade volume reached $804.55 bil as of Nov, up 16.9% on year, with exports and imports coming to $395.60 bil and $408.95 bil each. In 2007, the country¡¯s trade volume amounted to $728.3 bil, placing 11th in the world.
Korea posted the largest-ever current account surplus in Oct on declining imports and less overseas travel. The surplus reached $4.91 bil, after a deficit of $1.35 billion in Sept. The country exported $37.37 bil worth of goods for an annual gain of 8.5%, while imports rose 10.4% to $36.15 bil.

Korea's external debt exceeded its credit in Sept, making it a net debtor for the first time in 8 years. Overseas liabilities rose for a 16th straight quarter to a record $425.1 bil, while credit shrank to $399.9 bil, tipping the balance into a net debt of $25.1 bil.

The global financial turmoil is taking a toll on the nation's major banks.
Kookmin Bank, the nation's largest lender, saw its Bank for International Settlements capital adequacy ratio fall to 9.76%, for the first time to see its BIS capital ratio below 10% since 2002. Kookmin's third-quarter net profit also dropped 28.6% on year to KW553.3 bil ($418 mil). Shinhan Bank, the nation's No 3 lender, reported a BIS capital ratio of 11.9% in the third quarter. The bank's third-quarter net profit dipped 32.2% to KW214.3 bil on year. Korea Exchange Bank saw its ratio slip to 10.64%, The Industrial Bank of Korea fell to 10.15%, Woori Bank at 10.50%.

Kookmin Bank started selling KW800 bil ($600 mil) of subordinated bonds to raise its capital adequacy ratio. The bonds will help replenish funds after the bank spent about KW4 tril to form a holding company this year. The five-and-a-half-year notes will pay a coupon of 7.7%. Kookmin sold KW200 bil of 3-year bonds at a coupon of 7.78% on Oct 30 and KW300 bil of 5-year debt at a coupon of 7.69% on Oct 28. Kookmin and 8 affiliates set up KB Financial on Sept 28 in a bid to match the structure used by rivals and boost its capacity for acquisitions.
Hana Financial Group plans to raise KW1 tril by selling bonds to boost the capital and liquidity of Hana Bank, whose BIS capital adequacy ratio stood at 10.65% in the third quarter. Hana Financial Group suffered a loss in the third quarter for the first time in 8 years, with a net loss of KW73.3 bil. Korea¡¯s fourth largest lender Hana Bank also brought in a combined $120 mil in loans from several Canadian banks, including Bank of Montreal and Toronto Dominion Bank, expiring between 3-12 months and carry interest rates of 2.5-3% higher than Libo Rate.

BOK sold $2 bil of the US currency directly to local banks, as planned, in the foreign-exchange swap market. The 3-month swap agreements were sold with a swap point of minus 11.93 won on average, compared with minus 11.08 in the Oct 28 auction. BOK changed rules last month to enable it to sell US currency in a competitive bidding process every Tuesday or when necessary, to help local banks access funds more easily.
BOK purchased KW1 tril (US$755.9 mil) worth of bank and other special bonds through an auction of repurchase agreements in an effort to ease a credit crunch. BOK signed 63-day repurchasing agreements with successful bidders, with the interest rate ranging 4.51-4.72%. It is the first time for the central bank to include bank bonds in its repurchase agreement transactions.
BOK is to inject as much as KW5 tril ($3.3 bil) into a fund aimed at easing the liquidity crunch by buying government bonds and currency stabilization bonds from companies and banks. The amount is half of the KW10 tril proposed by the government to help expand liquidity.
BOK plans to take out $4 bil from the US Federal Reserve early Dec, using a $30 bil currency swap line for the first time to support the banks. The money will be provided to local banks through competitive auctions on Dec 2. It would help stabilize the volatile local currency market, relieving some of the downward pressure off KWon.

KOEXIM Bank has agreed with Brazilian iron ore miner Vale to provide up to US$1 bil to finance its overseas resource development efforts. Korea imported 46.2 million tons of iron ore in 2007, to which Brazil contributed 23%, the second largest exporter after Australia.
KOEXIM Bank of has signed a contract with Peru's largest commercial lender Banco de Credito del Peru to receive trade credits worth $50 mil from the Peruvian bank. The Peruvian bank will support financing for Peruvian importers who buy Korean goods and services.

Samsung Securities said in a report that the construction sector owes banks KW77 tril in project financing loans and KW150 tril in construction loans. It means their average debt payment-to-disposable income ratio is 150% and interest payment-to-disposable income ratio is 11.7%. About KW30 tril remains unpaid due to unsold houses. The number of unsold apartment houses in July reached 160,595, with 137,618 of them in provincial cities. Adding fuel to the country's ailing construction sector, the average housing price is expected to drop as much as 10% in 2009. As of Sept, 289 construction firms had gone bankrupt this year. On Nov 3, the government announced a package of rescue plans, including the expansion of fiscal spending by KW14 tril and the injection of KW10 tril of additional liquidity.
Despite pressure from the government and creditor banks, only 24 builders applied for a debt rescheduling program, fueling concerns that the much-needed restructuring of the ailing construction sector may be delayed. The program, in which banks roll over maturing debt for up to one year for builders, is aimed at preventing the collapse of builders, which would batter the already faltering Korean economy. Although many builders are struggling with the liquidity squeeze, they are reluctant to join the program on the concerns that it will hurt their reputation. The top 10 builders did not apply, as they could have raised doubts from overseas about their financial health.
The financial regulator reiterated that it was considering extending a credit guarantee scheme for construction companies and buying unsold apartments. Banks also threatened to ask builders who are not in the program to pay back part of loans when they mature.

The American International Group will not sell its Korean unit, as the insolvency problem at the parent group will not affect the Korean branch. AIG General Insurance Korea has the 10th largest operation outside USA and maintains a capital solvency ratio of 152%, which is lower than 260.5%, the average solvency ratios held by general insurers in Korea.
The Korean insurance arm of ING will raise KW350 bil ($245.8 mil) in fresh capital during the current quarter to strengthen its capital position, following the previous KW400 bil capital increase in 2007. ING Life, which is the biggest foreign life insurer in Korea, is also working to buy back a 14.9% stake in itself from KB Financial Group for about KW600 bil ($440 mil). ING Group has sold its Taiwanese branch, while Korea takes up 50% of the Asia Pacific earnings and the insurer has a great confidence in the Korean economy.

A Seoul court ruled that the 2003 sale of the Korea Exchange Bank to US Lone Star Funds took place legitimately. The court thus rejected breach-of-trust charges against 3 officials who had been accused of helping the fund purchase the lender at an unreasonably cheap price. Prosecutors have claimed that the buyout fund purchased KEB KW344 bil ($230 mil) to KW825 bil ($550 mil) cheaper than the market price. The court also dismissed charges that the bank's outlook on its BIS capital adequacy ratio was manipulated. Lone Star currently holds a 51.02% stake in KEB. It took over the local bank in Oct 2003, and then acquired its credit card arm in March 2004.

Korea¡¯s state run oil company, KNOC, signed a exploration and drilling pact with Uzbekneftegaz of Uzbekistan, expecting to survey the Namangan-Tergachi and Chust-Pap regions and may hold 10.5 mil tons of gas or 9.2 mil tons of crude oil.
Despite a sharp oil prices fall, Korea's consumption of petroleum products dropped drastically to 35.8 mil barrels of petroleum products in Oct, 16% decline on year.
The price of Dubai crude eased to $42.91 per barrel, reflecting gloomy propect of long term economic slump in global economy, but ended the month at $48.1.

CHAEBOLS

The debt belonging to the 30 largest conglomerates rose 58.7% on year to come in at KW49.63 tril ($33.23 bil) at the end of Sept. Short-term debt that needs to be repaid within one year rose 75.1% on year to account for nearly 60% of the total, while long-term debts had increased by only 39.3%.
The combined profits for 570 listed companies that close their books on Dec 31 reached KW6.08 tril ($4.25 bil) in third quarter, a sharp drop of 59.24% on year. Sales jumped almost 30% to KW227.79 tril, while operating income slipped 9.72% to KW14.12 tril. In the first 9 months, their combined earnings sank 19.57% to KW34.87 tril, and operating income gained 15.23% to KW51.62 tril.

Samsung Electronics (SEC) topped the home theater market in Europe for the first time this year, holding an 18.8% share in the market from Jan to Aug, followed by Philips with a 17.5%, LGE 13.4%, Sony 12.1% and Panasonic 9.3%.
SEC¡¯s mobile phone brand, Anycall, has an estimated value of KW5.7 tril ($4.29 bil). The handset brand's value jumped ten-fold from KW524.4 bil a decade ago. Anycall's brand value helped Samsung maintain the top position in the local cell-phone market for 14 years since 1995.
SEC posted record quarterly sales of its liquid crystal display TV despite the sluggish global economy. Samsung sold 5.39 mil LCD TVs in the third quarter, its largest quarterly shipments and is on track to achieve its annual sales target of 20 mil units this year. It controlled 20.2% of the market in the third quarter, followed by Sony with 13.8% and Sharp 10.2%.
SEC, the world's No 2 handset maker after Nokia, also saw its market share pass the 20% in all 3 markets, North America, Western Europe and Middle East/Africa.
SEC sold more than 10 mil high-definition camera phones, handsets equipped with 5-megapixel, as of mid-Nov this year and on track to sell more than 13 mil high-definition mobile phones worldwide this year, which will account for 32% of the market.

SEC¡¯s digital photo frames and LGE¡¯s mobile phones were selected as top products by the US consumer magazine Consumer Reports. SEC's cordless digital picture frame SPF-83V uses wireless technology allowing pictures stored in computers to be downloaded without the product being physically connected to the computer, and LG's mobile phone "Dare," is equipped with a 3 inch screen and a 3.1 mega pixel camera and has web search functions.
LG Display was fined $400 mil for colluding with 2 other companies to fix price of LCD panels in computer monitors, mobile phones and televisions. Japan¡¯s Sharp Corp and Taiwan¡¯s Chunghwa Picture Tubes were fined $120 mil and $65 mil each.
LS Mtron, an affiliate of LS Corp, has bought 50.5% stake in Daesung Electric, a the Korean auto parts maker, in a bid to expand its presence in the automotive electronic part market. US auto parts maker Delphi holds the remaining 49.5% stake. LS Mtron expects its revenue to pass the KW1 tril mark, as it posted KW718.5 bil in revenue last year, while Daesung posted a KW449.1 bil.
Hynix has developed the world's fastest graphics memory chips, the GDDR 5 memory, offers data processing at speeds of 7 gigabytes per second, which is 40% faster than the current 5 Gbps. GDDR memory is used for graphic cards and game consoles.

Nation¡¯s auto industry, led by Hyundai Motor, has fallen into turmoil even more serious than in the late 1990s. In the first 10 months of this year, vehicle production in Korea fell 3% on year to 3.24 mil units. For the same period, exports declined 3.6% to 2.23 mil units, against its original expectation of total 4.2 mil units this year.
Hyundai plans to shut down its sole US assembly plant for 11 days by the end of this year in reaction to tumbling sales in USA. Last month, Hyundai reported a 31% plunge in US sales amid tight auto finance credit and fears of an economic recession there. Hyundai and Kia Motors plan to reduce production by 100,000 vehicles worldwide by the end of this year.
GM Daewoo, the Korean unit of General Motors, is considering temporarily closing all of its 3 assembly plants in Korea, for the first time since 2002, when GM took a majority stake in Daewoo Motor. GM Daewoo is considering shutting down its local facilities for 10 days at the end of the year. Last month, Ssangyong Motor, whose Jan-Oct sales have fallen 32.6% on year, announced that 350 workers from the carmaker and associated firms, will be put on paid leave to reduce output until conditions improve. Renault Samsung Motors reduced overtime as of Nov. The company is also expected to consider early retirement plans for employees.

Hyundai Rotem, a rolling stock maker affiliated with the Hyundai Kia Automotive Group, has signed a 580 mil euro (KW994 bil) deal with Turkey's authority. The deal is the largest single contract the company has won since it was established. The company will produce 440 train carriages by June 2014 that will be used on the route that runs under the Bosporus Strait.
Hyundai Rotem unveiled the new high-speed train KTX-II at its plant in Changwon. The KTX-II was developed from 1996 and cost KW225.8 bil ($149.7 mil). The new train has an operational speed of 300 km per hour, with aluminum to reduce weight. The new train will undergo 6 months of testing by Korea Railroad and will be first deployed during the second half of next year.

POSCO, the world's fourth-largest steelmaker, launched the nation's first nickel processing plant with an annual capacity of 30,000 tons. The company will receive half of its annual nickel supply from the refinery in Gwangyang in a joint venture with New Caledonia's nickel producer, Societe Miniere du Sud Pacifique SA.
POSCO launched POSCO Malaysia in Kuala Lumpur. The company acquired a controlling 60% stake at MEGS Industries, the only electroplating company in Malaysia, for $16 mil last Dec in its first foreign acquisition to form POSCO Malaysia. The company with its upgraded facilities has been increased to an annual production capacity of 180,000 metric tons of electrolytic galvanized coil from 120,000 tons.

3 Korean construction companies, Ssangyong Engineering & Construction, Samsung C&T and Daelim Industrial, won $1.6 bil worth of orders from the Singapore government. Korean builders, who won 3 out of 6 major contracts, will take part in constructing the 5 km-long underground and undersea road. Ssangyong E&C will be in charge of design and construction of a 0.56 km-long underground expressway and a 0.44 km-long entry road. It will receive KW820 mil for building each meter of the road. The 5-lane expressway opens in 2020.
Hanhwa Construction won a project to build an oil refinery for Algerian National Petroleum worth $400 mil. The project will increase the capacity from 60,000 to 90,000 bbl on completion in 2011.
SK E&C has clinched a US$600 mil contract together with Korea Western Power, an affiliate of state-run KEPCO, and Ratchaburi Electricity Generating, a unit of Thailand's state-owned Electricity Generating Authority, to build a hydroelectric power plant over the Mekong River in Laos from 2010. It will have a capacity of 390 megawatts when finished. SK E&C has won the contract. The deal calls for the contractors to build the plant, operate it for 3 decades and then transfer it to the government of Laos.
Saman Corporation, an affiliate of Prime Group, signed the contract to take over KW12 bil of the project to build the city named "Sidi Abdellah." The Sidi Abdellah development project is one of 5 new cities planned for the area around Algiers, in aims to provide new housing for about 200,000 people, feature commercial areas and an industrial complex and serve as an administrative town.

S&T concluded a deal with CMI of Belgium to supply a used heat recovery system at the cost of KW8.22 bil for the delivery by Aug 2009.
Poongsan concluded a deal to supply blank coins worth $61 mil to Australian Finance Ministry during 2009-2011.
KT&G Corp, a Korea¡¯s largest tobacco company, plans to cancel 1.95 mil shares worth KW169 bil ($127 mil) to boost shareholder value.

MONETORY AND ECONOMIC INDICES

Korea¡¯s benchmark KOSPI started the month from 1129, plunged below 1000 to 948 then recovered to 1076 at the end of the month. it has been up with an economic stimulus package by the government, the $30 bil currency swap deal with USA, BOK¡¯s hint at a further interest rate cut, ongoing global efforts to fight a worldwide recession and China's 4 tril yuan ($586 bil) stimulus package, then tumbled by Circuit City's bankruptcy and an additional rescue package for AIG Group, market uncertainty, the restructuring expected in the construction and shipbuilding industries,
The Korea Exchange and other market-related bodies have agreed to form a KW500 bil ($395 mil) fund to invest in the domestic equity market. The move comes as KOSPI has lost more than 40% since the beginning of the year.

KWon kept weakened, starting at 1262, broke through 1500 to 1512 against USDollar, a 10 year low on deepening recession woes and stayed at 1461 against USDollar at the end. Against the JYen, KWon exchanged at a record low of KW1,575.84 to JY100. KWon declined around 36% against the greenback this year. The country's foreign currency reserves tallied at $200.5 bil the lowest since Jan 2005. It marked 8 straight months of decline and a monthly drop of $11.74 bil from Oct.

BOK lowered interest rates for the third time in 4 weeks to 4.0% to revive economic growth, indicating further cut. Domestic banks' lending rates climbed to a 7-year high in Oct even after the BOK cut its key interest rate. The average interest rate on new corporate and household loans rose to 7.79% in Oct, the highest level since June 2001. The yield on 3 years corporate bond surging from 8.33% to 8.91%.
Korea's consumer prices grew 4.5% on year at a slower pace in Nov, as falling crude oil prices reduced overall import costs. Korea's wholesale prices rose 10.7% on year at the slowest pace in 4 months in Oct as food costs declined.
Korea's jobless rate remained at 3% in Oct, unchanged from a month ago.

SHIPBUILDING AND SHIPPING

The tide of restructuring that began on Wall Street has reached shipyards in Korea, which had been enjoying an unprecedented boom for the past 5 years. Local shipbuilders are struggling with low ship orders even though the weakening KWon is strengthening their competitiveness. HHI and DSME failed to get any orders in Oct and Nov. SHI received merely 3 orders during the period.
The shipbuilders' problems stem from both of the shipping and banking sectors, as a slowdown in trading is compounded by the inability or reluctance of banks to extend financing for orders. The Korea Shipbuilders' Association reported global orders for new vessels dropped 34.5% in the first 9 months of 2008 on year. Restructuring of small yards looks inevitable, as the demand of bulker has drastically dropped. Korea has about 300 shipyards, of which about 30 are big enough to build vessels with a capacity of more than 10,000 tons.

Owners were fighting tooth and nail to secure newbuilding slots up to this summer, but the question now became how to get out of it. An expert predicted about 300 units of Caper and panamax will be cancelled, causing the new yards close their doors. Currently 826 capers are operating and 760 units are under construction, among which about 39% will be cancelled.
Genco terminated a contract to purchase options on 3 capesize and 3 handysize newbuildings. Brazilian Vale cancelled the order for 12 x 400K VLOCs. Reederei Stefan Patjens cancelled its order for 6 x 3200 teu container ships and Schlussel Reederei pulled out of an order for 3 x 5,100-teu units. Navios Maritime has cancelled 12 vessels, including 3 capesize vessels, 6 Kamsarmax bulkers and 3 handysize vessels. Stealthgas has frozen its order for 2+2 x 156K suezmax newbuildings, and Brave Maritime has cancelled 4 x 3.3K LPG newbuildings and 4 x 92K post panamax bulkers.
Jinse Shipbuilding was reported to lose at least 20 handysize-bulker orders. Metrostar has cancelled 10 x 32K bulkers out of a total of 16. Aktif Denizcilik, which had booked 10 x 32K bulkers, confirms no contracts existing with Jinse. Jinse has already delivered 8 vessels this year and will soon be launching 4 more. The company started in 2000 as a block maker but switched to shipbuilding early last year. The yard has secured an order book of up to 60 newbuildings during the boom and is full until the end of 2010.
3 x capesizes booked at C&Heavy by Grand Union will not be built. 2 x big bulkers booked at Daehan by Meandros and Transmed and 2 booked by DryShips and 4 by Excel Maritime at Korea Shipyard have all collapsed. Cido Shipping cancelled 6 x 75K panamax tankers at Sungdong.

The revenue of Korea¡¯s major yards has steadily increased in third quarter, while their profit is contracting due to the rise material cost and weakened exchange rate.

Hanwha Group has completed a preliminary deal with KDB to buy a controlling stake in DSME. Following the agreement, the Hanwha conducts a detailed due diligence for 3-4 weeks on DSME, including its 2 major overseas operations, Daewoo Mangalia in Romania and a ship block factory in Yentai, China. A final contract expected to be signed by the end of this year. Bidding price is known around KW6.3-6.5 tril, which is more than 4 times higher than current share price. A family-run industrial conglomerate with roots in chemicals and explosives, Hanwha, was chosen in late Oct as the preferred bidder for a 50.4% stake in Daewoo. Hanwha Group has paid 5% or KW300 bil ($202.4 mil) of the purchase price, as performance bond.
DSEC, subsidiary of DSME for ship design, has agreed to supply the ship design to Sasebo for 6 x 38K bulkers for $2.6 mil. If production drawings are included, $1.4 mil will be added.

Aker Yards has changed its name into STX Europe ASA, becoming a subsidiary of STX Group. STX Europe has 9 x cruise ship, 28 x offshore facilities and ships and 2 x product carriers in its order book. STX Group is considering selling half of its stake in STX Europe ASA, to recoup some of its spending for the takeover. STX shipbuilding and other affiliates spent a total of KW1.4 tril for the takeover of Aker yard last year, holding a combined 97.9% in STX Europe.

Woori Bank had requested C&Heavy Industries to submit a self-help plan as the company was 2 months behind payments on import bills that Woori had paid on behalf of the group. C&Group, which aggressively expanded business portfolio through acquisitions during the past decade, have been experiencing a capital shortage due to the downturn in the shipping business this year. To shore up the balance sheet, the group recently announced plans to sell its affiliates including Woobang ENC, C&Heavy Industries' steel unit, C&Line and C&Hangang Land. Local banks have a total of KW1.3 tril ($871.3 mil) exposure to C&Group, KW136.7 bil of which is related to C&Heavy Ind. C&Group, at last, applied the ¡°workout program¡± which will be studied and decided in the creditors¡¯ meeting on Dec 3.

STX Pan Ocean is planning to invest $105m in 4 X chemical/products tankers this year. But it will only go ahead if conditions are right in the market and shipyard capacity is sufficient. The owner has 14 chemical carriers, mostly of 46K size, plus another 5 smaller units on order at sister yard STX Shipbuilding and Nokbong.
Korea Line acquired 47,686 own shares, raising holding rate from 32.69% to 33.1%.
Japan's K Line has won a third 10-year consecutive voyage charter deal with one of its capesize bulkers from Korea Western Power Co (KOWEPO), commencing in the first quarter of 2009. K Line already has two 10-year CVCs with KOWEPO involving panamax and capesize tonnage that were signed in 2007 and 2008. K Line will be transporting about 4mt of bituminous coal per year for KOWEPO, one of 6 SKorean electric power generation companies owned by KEPCO.
Korea Line, STXPO and Sino Merchant Marine signed a COA with Glovis to transport the iron ore and coking coal for Hyundai Steel, worth KW378.5 bil. Each shipper will install a capsize bulker for the project during 2011-2026 for the movement of 1.92 mil tons coal a year from Australia and Canada to Pyongaek. Glovis, logistic arm of Hyundai Steel, has also signed COA with Hanjin for a 4 mil tons of coking coal a year for 20 years.
KSS signed COA with VITOL to transport LPG during 2008–2011, worth KW41.72 bil, equivalent to its 53.8% of total revenue.

Korean major shipping companies increased revenue in third quarter but failed to post a profit on weaker KWon.