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  Korea Report - October 2003
  Author : Hwang & Co     Date : 03-12-19 15:57     Hit : 39936    
* Topics

- President Roh put himself to public confidence.
- Probe over SK Group's illegal political fund expanded wider and wider.
- USA agreed to provide security guarantee to NK, who responded to attend 2nd round 6 way talks.
- Korea decided to dispatch troops to Iraq.
- Korea's account surplus recorded the highest in 4 years.
- Government took antispeculation measures against real estate speculators.
- A wave of down sizing is sweeping over Korean business.
- SK Group settled SK Network crisis.
- Widow of late Hyundai Group Chairman took the helm of Hyundai Group.
- Korean shipbuilders clinched their largest newbuilding order this year.
- Lee Jeong-Hwa named as new CEO of SK Shipping.

* Government & Society

President Roh Moo-hyun, in his office just over 7 months, made an unprecedented bombshell statement to put himself to an assessment of the public's confidence in him. His announcement was so unexpected that no one of his close aide sensed it before it was televised on TV. It came as prosecutors questioned allegation Choi Do-sul, his longtime aide, for taking bribes from SK Group. He said the recent corruption cases involving his close aides made it difficult for him to carry on his job with confidence.

Public skepticism about the integrity of President Roh's adminstration has been initiated by his own continuous slip of tongue, lack of consistency on major policies and numerous corruption scandals involving presidential aides, which have drained his approval ratings from 87.8% in Feb to below 40% at the beginning of Oct. In Sept, he left MDP, then ruling political party who supported his presidential campaign. National Assembly is still dominated by opposition GNP.

A national referendum to test the leadership of the President appeared uncertain. Some experts believe that it is unconstitutional to oust the head of state in referendum, as the constitution merely says the president can call referendum concerning important policies related to the safety and danger of the state. The main opposition, GNP, began to accuse the President of formulating political plot to avoid public criticism of corruption scandals, insisting that the corruption scandal should be brought to light before referendum takes place, threatening to promote an impeachment motion, before confidence vote. The second largest MDP has sought constitutional legitimacy, claiming the referendum illegal. Newly formed party loyal to Roh expressed its full support for the proposal. Opposition parties jointly voiced to attack Roh for the declaration as an example of political brinkmanship, blackmailing the people in a bid to hoist his administration out of quagmire. Survey on Oct 11th showed that 51.4% supported the president on referendum, while only 36% approves his ability to handle state affairs. Apparently riding the wave of favorable poll results, he proposed at National Assembly to hold the referendum around Dec 15.

Government officials and experts worry that Roh's sudden move may heighten economic uncertainties across the board. The country has to make decision on whether to send combat troops to Iraq, resolve NK's nuclear program, tame the sharp rise in real estate prices, reach a consensus on the ratification of FTA with Chile, and come up with a solution to deal with the 3.4 mil people who are unable to pay back their debts.

The prosecution investigated a fresh allegation that SK Group illegally funneled the funds to political parties and presidential aides. Son Kil-seung, chairman of SK Group, admitted the group stashed away more than KW20 bil in secret funds by doctoring accounting books and handed over part of it to the political circle. Prosecutor has expanded probe over the case wider and wider, vowing to conduct a thorough investigation into controversy. Political observers expect the case may serve as an occasion to sever the deep rooted collusive links between politicians and big business. Lee Hoi-chang, the retired former presidential candidate of GNP, apologized on behalf of his party for accepting an inexcusably illegal campaign funds before the election he has lost last Dec, promising to take full responsibility.

Labor Ministry allowed foreign workers, who have overstayed their visas for less than 4 years, to apply work permits in an effort to reduce more than 300,000 people residing in the country illegally.

Government and business community agreed to form a joint task force to tackle the rising unemployment among youth, which has emerged as a serious social problem. The jobless rate among youngsters is estimated to hover around 7%, more than double the overall unemployment rate. Government plans to raise its welfare budget for elderly people next year to KW552 bil from current KW444 bil, amid a rapid aging of the population.

* North Korea & National Defense

International effort to resolve NK's nuclear standoff gained momentum as President Roh and Bush agreed, at a summit held on sidelines of APEC forum, to provide multilateral security guarantee to NK in exchange for its dismantling nuclear weapons development. Secretary of State Colin Powell said USA considers offering security assurances to NK in a "public, written and multilateral" format. NK further brightened the prospect for ending the a nuclear stalemate, by saying that it would positively consider US offer, in contrast of its earlier comment for the offer as "laughable ruse" and "empty piece of paper" with no worth considering. NK retreated from its earlier stance and agreed in principal to hold the second round 6 way talks, when Kim Jong-il met Chinese Parliamentary head Wu Bannguo in Pyongyang.

USA officially asked Korea in early Sept to send troops to Iraq, indicating rejection of the request would sour the Korea-USA relationship and increase geopolitical risks surrounding NK. Korean government approved the troops dispatch to Iraq, just 2 days after UN Security Council adopted an US-led resolution. Government started full fledged consultations about the number, timing and characteristic of the dispatch and $260 mil to help USA rebuild Iraq. It is widely expected that Korea would send forces to Mosul City to replace the US 101 Airborne Division. Public opinion has been sharply divided, while political parties remained cautious, waiting for the public reaction. Korea sent second fact finding team to Iraq.

Korea pulled back its troops, about 250 special units, from East Timor wrapping up its 4 years mission aimed at helping rebuild civil war-ravaged country as a member of the UN peace keeping forces.

Cooperative efforts between SKorea and North reached another milestone with opening of a large arena in Pyongyang, 29,000 sqm sports complex with 12,309 seats, named "Ryukong-Chung Juyung", which NK built jointly with Hyundai Asan, in honor of the late founder of Hyundai Group. It is expected to accelerate sports exchange and contribute overall reconciliation between South and North. More than 1,100 SKorean civilians, including tourist, basketball players and journalists, crossed DMZ to attend the opening ceremony.

* Economy & Policy

BOK assumed that local economy had hit the bottom in 2nd quarter and would start to recover gradually from the 4th quarter to reach 4-5% growth next year. KDI drastically revised its estimate of national growth in 2003 down to 2.6%, citing the damage from a series of labor strikes and typhoon Maemi. It has lowered its forecast on annual growth from 5.3%, to 4.2% in first quarter, then 3.1% in 2nd quarter.

Consumer sentiment in Sept dropped to all time low, plunging to 59.9 the lowest since government started statistic in 1998, largely due to typhoon Maemi. About 80% of Korean companies do not have any plan for new hiring in 4th quarter 2003.

Korea chalked up current account surplus of $2.35 bil in Sept, the largest in more than 4 years, spurred by record exports that contrasted with crumbling domestic sales. Korea's exports to China are expected to reach $30 bil this year, which would represent a 10 folds increase over the past decade. Korea's share of US import market is at its lowest since 98, standing at 2.85% as of end Aug, the first time the proportion dropped below the 3% level in 5 years.

Foreign direct investment in Korea in 3rd quarter totaled $1.97 bil, down 19.9% on year, marking 3rd consecutive quarterly fall. The market value of shares owned by foreign investors reached KW132 tril, 40.2% of the market capitalization of Korea Stock Exchange, setting a new record for the domestic exchange.

The International Business Resources ranked Korea No.3 in market potential among 24 emerging markets, thanks to its high marks in such area as country risk, commercial infrastructure and consumption capacity.

Nation's real estate market has seen its average price increase at a fast pace in past 3 years, skyrocketing by 31.4%. Government plans to operate an around-the-clock anti speculation task force to detect the sign of abnormal fluctuations in property prices more quickly, and take its anti speculation measures, including the restriction of mortgage lending and the charge of heavy taxes for multi-home owners and reduction of loan-to-value ratio to 40% from the current 50%, in order to curb ballooning property prices and squeeze the money flow to speculative forces.

Korea's Finance Minister hinted government's support for a possible decoupling of KWon-JYen exchange rate, which has stayed at around ten to one over past 4 years. He considers the maintenance of such ratio has little meaning as economic recovery speed and inflation rate are different. JY100 was traded for KW1,037 on Oct 2nd, compared 998 Sept 15, 1,013 on 19th 1,038 on 30th and 1,035 on Oct 1st, reaching 1082 at the end of this month. JYen has been strengthened to the level of 108 against USD, the lowest in 35 month, from 115 in the middle of Sept, despite government's intervention by pouring total of JYen 68 tril this year.

Lone Star Fund completed the acquisition of controlling 51% stake in Korea Exchange Bank, the nation's 5th largest lender. Hana Bank, Korea's 4th largest lender, signed a contract to buy 50% of Qingdao International Bank of China at a price of $8.5 mil, aiming to speed up its advance into one of the world's fastest growing markets. The Exim Bank of Korea claimed $395 mil in outstanding loans to Russia, including $158 mil unpaid interest from total $711 mil on loans.

* Chaebol

A new wave of restructuring by down sizing, is sweeping over Korean business amid the prolonged economic slump. Korea's dominant fixed cable carrier KT Corp, plans to cut 5,500 jobs out of its 44,000 employees through early retirement program and voluntary severance agreement, as part of its restructuring plan. Doosan Heavy Ind, a major machinery maker, plans to reduce its workforce by 1,000 among 4,000, through an early retirement program. Iljin Electronics joined the wave, by selling off its unprofitable varistar business, in a bid to make itself debt-free company by 2006. INI Steel disposed assets worth KW180 bil in 2003 and KW45 bil in 2004. SK Chemical and Kumkang Trading abandoned their textile business.

Samsung Electronics made a net profit of KW1.84 tril in 3rd quarter, up 6.6% on year and 62.8% on quarter, on the scale of KW11.26 tril, 14.5% up on quarter. It went beyond the "earning-surprise" level, thanks to the stronger sale of flash memory and DRAM chips as well as mobile handsets.

Korean handset manufacturers posted record sales for the 3rd quarter, selling 22 mil units at home and abroad. Korea took 43.86% world market share of DRAM during Sept, producing worth 118.58 mil units, compared Taiwan of 20.59%, Germany 15.89%, USA 14.52% and Japan 5.15%.

LG Group is to expand R&D spending in its electronic-telecommunications units to KW2.1 tril next year, to ensure profitable growth in the global market amid slowing demand at home. LG Petrochemical recorded 56% rise in net profit in 3rd quarter to KW29.2 bil, as the prices for petro chemical products rose.

The share holders of cash strapped Hanaro Telecom approved a $500 mil takeover bid offered by the consortium of Newbridge Capital and AIG, which was backed by Samsung and SK Telecom. It dealt a severe blow to LG Group, the largest share holder of Hanaro, who attempted to buy the company in a joined hand with Carlyle Group in $630 mil rival bid with $1.34 bil investment plan.

Prosecution's action against SK Group over group's slush funds allegation served another hard blow to Korea's 3rd largest group which already faced groupwide crisis as its chairman Chey was in jail for 7 months for illegal stock transition and accounting scam involving group's trading arm SK Global, now SK Network. Share holders of SK Corp finally approved to convert its KW850 debt-to-equity, with the hope to normalize SK Network after 9 month nightmare. Moody's Investors Service confirmed its "Ba2" long term rating for SK Corp and maintain its outlook as negative, after taking into consideration of the company's decision to bail out its troubled sister company SK Network.

The brothers of Chairman Chey have sold their stake in group affiliates to secure cash to buy the stake upto 15.93% in SK Corp to strengthen their position ahead of the expected clash with Sovereign Asset Management who had been the biggest share holder with 14.99% stake in SK Corp. SK Group Chairman, Son Kil-seung, resigned as head of the Federation of Korean Industries, over the controversy surrounding group's alleged illegal funding into politics,

Hyundai Motor's car making business in China is about to run into turbulence, as its Chinese partner has signed with DaimlerChrysler on the establishment of auto manufacturing joint venture, in violation of exclusive partnership agreement with HMC. HMC has put talks on a planned commercial vehicle joint venture with DC on hold indefinitely.

Hyun Jeong-eun, 48, wife of Chung Mong-hun, the late chairman of Hyundai Group, has taken the rein of the group, as she became chairwoman of Hyundai Elevator, virtual holding company for group affiliates. She inherited a 4.98% stake in HMM from her late husband, while her mother plans to sign the voting right for her 18.57% stake in Hyundai Elevator, which is the largest share holder of HMM with a 15.16% stake. Since Hyundai Investment Trust and Securities, and Hyundai Investment Trust Management are to be sold to Prudential Financial Inc, the group will concentrate on its Elevator, Shipping, Logistics, Tourism and Brokerage units.

POSCO, world's 5th largest steel maker, broke its quarterly sales record in 3rd quarter by posting revenue of KW3,64 tril, up 18% on year, with net profit of KW500 bil, shot up 32% on year. POSCO is to invest $700 mil to expand its stainless steel output capacity in China by 600,000 tons a year.

* Monetary & Economic Indices

KOSPI started the month at 698, then kept revising yearly highest to march upto 785 amid overseas buyers' continuous purchase, and ended at 782. President Roh's bombshell declaration made little impact to the market. Foreign investors have purchased the share from Korea bourse more than KW10 tril this year.

The exchange rate of KWon against USD has surged to its 35 month high to 1148.10 on 8th, due to foreign investors' continued purchase of domestic stocks, kept weakened breaking through the 1180 level to 1186, following US Treasury Secretary comment to keep strong dollar policy, and ended the month at 1183. Korea's foreign exchange reserve swelled by $1.79 bil in Oct bringing total holdings to $143.32 bil at the end of the month, on the increased investment gains and heightened value of foreign currency denominated assets.

Average lending interest of the commercial banks dropped to 5% level, first time in Korean history to mark 5.97%, following 6 consecutive monthly fall. Korea's consumer prices advanced for the third straight month in Oct, gaining 0.1% from Sept and 3.7% on year, as prices of fresh foods continued to rise after the typhoon Maemi slashed crop field. Yield on 3 years corporate bond has kept in the range of 4.95-5.35%. The unemployment rate for Sept edged down 0.1% from Aug to 3.2%, the second monthly decline.

* Shipbuilding & Shipping

Korean shipbuilders clinched their largest ever newbuilding orders this year, as they won contracts for 382 ships with a combined capacity of 13.19 mil CGT during Jan- Sept period, 234.4% increase on year. Order book keeps 699 vessels of 24.33 mil CGT and they have constructed 179 units of 5.92 mil CGT, up 11.9% on year.

HHI secured orders from Stena Bulk for 2 x 116K tanker 1A ice class, Novorossiysk Shipping 2 x 105K tanker, Yangming Marine Transport 4 x 8200 TEU container ships. HHI signed the contract with CNOOC for $130 mil worth 345 km underwater pipeline project in south east of Shanghai. HHI is to set up an electronic joint venture in China to produce switchboards, circuit breakers, power transformers and locomotive equipment. HHI has sold its 5.04% stake to HMD, making HMD third largest share holder, after MJ Chung with 10.9% and KCC with 8.2%. HHI reduced its own share holding to 15.1%.

HMD made contracts with OMI for 1 x 37K PC ice class PC and National Chemical Carrier 2 x 46.2K IMO II/III chemical carrier.

DSME agreed with Geogas to build 1 x 78.5K LPG carrier, Norddeutsche Vermoegen 3 x 8200 TEU container vessel and AP Moeller 2+1 x 6000 PCTC. Daewoo Mangalia contracted with LMZ Transoil for 2+1 x 69K tanker.

SHI bagged the contracts for BG with 3+4 x 145K LNG, Rasgas 2 x 145K LNG carrier, and Seaspan 4+4 x 9500 TEU boxer, first order of 10,000 TEU class.

Hanjin made agreement with HCI & Peter Dohle to build 4 x 3380 TEU and Reederei Karl Schulter 2 x 3400 TEU container vessels. The labor union leader of Hanjin Heavy Ind was found hanged in the shipyard's 40 m high crane cabin, where he had been staging one man demonstration for about 130 days since June when firm's union and management failed to reach a compromise in pay talks.

STX continued its success to get the order from EFShipping with 2 x 2500 TEU, Reederei Bernhard Schulte 2 x 2600 TEU container vessel, and Sun Enterprise 1 x 45.3K PC. STX listed its share in the local bourse on Oct 27th with expected price of KW14,200, which surged to stabilize at KW21,000 in the first day. JF Asset Management became the largest share holder of STX by purchasing 5.94% stake, followed by Chairman DS Kang with 5.26%. Foreigner's share holding totaled 14.66%.

ShinA secured orders from Ocean Tankers for 6 x 49.7K PC. INP contracted with Schoeller Holdings for 2 x 8.5K stst chemical carrier.

Busan Port is facing throat cutting competition from Chinese rivals, including Shanghai and Shenzhen, who threaten Busan's world 3rd largest position crawling down to 5th.

The American Shipper ranked Hanjin Shipping 5th in the world in container ship cargo capacity, as of end July. Korean Air sold its 13.39% stake in Hanjin Shipping, to raise the funds to purchase Korea Aerospace, expediting spin-off of the group.

SK Shipping elected Lee Jeong-hwa, 51, VP in charge of Petroleum & Gas Carrier Business Div, as a co-CEO, replacing resigned chairman Son Kil-seung. He is expected to work with Lee Seung-gwon for a while.

Best Regards,