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  Korea Report - March 2004
  Author : Hwang & Co     Date : 04-06-19 08:11     Hit : 38338    
Topics.

-President Roh impeached.
-Unprecedented heavy snow hit the Peninsula.
-Trade balance eroded by high raw material cost.
-Energy conservation measures activated due to high oil prices.
-Foreign investors reached record earning in direct investment.
-Hyundai Group Chairwoman consolidated her grip on the group, thwarting her uncle-in-law¡¯s attempt.
-SK Corp chairman survived against persistent challenge by Sovereign.
-KWon strengthened to 1143 against USD.
-Shipyards suffer from material cost hike.
-Golar LNG continue to increase the stake in Korea Line

GOVERNMENT AND POLITICS

Roh Moo-hyun became the first president in Korean history to be impeached. Law makers voted 193-2 to remove Roh from the office, while the Constitution Court decides whether to uphold the impeachment in 180 days. Roh took the office in Feb 2003 and his tenure runs through 2008.
The incident came from President Roh\'s shoot-from-the-lip style remarks to political and diplomatic affairs, and they came back to haunt him. He openly told the country that he would do everything possible within the law to ensure the pro-government Uri Party wins the April general elections, despite the law states public officials must remain neutral in elections. National Election Committee has warned President twice to stop the violating the law. The opposition Parties asked an apology to make any notion of impeachment go away. All Roh had to do to escape impeachment and national chaos, were to apologize, as majority of Koreans are against the impeachment but agree he has to apologize. President Roh played  another wild card with cynical remarks, suggesting he would step down if Uri Party fails to acquire due support from voters in April general elections, flatly refusing opposition\'s demand to apologize. Opposition declared that National Assembly finds no option but to impeach the president. Opposition GNP and MLD hold 146 and 62 seats, respectively, while pro-Roh Uri has 47 in the 273 seats Parliament. Roh insisted that the Constitution Court, who will mandate legality of Impeachment, would overturn Parliament¡¯s political judgment. 
In Oct, Roh announced to hold a referendum on his leadership and promised to step down if he lost. He proposed the vote for mid Dec but was indefinitely postponed amid legal concern as it would be unconstitutional.

Former president of Daewoo Construction committed suicide by jumping into the Han River, soon after Roh\'s news conference saying that he came to Roh\'s brother and gave money in return for helping extend his CEO status in Daewoo, ridiculing that the person like a big company¡¯s president, who went to a good school and succeed in life, would stop coming to a country person like his brother, opening his name and his career.
Roh also said that he would step down if his illegal campaign funds exceeds 10% of those of GNP. Prosecution revealed, in its interim report, that Roh\'s campaign camp received about KW12.5 bil in illegal funds for 2002 presidential election, while opposition GNP took in about KW84 bil. Opposition naturally called for him to resign.
Though shocked by the unprecedented impeachment motion, Prime Minister, as interim head of state, was quick to take necessary measures to prevent the nation from spiraling into confusion. Market shrugged off uncertainty surrounding presidential impeachment. Share prices and the domestic currency maintained firm. Popularity vote revealed 70% of the people against the impeachment move.

The unprecedented heavy snow in March, 49 cm a day, caused severe losses on farming house holds in central region and trapped about 10,000 cars carrying 22,000 passengers on blocked high ways for about 24 hours. Nearly KW454 bil worth of property damaged, but no fatality is reported.

Korean government lodged a strong protest against US detention of 3 Korean journalists in Baghdad on suspicion of carrying explosives. US soldiers underwent \"arrogant and inhumane\" treatment by handcuffing them for questioning, while Korean embassy in Baghdad guaranteed their status.
Korea held a second round of talks toward the signing of a FTA with Singapore. Korea is to sign the Intergovernment Agreement on Asian High projects in April for the establishment of road network linking 31 Asian nations.

Domestic movies have shown steady popularity, with nearly 60.4% in favor among Koreans, than ones from Hollywood or elsewhere in Feb. The Korean entertainment industry racked up $4.2 bil in sales last year, more than double the amount raised 4 years ago, mainly due to a flourishing film business. 
The unemployment rate for young people in their teens and twenty\'s reached a 3 year high in Feb at 9.1%, standing at 459,100, with mass production of 380 unemployed a day. Korea\'s first 300 kmh bullet train (KTX), after KW14 tril of investment and years of delay, is to open its operation on April 1 on two lines linking Seoul-Busan and Seoul-Mokpo. KTX would bring about revolutionary changes to logistics and people\'s lives, creating a day life zone over the country.

NORTH KOREA AND NATIONAL DEFENSE

Korea and USA decided to change the location of its additional 3,000 troops set for deployment in Iraq next month amid worsening security situations in the planned area of northern oil city Kirkuk. Korean government continued the talks to fix the location with US authority. Amid global fears in the wake of the attack in Madrid, Korean government is beefing up the country\'s anti-terrorist measures, including counter-terrorism measure drills for brand new high speed railways, inner-city subways and national railroads.

Britain has joined the heated global competition to win 400 units of Korea Multipurpose Helicopter development project, Korea\'s single largest arms purchase project worth an estimated $12.7 billion. Other competitors are France and U.S.

About 100 NKoreans on hunger strike in China demanded release, and asylum in SKorea. Chine announced to bring about 16,300 illegal NK\'s residents in China back to NK.

ECONOMY AND ECONOMIC POLICY

Economic growth in 2003 posted 3.1%, the lowest since currency crisis. It is expected to accelerate to more than 5% this year, but impeachment and high raw material prices may erode the figure. GNI jumped 10% on year to record high $12,646. Industrial production experienced the growth 16.6% on year in Feb, the 42 months high, while consumption finally emerged from its 11 month slump.

Korea\'s trade surplus in Feb stood at $1.94 bil. Although monthly exports surged to a record high of $19.3 bil, imports soared 25.5% to $17.36 bil, attributing to higher import costs triggered by the surge of international raw material prices. Exports accumulated in first 2 months this year are now estimated at $38.3 bil, while imports reached $33.5 bil. Despite unfavorable business conditions, small and mid sized business saw their sharp exports growth to $81.7 bil in 2003, up 19.6% on year, accounting 42.2% of country\'s overall exports. Korea\'s trade deficit in agriculture and fishery products reached a record $9.2 bil last year, with the record high import of $12.19 bil versus export of $2.99 bil. Korea achieved a $3.1 bil current account surplus last month, it\'s largest amount in 5 years.

Government plans to spend KW180 bil to build 2 nanotechnology cluster centers. Government on its latest efforts to create businesses and jobs, decided to offer 50% to 100% tax cuts to startup businesses hiring five or more employees beginning in July. Government lowered luxury taxes on big-ticket items, such as cars, air conditioners, projection TV, in a bid to boost sluggish domestic consumption.

Steel imports surged to a record high of 15.63 mil tons last year, rising 10.4% on year, propelled by increased demands from local manufacturers on the shortage of local supply. Korean government decided to restrict the export of scrap iron and steel and round bars, and provided KW500 bil in purchase guarantee funds for raw material to ease an ever worsening shortage especially among mid and small size companies. Dongkuk & INI Steel halted their exports to assist domestic demand. POSCO announced that the steel price can not be kept present level long, as heated investment to the steel industry will soon show over supply.

With the international price of Dubai crude oil hovering around $30 a barrel, government has decided to activate the first phase of an energy saving plan that calls for voluntary conservation efforts by individuals and companies, restricting private car driving, encouraging entertainment and fitness clubs to switch off the light after midnight. Government is considering further restricting measures, if crude oil prices continue to rise in April. The oil prices hike struck related industries such as nylon textile and airline companies. Asiana alone will have the burden of additional KW15 bil a year for $1 rise on oil price.

Foreign investors raked in record earning of $2.04 bil in 2003, up 11.5% from 2002 from direct investment, mainly on strong return from the companies they aggressively purchased following the 97-98 economic crisis. The $6.73 bil raised between 2000-2003 has greatly outstripped the $4.84 bil earned for 20 years period between 1980-1999. The outflow of wealth by overseas Koreans surged to $795.4 mil last year versus $541 mil in 2002, as people rushed to sell domestic assets amid a bubbled price and transferred the money abroad.
Foreign ownership of Korean blue chip shares is growing fast, marking 59.76% in SEC,  48.85% in SKT, 75.62% in Kookmin Bank, 67.36% in POSCO, 29.03% in KEPCO, 64.18% in Shinhan Financial Group, 51.32% in Hyundai Motor and 37.21% in LGE.
Domestic financial institutions are expected to join forces to launch a large homegrown private equity fund, possibly before the end of June, to challenge the increasing presence of foreign investors in the sale of key Korean assets.

Korean banks\' bad loans increased to KW18.6 tril up by KW3.5 tril in 2003 from 2002, comprising 2.62% bad loans ratio. Korea\'s main credit card companies had a record combined loss of KW10.47 tril last year. The aggregate value of credit card accounts tumbled
to KW462.1 tril in 2003, down 25.8% from 2002, attributing to flagging private consumption and the lowering of limits on cash advances available to cardholders.
The debt owed by Korea\'s private sector hit new high in 2003, marking KW482.7 tril, which is equivalent to KW31.6 mil per household, KW10.7 mil per individual, up 3.7% in the household and 4.6% for individual on year.

CHAEBOL

LG Electronics (LGE) and Samsung Electronics (SEC) dominated the global code division multiple access handset market last year. LG topped the ranking by selling 21.3 mil CDMA units, for 21.6% share and Samsung for 20.4%. LG Philips and SEC led a higher-than-expected 61% surge in global shipments of LCD in 4th quarter, driven by demand for flat-panel-TV. LG took 22% share, while SEC narrowed the gap to 21.7%.
 
Samsung Group accounted for almost 30% of the total value of Korea\'s main bourse. Samsung Thales has won a $575 mil contract from Korean government to supply tracking system to counter aircraft or other missiles.

LG Philips LCD, world largest LCD maker, broke the ground on a mammoth 7th generation TFT-LCD line complex in Paju, which will house 40-50 related companies and R&D centre, expecting to further solidify its position as the unrivalled player in the lucrative LCD market, by investing KW25 tril over next 10 years, creating about 25,000 new jobs.
LG Chemical, Korea\'s largest chemical company, has completed new industrial complex in Ochang to focus on key products including rechargeable batteries and optical film. LG Cable has signed a strategic alliance deal with the world largest optical fiber cable maker, OFS, in the field of cable manufacturing and optical communication technology.

Hyundai Group Chairwoman Hyun Chung-eun secured a director post at the groups two main-stay units, Hyundai Merchant Marine and Hyundai Elevator, and joined the board of Hyundai Asan Corp, group\'s NK business arm, at their respective shareholders meeting, after the serious battle with Korea Chemical Co. Hyun has consolidated her grip on Hyundai Group by winning shareholders vote of almost 63% to join the board of HMM and overwhelming 77.8% at the elevator maker, thwarting her uncle-in-law\'s attempt to seize control of the group. KCC announced that it would admit the result of the vote and take its hands off Hyundai Group.

Sovereign Asset Management, which owns 14.99% stake in SK Corp, has failed to oust company\'s Chairman/CEO Chey Tae-won, in the shareholders meeting. Shareholders dealt Sovereign a setback in its attempt to control the company\'s board, by rejecting 2 Sovereign candidates. Sovereign\'s actions were the first one for a foreign shareholder try to assert itself so extensively as a minority investors in Korean company. Sovereign resumed, even after shareholders¡¯ meeting, its offense urging Chey to resign, accusing that Chey was given a 3 years sentence, now remains free on bail, for his role in KW1.6 tril accounting fraud at SK Global. Share price has gone up on the expectation of improvement of governance structure and brisk business in the oil refining industry.

Korean automakers saw exports soar last month, but demand in domestic market continued to drag down overall performance, as a credit binge left many consumers struggling to meet debt payments.
Kia Motor, an affiliate of Hyundai Motor (HMC) Group, is to hold a ground breaking ceremony for its first European plant in Slovakia next month, as the site of $872 mil European production plant, capable of producing 200,000 vehicles annually.
HMC is to expand its Indian assembly plant, by increasing the production capacity from 150,000 to 250,000 units by July. This will make the plant HMC\'s largest site abroad. After launching Hyundai Motor India Ltd in 1998, the company emerged as the second largest automaker in the country with overall sales of 150,741 units, up 35.7% on year last year.
GM Daewoo unveiled an investment plan worth KW1.7 tril for Korea, highlighting its Incheon Assembly plant as the centre of its new key models. GM is to buy an assembly plant in India from Daewoo Motors.
Tata Group, worlds 6th largest commercial vehicles maker with a commanding 55% share of the Indian market, has signed an agreement to takeover a 100% stake in Daewoo Commercial Vehicle Co for a bout $102 mil, in a bid to advance on the Korea and overseas markets including China, Africa and S America. DWCV is Korea¡¯s second largest truck maker with annual production of 20,000 medium-size and heavy vehicles.

US investor AK Capital, who has failed $377 million deal to purchase Hanbo Iron & Steel, sued Korea Asset Management Corp (KAMCO) to a state court in New York, seeking damages of as much as $1 bil. It claimed that KAMCO, the main creditor of Hanbo, entered into a conspiracy to defraud AK Capital by changing the conditions of the Hanbo purchase.
6 companies, including Doosan, Rotem and Hyundai Rolling Stock, have made bids to buy 35.9% stake in Daewoo Heavy Ind held by state running KAMCO. The company is one of the largest local machinery maker, especially for its defense division which makes military equipment such as missile guidance systems and armored vehicles. Daewoo Heavy Ind., posted its operating profit KW25.6 bil in Feb, 77% up on year.

Hyundai Engineering and Construction (HEC) was awarded a $83 mil power cable project from UAE, installing 505 transmission towers and 200 km of cable. HEC has received a USD 220 mil order from Iraq, the frst order since last year\'s war. HEC is also seeking to retrieve unpaid bills of $1.14 bil with the new Iraqi government.
A group led by LG international Corp with SK Construction won a $50 mil contract from SNP Petrom SA, Romania\'s biggest oil refinery, to build a crude oil processing plant.

MONETARY AND ECONOMIC INDICES

KOSPI started the month at 899.21, broke through 900 for the first time in 2 years to 907.43 on the manufacturers confidence and foreigners\' net buying, plummeted to 848.8 due to the presidential impeachment bill, then stabilized in the box of 850-885, to end the month at 880. The portion of foreign capital on KSE hit a record 42.6% at the end of Feb. Foreigners have remained in a net buying position since last May.

The exchange rate of KWon marked 1176 against USDollar at the beginning of the month and abruptly strengthened to end at 1143, while JYen hit 103.9 against USDollar.
Korea\'s external liabilities fell to $159.8 bil at the end of Dec from $161 bil in Sept. The short-term foreign debt decreased to $55.3 bil from $57.6 bil at the same period. However, long term liabilities increased to $104.5 bil from $103.4 bil, as Korean companies had raised $2.6 bil from the overseas market in 4th quarter in 2003, due to cheaper dollar and low US interest rates. Korea\'s foreign exchange reserve continued to grow to $163.56 bil at the end of March, up $550 mil from the end of Feb.
Korea\'s producers\' prices in Feb rose at their fastest pace in 5 years to the index of 105.6 from 104.3 in Jan and 101.5 in Sept 2003, due to higher raw material costs. The consumer price also surged 1% in March on month, due to higher food prices and energy cost and education fees. BOK is expected to keep the current record low interest rate of 3.75% until the end of June. The yield on 3 years\' corporate bond lowered from 5.53% to 5.30% fluctuating in the box of 5.56-5.21%.

SHIPBUILDING AND SHIPPING

Korea accounted for 41% of ship orders worldwide last year with a record of 16.75 mil CGT, the highest volume in history, while Japan made up for 29.3% and China 13.8%. However, shipyard are seeing strong undercurrent that will affect greatly to the cost structure. The subcontractors of shipbuilding industry strongly requested yards to actualize the price of their products, reflecting raw material cost rise.

HHI Group exchanged its CEO of HHI and HMD, naming HHI\'s KS Choi as head of HMD and KH Yoo of HMD as HHI CEO. KS Min promoted to vice chairman of the group. HHI Group faces the hefty burden from the rise of steel prices from KW360,000 last year to about 600,000 per ton, causing additional cost of about KW200 bil for HHI and KW50 bil in HMD.

HHI has won order for 98 folklift trucks form the Athens Olympic Committee and $600 mil order from India\'s ONGC for 5.6 km pipeline project. HHI signed the contract with Hapg Lloyd to build 2 x 8600 TEU, AP Moller 7 x 6070 TEU, Reederei Stefan Patjens 4 x 5000 TEU, Dynacom 1 x 150K LNG and and European 2 x 83K LPG. Hyundai Samho secured order from KG Jebsen with 2 x 159K tanker and an European 2 x 22K LPG. HMD agreed with Erck Rickmers 16+2 x 2800 TEU and 2 x 4300 TEU, Tsakos for 2 x 2800 TEU, ER Schiffahrt 8 x 2824 TEU, OMI Corp 1 x 47K PC and Tsakos Energy Nav 2 x 37K PC. 

DSME\'s shareholders meeting decided to give dividend of about 2.25%, as first time since it was spinned off from Daewoo Group. DSME is to open a new Middle East office in Doha, aiming Qatar\'s massive LNG project. DSME secured order from John Angelicoussis for 1 x LNG, Sonangol 1 x 159K tanker and Wallenius 2+2 x 6700 PCTC.
SHI has made a positive move to make business alignment with Japanese rival yards. It signed an agreement with IHI for its SPB-type LNG containment system under license which will be used for construction of LNG carriers upto 200,000 cbm and LNG/LPG FPSO, and with Tsuneishi for comprehensive cooperation in shipbuilding, including design, production and training as well as sharing market, such as SHI for larger ships and Tsuneishi\'s smaller side. It also established a sister company in Ningbo who supplies ship\'s blocks to its Koje yard. SHI signed contract with MISC to build 2 x LNG, Viken Shipping 2 x 113K tanker, Norfolkline 1 x 850 P ROPAC and Woodside 1 x FPSO 900,000 bbl storage.

Hanjin Heavy Ind purchased 3 mil own shares from the market to raise its stake to 17.67%, in a bid to stabilize the share price and management control. It decided to give cash dividends of 6% to investors.
Chairman of STX bought 300,000 own shares through the market, raising his stake to 6.74% from 6.59%, to prevent possible hostile merge by rival company like HSD Engine who holds 12.81% stake in the company, while his friendly share keeps 13.39%. STX secured order from Nord Klaus Oldendorff for 2+2 x 3500 TEU, Great Eastern 2+2 x 47.4K PC, GRUPO TMM 2 x 47.4K PC, Dunya Denizcilik 2 x 47K and Atlantska Plovidba 2 x 75K bulker.

Korean Government is to invest W61.7 tril to transform Busan into the maritime logistics hub for Northeast Asia by 2020, to compete with Shanghai and Shenzhen.
Hanjin Shipping and HMM leapt 2 steps to come to 2nd and 5th world largest container transporter for Asia-America route. Maersk marked first position with 11.6% cargo share, Hanjin 8.7%, HMM 5.6%
Golar LNG increased its stake in Korea Line to 14.64% this month from 9.94% in Jan, serving a strong suspicion of hostile M&A. KLine has 24.98% friendly stake, while total foreign stakes reached 43.7%. It signed a contract with Korea South Electric for 18 years COA on capesize bulker. It seeks a building contract of a 170K bulker most probably at DSME for the delivery of 2006.
Seyang Shipping plans to buy a controlling stake in Jindo Corp, container maker under court receivership since 2001, for KW180 bil, after it was chosen as preferred bidder.