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  Korea Report - April 2004
  Author : Hwang & Co     Date : 04-06-19 08:13     Hit : 34331    
Topics.

-Pro-government Uri Party won stunning victory in April 15 General Election.
-Massive explosion at a NK¡¯s train station.
-Domestic and foreign banks in Korea posted larger than expected profits in first quarter.
-Foreign ownership of Korea¡¯s top blue chip firms approached a record 50%.
-George Soros bid to buy LG Investment & Securities.
-Samsung Electronics¡¯ market value reached 25% of total market capitalization.
-KOSPI reached 2 years high to 936.
-Korean shipbuilding Industry takes unshakeable No.1 position in the world.
-Korea Line started the action to protect itself from possible hostile M&A.

GOVERNMENT AND POLICY

All political parties and personal candidates have experienced the fresh style of campaign for April 15 general election. Staging public speeches, treating guests with meals or entertainment and parading with more than six hired hands, have all been banned under revised election laws, aimed at drastically cutting campaign expenses. Parties have deluged the mass media with advertisements in an effort to reach a larger pool of voters, as the first general election where parties have been permitted to use television and radio advertisements, where they were previously limited to newspapers.
Revealing 59.9% turnout in the general election, pro-government Uri-Party earned 152 seats, while opposition Grand National Party took 121 out of 300 seats in Parliament, showing clear  division in political scene into Progressive and Conservative camp. Two traditional Parties, MDP and ULDP have been collapsed with less than 10 seats. 
President of United Liberal Democrats Party, Kim Jong-pil, announced to end his 43 years career in politics after his party's devastating defeat in the elections. His resignation, at the age of 78, marks the end of a prominent chapter of the '3 Kims' era in Korean politics. He was the last Kim standing but without a presidency. President Roh confirmed to join the Uri-Party as a responsible member but distance himself from any factional matters such as appointments to party posts.

Government officials have moved quickly to quash concerns that economic policies may shift to the left after the reformist Uri Party's resounding victory, saying that it would be pursuing a pro-growth policy, rather than an equitable distribution of wealth, while the business community is nervous about the possible pro-labor representation in parliament.
The stunning victory by Uri Party also created concern over its possible shift of foreign policy, as many of its young liberal reformists, are calling for broader independence from American influence and reconsidering the support for the US-led war in Iraq.

More than 130,000 people gathered in Gwanghwamun, centre of Seoul City, for a candlelight rally to protest against the impeachment of President Roh Moo-hyun in the largest demonstration of its kind since his impeachment.

The Constitutional Court summoned 4 former President Roh's close aides implicated in corruption scandals and request data about his alleged violation of election laws. Opposition lawmakers, acting as prosecutors, applied a request to summon 30 witnesses, including the suspended president, in a bid to prove their case for the impeachment, which is based on his alleged violations of election laws, his aides' corruption and economic failures last year.

South Jeolla Province Gov Park Tae-young, under investigation by prosecutors in a bribery case, jumped to his death in Han River from a bridge. Four notable Koreans, such as Park Tae-young, Nam Sang-wook, president of Daewoo Construction, Kim In-kon, Ahn Sang-young, mayor of Busan City, who were under investigation for alleged involvement in corruption cases, have so far this year opted to kill themselves as a way of being freed from their mental agony, bringing the concern over the syndrome of suicides.

"Takegukgi", a movie about the Korean war, became the most popular film in Korean history. It sold more than 11 million tickets, which means every one in three Koreans over the age of 15 have seen the movie. Economic experts put the film's possible contribution to the country's economy at up to KW500 bil including direct sales revenue of KW144.1 bil.

NORTH KOREA AND NATIONAL DEFENSE

In the wake of the recent string of Koreans kidnapping in Iraq, coupled with the worsening security situation in the region, the government issued a de facto ban on civilian entry into the war-ravaged country. But it reaffirmed Korea would go ahead with the plan to send about 3,000 troops to northern Iraq, despite the escalating tension in the region. Many law makers urged to re-examine Korea's troop deployment to Iraq and to send soldiers already there back home, as the situation there may be rolling toward a second war.

NK's reclusive leader Kim Jong-il held a closed door summit meeting with his Chinese counterpart in Beijing on the pending issues, during his 3 day veiled visit. Chinese leaders reportedly urged him to ease off his hard-line stance toward the USA to resolve a stand off over NK's nuclear ambitions and promised the enhancement of ties between 2 countries.
UN human rights body endorsed a resolution calling NK to cooperate with the international community to investigate allegations of widespread human rights violations in the country.

A massive explosion at NK's Ryongcheon train station near the Chinese border on April 22 may have killed and injured thousands of people. Two trains carrying oil and liquefied petroleum gas collided and exploded. The deafening blast destroyed homes and buildings in the neighborhood, while debris rained down and smoke from fires blackened the sky in the remote city. Cars and trucks sped madly by, being packed with bleeding, moaning passengers on their way to hospitals, clinics and relatives' homes.
Lending a helping hand wasn't easy for SKorean authorities when they talked with their NKorean counterparts. They repeated discussions for days whether the urgent relief goods should be sent through land or by sea. By land it takes 4 hrs, while by sea longer than 48 hrs. After much ado, SK's first shipment of relief aid finally set sail on April 28, with the 13 different types of aid requested by NK, that will cost SK about $25 mil.

1600 companies have expressed intentions to build factories at the 3.3 sq km Gaeseong Industrial Park in NK that will be completed by 2007.
SKorea shipped 15,000 tons of fertilizers out of 200,000 tons to NK to help increase agricultural production.    

ECONOMY AND POLICY

Korea's annual economic growth will likely exceed the government's 5% forecast this year, thanks to surging exports and recovery in domestic demand and corporate investment. BOK forecasted this year's economic growth to reach between 5.2 and 6.0 %, while KDI raised its forecast to 5.5% from 5.3%. It is predicted that an increase of 3-6% in raw-material costs would probably cut Korea's economic growth by about 0.2% and add 0.3% to inflation.

Korea may have to raise its trade surplus forecast for this year after it neared the annual target in March, as exports soared for a third month on increased sales of mobile phones, cars and semiconductors. In April, exports surged nearly 40% on year to $21.7 bil, with the monthly trade surplus at $2.9 bil, the highest since December 1998. It brought the surplus total to $9.7 bil in first 4 months, just slightly shy of the $10 bil target the government set for the full year. Despite buoyant exports, Korea's current account surplus in March shrank to $972.1 mil to its lowest level in 8 months, versus a $2.9 bil surplus in Feb, as foreign investors sent record dividend payments home.

Korea's major banks expected huge profits to reach KW5.84 tril for the whole of this year, up sharply from KW1.85 tril in 2003, thanks mainly to the government's payment of KW110 bil loans that 9 major banks extended to the former USSR between the late 1980s and 1991 but Russia has defaulted. Amount of overdue principal and interest has since swelled to $2.24 bil. In June last year, Korea and Russia agreed a debt rescheduling program under which Moscow must pay $1.58 bil over the next 23 years. Seoul government has decided to pay the loans to the banks on behalf of Russia and then receive payment from Moscow during the 23 year period. Kookmin Bank posted KW169.1 bil net profit in first quarter this year, Hana KW201.8 bil, KorAm KW118.4 bil and Woori Bank KW 263.8 bil, recording about triple-digit increases. 33 branches of foreign banks operating in Korea racked up KW411 bil net profit in 2003, versus KW296.2 bil in 2002, mainly attributing to greater interest income and less loss related to derivative products.

Korea's credit delinquency rate rose at its fastest pace in 5 months in March, with the number of credit delinquents at 3.93 mil up 2.4% from February. Kookmin Card had 1.10 mil defaulters, LG Card 1.09 mil and Seoul Guarantee Insurance 1.02 mil. Korean government spent KW 3.4 tril in public funds to restructure financial institutions during the first quarter.

Foreign ownership of Korea's top conglomerates has approached a record 50%. Samsung Group is 57.1% controlled by foreigners, SK 42.8%, Hanjin 28.9%, Hanhwa 18.1% and 19.3% for HHI. So far this year foreigners have bought KW10.2 tril on net worth in domestic stock while local individual and institutional investors have sold a net KW9.2 tril.
Foreign direct investment to Korea stood at $3.04 bil during the first three months of this year, up 175.2% on year, for the first time it posted a gain in over a year. The improved investor sentiment and the string of government measures to attract foreign investors have paid off.

Beginning this year, the government offered cash grants to foreign investors setting up companies here and also designates individual managers to oversee investment procedure.
Private companies borrowed a record $52.7 bil from overseas last year, more than 6 times larger than their overseas credit, the greatest amount since the 1997-98 financial crisis. 

Share price of LG Investment & Securities gained yesterday on the news that George Soros is seeking to acquire the nation's second largest brokerage. He issued a Letter of Intent to acquire the company, competing with 4 local firms.   
AMEC, a UK-based civil engineering company, is to launch a $2 bil project to build an international business zone near Incheon International Airport by 2010.
Hana Bank, Korea's third largest lender has sealed a business alliance with the Industrial and Commercial Bank of China.

Japan's customs agency has put a halt to the import of plasma-display panels made by Korea's Samsung SDI, accepting a petition filed by Fujitsu stating that the Korean maker infringed patents on basic technologies for the devices. Calling the move "against international trade practices," Samsung is considering taking the issue to the WTO.

CHAEBOL

The share price of Samsung Electronics (SEC) broke through KW600,000 barrier to KW616,000, after the company announced to spend KW2 tril to buy back and cancel shares. SEC saw its market value surpass KW100 tril ($88 bil) on Korea's main bourse on April 13, posting 24.8% of total capitalization in the market, while Sony valued $38.8 bil, Nokia $81.7 bil and Intel $178.9 bil.
SEC's net profit nearly tripled in the first quarter, posting a record sale of KW14.41 tril, an operating profit of KW4.01 tril and a record net profit of KW3.14 tril thanks to higher margins on all of its product portfolio ranging from semiconductor to home appliances.
In its largest monthly output ever, SEC sold more than $850 mil worth of liquid-crystal display units in March, overtaking LG Phillips LCD.
Financial Regulators have ruled that Samsung Everland violated a regulation detailing the nature of financial holding companies and ordered the company to submit a plan to resolve the problem by the end of June. A company that meets the standards for a financial holding company without approval from regulators is subject to a maximum 5 year prison term for the chairman or KW200 mil in fines.

Korea's automotive exports surged around 100% during the first 2 months to 313,065 units. Shipments to the Mideast soared 109.6%, to Eastern Europe 100.3%, Africa 86.3% and N America 16.7%.
Hyundai Motor's plants in China, India and Turkey had record monthly sales doubled to 34,968 units in March. HMC India, achieved record annual sales of 171,903 units in 2003, 53% surge from 2002, on the back of a strong performance from its minicars. HMC will open its first US plant in Montgomery, Alabama, in March next year, to produce 235,000 sedans and SUVs a year. HMC is in talks to sever ties with its biggest foreign shareholder DaimlerChrsyler, who bought 9% stake in HMC in 2000 and recently announced to stop financial support for troubled Mitsubishi Motors.

HMC won a contract to provide its fuel cell vehicles for the US government's project to test hydrogen energy technologies in USA, demonstrating its Tucson fuel cell cars starting in November.

Daewoo Engineering & Construction has won a $77.50 million order for work at a liquefied natural gas plant in Sakhalin, Russia, expecting further orders.
Dongbu Steel declared its intention to bid to take over the ailing Hanbo Iron & Steel, competing with 4 other local steelmakers, such as POSCO, INI Steel, Hyundai Hysco and Dongkuk Steel Mill.
Shinochem Corp, China's largest petrochemicals trader, was selected as the preferred bidder for bankrupted Inchon Oil Refinery, as it offered KW650 bil and conduct a 100% paid in capital increase in order to acquire the Korean oil refiner.

Investors have snapped up shares in Hynix Semiconductor, driving company's share price up more than double this year on a bet that rising memory chip prices will buoy earnings. The price of 256 mega DDR DRAM has been raised about 27% this year to $5 level and is likely to continue the rise. KEB suggests partial sale of 81.4% stake in Hynix that the creditors hold.

MONETARY AND ECONOMIC INDICES

Coming after a strong rally in March, KOSPI continued its earning at the beginning of the month. It started at 882, broke 900 in the anticipation of solid blue chip earning at home and abroad, went to 23 month high at 909 exceeding market capitalization over KW400 tril on foreigners' net buying more than KW10 tril this year, climbed to 918, 2 year high, led by surge in SEC share price and  rebounded Nasdaq easing concerns about the technology industry's profit outlook, reached the peak at 936 on April 23, then continued to collapse to 875 at the end of the month, following Chinese PM's warning about China's economic slowdown, oil price hike and the appreciation of KWon, under foreigners' selling spree.

At the end of March the KWon traded at 1,146.6 per a dollar, up 4% from 1192.6 three months earlier. It continued strengthened reaching 1141 at the beginning of April, but fell at the end of the month to 1170 due to China's possible economic slow down. Foreign exchange reserve continued to swell to $163.64 bil in April, up $80 mil from March. As government sold currency-stabilization bonds, Korea's national debt rose KW32.1 tril to KW165.7 tril, equal to 23% of gross domestic product.
Call interest rate has been frozen at 3.75%, since it was lowered from 4.0% last July. Korea recorded the world highest inflation rate in first quarter this year, posting average 3.3%. The yield on 3 years corporate bonds lowered from 5.30% at the beginning to 5.21% at the end of the month. Korea's unemployment rate dipped in March to 3.8% from 3.9% in Feb, which was the highest rate since April 2001.

SHIPBUILDING AND SHIPPING

Korean shipbuilding industry confirmed its unshakable world No 1 position last year, by sharing 44.5% order out of total 70 mil GT in the world,  37.8% of delivery out of 68.8 mil GT and 39.9$ in order backlog in the world's 112.2 mil GT, while Japanese hold 32.5%, 27.3% and 32% respectively.

Average age of the workers in Korean shipbuilding industry has been rapidly growing from 35.9 in 92 to 41.5 in 2002. China's average wage for the workers in shipyards was revealed $1.8 per man hour, while Korean exceeds $38.
POSCO is to raise shipbuilding steel price following its raise 12% in Feb reaching $623 per ton.

HHI had the order worth $5.99 bil in first quarter, exceeding its annual target of $4.46 bil. Labor and management of HHI agreed to adopt 5 day work week system from April. HHI secured order from NYK for 3 x 150K LNG, Tsakos Energy Nav 1+1 x 145K LNG,  AP Moeller  4 x VLGC to be built 2 at HHI and 2 at Samho, Unique Shipping 1 x 35K LPG and Primorsk 3 x 166K tanker.
HMD made earth breaking ceremony for its block fabrication yard in Youngam national industrial park near Samho yard on April 30, targetting the commencement of the works from July. HMD has received an order from Reederei Claus-Peter Offen for 4+2 x 2824 TEU.

The creditors of DSME decided to exclude foreign investors from bidding to sell the shipyard, in order to prevent the core technologies from flowing out abroad. DSME posted 1Q net profit of KW100.5 bil, up 29.2% on year, on the sale of KW1.17 tril, up 25.8%, attributing to the improvement of productivity and cost saving efforts. DSME secured order from Korea Line for 1 x 170K bulker,  Wallenius 2+2 x 6700 PCTC, Gulf Marine 3 x VLCC and Exmar 1 x 138K LNGRV.
SHI agreed with BG Group to build 4 x 145K LNG, MISC 2 x 145K LNG and 4 x 9600 TEU, Nofork Line 1 x 850P Car Ferry, Ceres Helenic 2 x 157.7K and 2 x 112.8K tanker, and Viken Line 2 x 113K tanker. SHI leads the ultra size container ship market by securing 17 ships larger than 9000 TEU, since it took the order from Seaspan for 5 x 8076 TEU in last Oct.

Hanjin received order from Niky Shipping for 4 x 5100 TEU and Schoeller 2 x 3400 TEU.
STX Group decided to keep holding company system, on which STX Corp controls STX Shipbuilding, STX Engine and STX Energy. STX secured order from Dunya Denizcilik for 2 x 47.4K PC and Great Eastern 1 x 47K PC.
ShinA made an agreement with Unicorn to build 2 x 37K PC, Fratelli D'Amato, Perserveranza 1 x 40K PC, Fulltankers 2 x 51K PC. Daesun succeeded to sell the cancelled earlier berth to Unita Schiffartsges 2 x 1043 TEU for 2005-2006 delivery. KY Heavy Ind secured order from Unibros for 3+3 x 13K chem, and Nokbong yard from Evalend for 4 x 13K chem.

Korea Line decided to issue BW worth KW20 bil, equivalent to 8% of total shares, in an apparent move to protect itself from possible hostile M&A, after it saw GOLAR LNG acquire additional 1.25% shares increasing its stake to 16.98%. Korean Line secures 33.17% friendly stake by issuance of BW. Korea Line posted 1Q operation profit KW60.6 bil, the highest quarterly performance, 88% of whole yearly profit in 2003, on the sale of KW261.9 bil, up 130% on year, due to booming bulker market.
Hanjin Shipping recorded 1Q operation profit of KW162.1 bil, jumping 3,017% on year. Net profit was KW158.9 bil, turning into the black, due to improved performance of container market.