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  Korea Report - June 2005
  Author : Hwang & Co     Date : 05-07-15 11:12     Hit : 35548    
Topics.

-Government vows full support of Prof Hwang WS, stem-cell scientist.
-Korea-Japan summit failed to repair damaged ties.
-Government completed plans to relocate 176 public organizations.
-NK indicated to join 6 party talks, but with no fixed date.
-BOK discusses with private banks for currency swap.
-Credit rating of local banks improved.
-Crude oil price hit another high.
-Samsung Group challenged antirust rule.
-Former Daewoo Group Chairman Kim WJ returned home ending his 6 year exile.
-Shipbuilding market seems slow steaming.
-Q Gas ordered 12 LNG carriers to Korean Big 3.
-Hanjin Shipping starts service of 8000 TEU class box ships.
-KOGAS plans JVC for LNG transportation.
-STX Pan Ocean determined to participate in LNG business. 

GOVERNMENT AND SOCIETY

The Presidential Committee on Balanced National Development has completed its plan to relocate 176 public organizations out of Seoul to 12 provinces by 2012, to promote more balanced regional development in the country. The announcement drew angry reactions from opposition parties and local governments that failed to attract major institutions. Korea Electric Power Corp will move to Gwangju with two of its subsidiaries, Korea Land Corp going to North Jeolla Province, Korea Highway Corp to South Gyeongsang, Korea National Tourism Organization to Gangwon and Korea Asset Management Corp to Busan. The nation's second-largest city of Busan will accommodate 12 agencies, Daegu will have 12, Ulsan 11, Gangwon 13, North Chungcheong 12, North Jeolla 13, South Jeolla 15, North Gyeongsang 12, South Gyeongsang 12 and Jeju island 9.

Prof. Hwang Woo-suk said he is talking with scientists at Harvard University on combining efforts for stem-cell research, following a recent announcement of his plan to establish a Seoul-based international stem-cell bank in collaboration with Harvard University and Cambridge University. He expects significant progress in the study of human stem cells over the next few years, down playing the intensifying ethnical arguments over the issue, insisting that the world will not see a cloned human being for at least a century from now. While the embryonic stem cell research remains an ethical, religious and even political issue both at home and abroad, researchers continue to make big strides forward, yielding more tangibles results. Government elected Prof Hwang as supreme scientist and decided to support his work providing KW3 bil a year for 5 years. Korean Air offered Prof Hwang of the highest class seat free for 10 years and the best helping hands for the transportation of his test pieces, in an appreciation of his achievement.
Scientists have successfully turned adult stem cells into bone of rats with an approach in a simple and cost-effective treatment by bone grafting and bone tissue engineering. The stem cell's ability to regenerate or repair bone, blood and skin, has been wildly sought as holding crucial opportunities to treat various disorders. Another team of Korean researchers, identified the best 'scaffold', upon which the stem cells can grow into bone tissues, is the porous matrices that contained a higher dose of biomaterials called Dex and AsP

President Roh and Japanese PM Koizumi held summit talks in Seoul amid a noisy anti-Japanese rallies, protesting the visit and the reinterpretation of Japan's history. Koizumi did not agree to halt his shrine visits or to accept President Roh's proposal that Tokyo builds an alternative national memorial for dead war veterans, seperating war criminals. PM Koizumi faced widespread criticism in Japan for squandering an opportunity to calm Korean anger over his visits to a Tokyo war shrine, after the two sides failed to repair damaged ties at a summit. The operators of the shrine have refused to remove the remains of war criminals.
A Japanese government-run agency found that 36.5% of Japanese companies surveyed in May forecast a fall in sales in China this year because of boycotts and a tarnished image for Japanese products.

The Seoul Metropolitan Government poured tens of thousands of tons of water into Cheonggye Stream in the heart of downtown Seoul for the first time since it was covered with cement during government-led industrialization movement 3 decades ago, in an effort to restore the stream for the environmental reasons, aiming the completion by Oct.1 this year.
Government decided to ease rules to develop industries and cultural facilities in the Seoul and capital zone, shifting its previous policy of curbing overcrowding in the area. Businesses will be allowed to build new factories or extend existing facilities from next year. The decision came as the government plans to utilize the space to become available by the planned relocation of 12 ministries and some 176 public corporations in and around Seoul.
President Roh ordered the government to take proper measures to retrieve income from real estate speculation and allow state-run companies to provide more housings so no speculative forces is swaying.

Top-ranked government officials from China and Korea, two big guzzlers of foreign oil, had a six-day meeting in Seoul to discuss joint nuclear energy projects, agreeing to work out specific collaborative plans, including joint nuclear construction projects, exchange of technical experts and establishment of new channels for corporation.
The Hallyu phenomenon, the recent boom on SKorean pop culture throughout Asia, has brought an influx of foreign currency into the country, with first-quarter revenues from services in the personal, cultural and recreational service was $67.80 mil, 142.1% higher than in the previous year.
The rate of wage increase in Koreas manufacturing sector was the highest among rival nations, experiencing an average 15.4% wage increase annually since 2001.
The Judging Committee of Wage finally concluded the minimum wage at KW3100 per hour, 9.2% up on year, while labor union insists 37.3% hike.

English Premier League club Manchester United signed Korean international Park Ji-sung to join the club from Dutch PSV Einhoven. The 4 year deal was worth 6 million euros and midfielder Park will receive a salary of 2 million pounds a year during the contract. Park became the first SKorean player signed by an English premier league club.
SKoreas national soccer team sealed their sixth consecutive entry to the World Cup finals in Germany next year, after beating Kuwait in away match.
Chan Ho Park of Texas Rangers became the first Korean pitcher to win 100 games in the majors league.
Choi Hee-seop of LA Dodgers hit home runs in his first three at bats.
With a spectacular shot that allowed her to live up to her nickname, Birdy Kim, the 23 year old Koreans lady holed a 30 yard bunker shot for the birdie on the 18th hole to win the US Womens Open.

NORTH KOREA AND NATIONAL DEFENSE

A SKorean delegation led by Unification Minister Chung Dong-young visited Pyongyang to attend ceremonies marking the anniversary of the inter-Korean summit between then SKorean President Kim Dae-jung and NKorean leader Kim Jong-il. The government reportedly offered to Kim various aids, including energy supply, modernization of railways, development of tours to Mt Baekdu, upgrading of Nampo Port of the North and joint development of farmlands, as a compensation in case NK abandons its unclear ambition.
Kim Jong-il, in a session with South Unification Minister Chung in Pyongyang expressed willingness to rejoin the stalled six-party talks on the NK's nuclear development.

A NK's Cabinet-level delegation visited Seoul for rapprochement talks and met President Roh to discussed ways to normalize inter-Korean relations and international concerns over Pyongyang's nuclear weapons programs, for the first Cabinet-level inter-Korean sessions in 13 months. Followings are the major points agreed. 1. To take substantial measures to peacefully resolve the nuclear issue through dialogue. 2. To hold a new round of family reunions at Mt Geumgang in Aug. 3. To hold Red Cross talks in Aug to discuss prisoners of war. 4. To hold the next round of ministerial-level talks during Sept 13-16 and again in Dec. 5. To hold general-level military talks. 6. To hold fisheries talks in July to prevent accidental naval clashes 7. The South to provide the North with an unspecified amount of food in aid.

The Washington summit on June 11 between Presidents Roh and President Bush heralded new pressure on NK to return immediately to the 6-party talks and surrender its nuclear weapons ambitions, reconfirming their will to peacefully and diplomatically solve the nuclear problem. On the eve of the Roh-Bush summit, NK spray the cold water by claiming its possession of a stockpile of nuclear bombs and is building more such weapons to defend against US attack.
The patience among surrounding neighbors are wearing out over NK's indefinite boycott and even China has warned NK to consider stopping food aid, if it continues a nuclear arms test and refuses 6-party talks. President Roh again stressed that the biggest threat to peace on Korean Peninsula is NK's nuclear problem, and the six-party talks must resume immediately. Unification Minister Chung visited Washington at the end of the month as part of last-ditch efforts to bridge the gap between Washington and Pyongyang and seek cooperation in luring NK back to the six-party talks.

SKorea and the USA signed a cost-sharing agreement to fund the presence of American armed forces in Korea. The Special Measures Agreement calls for SKorea to contribute KW680.4 bil each in 2005 and 2006, in keeping 32,500 US troops across the country. This is the first time that Seouls share has been cut, as the last year¡¯s contribution was KW746.9 bil.
A US research group reported that the reunification of Korean Peninsula by absorption of a collapsed NK would cost SK up to $670 bil,
The number of tourists to Mt Kumkang exceed a mil in June, 6and half years since Hyundai started the nostalgic excursion tour. A SKorean soldier bullied by senior comrades hurled a grenade into a barracks and went on a shooting rampage at an army guard post near the border with NK, killing 8 colleagues and wounding two.

ECONOMY AND POLICY

LG Economic Research Centre lowered its GDP growth prediction this year to 4.1%. Korea's nominal GNI rose in the first quarter to KW184.5 tril, a mere 3% gain on year, the smallest gain since the first quarter of 1999 as a strong Kwon and high oil prices.
BOK expects the current account surplus to narrow up to $1.4 bil in June because of surging oil prices. Korea's exports in June grew 10.4% on year to total $23.91 bil, passing the $20 bil mark for the 10th consecutive month, but a drop from May's 11.8% growth, hindered by surging oil prices and a stronger KWon against US Dollar. Imports rose by 14.3 percent on year to reach $21.19 billion. Korea's exports of digital electronics products in May edged down, for the second consecutive month, by 2.1% on year to $8.12 bil, due to domestic makers' increased offshore production. Imports rose 8.9% to $4.49 bil during the same period.

BOK discussed with private banking sector for the currency swap arrangement, where BOK takes KWon from local banks as security to lend forex, and returns local currency to them when lenders payback US Dollar. BOK considers it as a method to utilize overflowing forex reserve and help local enterprise to import the capital goods. Korea, which has the world¡¯s fourth-largest foreign exchange reserves, expects its holdings to rise more than 50% to $310 bil by 2010 from $206 bil at the end of May, because of growing current account surplus.

Government aims to remove all restrictions on foreign exchange trading, except for safeguard regulations in 2009-2011, to fully liberalize the currency market, as a part of comprehensive plan by the authority, which is spearheading the nation's ambitious plan to become a financial hub in Northeast Asia.
Government unveiled measures to induce overseas investment by local firms and individuals, aiming at removing regulations on Korean's buying foreign real estate and other overseas assets, a major shift in its foreign exchange policy that once strictly restricted capital outflow.

Standard & Poors raised the long term credit ratings of Shinhan Bank, Chohung Bank and Woori Bank by one level to BBB+ from BBB, citing that they have improved earnings and reduced risks. Long and short term ratings on Korea Exchange Bank and Woori Finance Holdings were also raised one level to BBB.
Chohung Bank has raised $200 mil in a syndicated loan from Citibank Global Markets Asia, BNP Paribas, Standard Chartered Bank and two Japanese institutions to pay down its debt. Kookmin Bank sold KW1.26 tril of shares, as the nation¡¯s biggest stock sale in 4 years, bolstering its capital and giving the bank cash to resume dividend payments.

Dubai crude oil, which accounts for 80 percent of Korea¡¯s crude imports, touched a new high by passing $52 a barrel on June 22, jumping more than $11 from the same period of last year. Energy experts said that oil prices could continue to surge due to cold weather in the second half of the year and political instability in Nigeria. The recent hike in oil prices will lead to increase in commodity prices and worsening of trade balances, which in turn will cause a lower figure of economic growth rate at no more than about 3 % in the first half of the year.

BOK leaves its overnight call rate at a record low of 3.25% to prop up the still-fragile economic rebound, nervously facing the daunting property prices and spurring economic recovery in the coming months. IMF also recommended BOK to keep a low overnight call rate for the time being, saying Korea needs a budget stimulus to help generate growth. Industry leaders and academics also advised BOK not to raise its interest rate, while the government is considering measures to curb a steep rise in housing prices.

CHAEBOL

Samsung Group, the nation's largest family-run conglomerate with a fifth of the nation's exports, challenged an antitrust rule over the corporate governance. 3 units of the Group, such as Life Insurance, Fire & Marine Insurance and Samsung Corp, have asked the nation's highest court to review the constitutionality of the revised Fair Trade Act, which halves the maximum voting rights of financial units over affiliates to 15% from current 30% within 3 years. The revised Act is regarded as a pillar of the Roh administration's economic policy, pushing corporate governance reforms on conglomerates. Samsung Electronics (SEC) has signed a strategic alliance agreement with US retail giant Lowes to raise its presence in American market, aiming to sell its home appliances at the 1,100 outlets of the US retailer from Sept. SEC is to buy back KW1.9 tril worth of its shares over the next 3 months to stabilize its share price. SEC sued computer chip designer Rambus for patent infringement, after being targeted by Rambus in a separate lawsuit.
Samsung Card has secured a $300 mil credit line with the Royal Bank of Scotland Group over the next 2 years. It is the second time for the company to have raised funds overseas this year. In March, the company issued asset-backed securities worth $400 mil in Hong Kong, using credit-card receivables as underlying assets. The company has cut its losses significantly over the past year on the back of massive bad loan write-offs and tightened lending criteria.

The TIME magazine highly appraised Hyundai Motor (HMC), saying that HMC, once a synonim for "shaddy", is taking the global auto industry by storm, making the most surprising turnabout with stylish design and highly proven quality. It reflects some favorable reaction in US market after HMC started to roll out US made sedan ¡®Sonatas¡¯ assembled in Alabama.
HMC's new US production unit will borrow $200 mil from Sumitomo Mitsui Banking Corp, which has a guarantee from parent HMC. GE's financing unit is set to buy a 40% stake in a credit card arm of Hyundai Motor, Korea¡¯s third largest card issuer, for an estimated $391 mil.
Hyundai Capital Services has raised 300 mil euros by selling asset-backed securities. Hyundai Mobis, Korea's largest supplier of automotive components and an affiliate of HMC, opened the assembly plant in the Alabama investing $120 mil. Mobis targets sales of 120,000 modules worth $370 mil this year, 250,000 units of $750 mil next year and 300,000 units of $900 mil in 2007. Hyundai Mobis acquired a controlling stake of Korea Automotive Systems for KW25.7 bil. Mobis also purchased 38.3% stake in Kasco at KW1.84 mil, the maker of brakes and power steering oil pumps.

LG Chem opened a satellite research laboratory at Lomonosov Moscow State University in Russia as part of its blueprint to expand the global R&D facilities. It is LG Chem's fourth satellite lab, along with facilities in the US, China and Germany. The company plans to add another laboratory in India within this year.
LG Phillips made a contract to supply $5 bil worth of TFT-LCD to HP for 3 years till May 2008, securing long term partnership for its products.

Sovereign Asset Management is dropping its more than 2-year-old fight for management influence over SK Corp. Sovereign changed the status of its 14.8% stake in SK to a "simple investment" from "management participation." In the past 2 years, Sovereign has twice failed to oust SK Chairman Chey Tae-won at general shareholder meetings, who was convicted of $1.5 bil fraud in accounting in 2003 and imprisoned for several months.
SK Corp plans to sell about 6.6% stake in affiliate SK Telecom for $1.05 bil, to repay holders of bonds that convert into the cellular phone operators stock. SK Telecom was acknowledged its credit rating to "A", equal to nation's rate, by 3 major credit authorities, such as Moody's, S&P and Fitch. Intel agreed to align with SK Telecom to develop services to interconnect home-entertainment equipment such as television, stereos and personal computers.

WTO highest judges reversed a ruling in Feb that US complaint failed to prove Hynix received an unfair state subsidy when Korean banks gave the company loan guarantees and rollovers in 2002. WTO's appellate judges this time overturned that finding, backing a US argument that Korean government illegally directed banks to provide that aid. Hynix said the effect will be minor as main supplies to US market will be produced in US Eugene factory. Hynix arranged syndicated loan for $1.3 bil, $750 mil of which will be from foreign funds. It will be used for earlier graduation from work-out, and to repay the debts.

Former Daewoo Group chairman Kim Woo-choong, ending a six-year exile since 1999, after the conglomerate¡¯s spectacular collapse, returned home. His return has spawned debate over his role in the conglomerate¡¯s collapse and questions over the motives of his homecoming after the long exile. Government vowed to track down and seize any hidden assets of once  country¡¯s second largest group chairman. The prosecution accused him of directing manipulation of the groups account books and obtaining bank loans based on deceptive and inflated assets. However, he denied. Prosecutors formally arrested Kim for the investigation and subsequent trial. 69 year old Kim Woo-choong acknowledged having diverted the money from the firm's coffers to the British Finance Centre during 1997-99, but strongly denied charges of having squirreled away KW25 tril in overseas slush funds the accusation of embezzlement.
Shinhan Financial Group and AJU Corp bought 51% of Daewoo Capital Corp for KW127.5 bil, moving into nations $4.9 bil auto financing and factoring market.

POSCO signed a MOU with an Indian state government to build the first foreign mill in the eastern state of Orissa by 2010, gaining the right to utilize the state's iron ore reserve for 30 years. The mill will have annual production capacity of 3 mil tons of slabs between 2007 and 2010, and eventually increase the capacity to 12 mil tons per year, by the investment of $3 bil at first and $12 bil eventually, the biggest overseas investment by itself.
POSCO submitted LOI to buy 49% stake in Eregli Sellik Pabrikalari, the largest steel mill in Turkey, in competetion among 9 world leading contenders.

KOGAS has agreed to pay $104 mil for a 6% stake in Total SA's LNG project in Yemen as part of its plans to secure energy supplies to meet rising domestic demand. It also decided to buy $20 bil worth of LNG starting in 2008 from Royal Dutch/Shell, Total and their partners in a deal that was agreed in Feb. KOGAS will also spend a combined KW478.5 bil to build new facilities to store and distribute gas in Korea. Share Holders' meeting of KOGAS failed to elect new president of the company in June session.

Korean builders won $6.19 bil worth of construction orders in the first half of the year, up 73% from a year ago, riding the boom in Mid East. Doosan Heavy Industries has compeleted the manufacturing water distillers for a combined cycle power plant for Benghazi, Libya, worth $6.5 mil, the first plant delivered to Africa. Korea Electric Power Corp got the order from Libya for the improvement of efficiency on distribution system for $7.64 mil.
Hankook Tire plans to set up an office in Slovakia to prepare for the establishment of a production plant in Eastern Europe.

MONETARY AND ECONOMIC INDICES

Korea¡¯s Composite Stock Price Index has been raised through the month, starting at 969, plunged once to 991, but ended at 1008.
The exchange rate of KWon against USDollar has been on the roller coaster, fluctuating in the box of 1005-1027, ending the month at 1027, the highest in 4 months.
Korea's consumer prices declined for a second month in June, by 0.3% from May, up 2.7% up on year, triggered by a fall in prices of agricultural products and house rents. BOK held its overnight call rate untouched at 3.25% for a seventh month amid concerns that an unstable property market could disrupt economic stability. Korea's unemployment rate fell for a third straight month to 3.4% in May.

The reserves amounted to $205 bil down $1.1 bil from the end of May. The nation¡¯s foreign exchange reserves fell $1.1 mil in June, their biggest drop since the 1997 Asia financial crisis.

SHIPBUILDING AND SHIPPING

There has been a strong indication for shipping market to go slow, following Chinese government decision to restrict the import of natural resources and energy, and general concerns over profound overcapacity in tonnage supply, expecting the season of low demand to come.
In spite of various negative prediction from various sources, who are saying "Party is over" "The biggest boom in maritime history comes to an end" "Feast to Famine" "NB prices close to zenith", following endless fall in freight in almost every sector, the yards firmly stand up to deny that NB prices are falling, insisting they have enough time to wait to pass through the slump, if it would come, with a sufficient backlog of orders for 3 years work, and the prices for LNG, LPG and chemical carrier shall be kept their strength for quite a while. However, the fears are growing on over- capacity of container vessels for instance, presuming the case once 291 vessels on order, range of 5000-10,000 teu, are delivered between 2005-2009. Furthermore, dropping freight does no longer justify current NB prices.
Dongguk Steel Mill, supplying about 15% of Korean shipyards' demands, decided to lower the prices from $703 to $673 per ton from July, a first down turn since 2002.
Qatar Gas has finally confirmed its massive LNG deal of 12 ships order to split among HHI, SHI and DSME, with 3, 4, and 5 units respectively. Korea's Big 3 expect 44 more ships to come to their hands, namely 8 units for second phase of Q Gas II, 12 for Q Gas III, 12 for second phase of Ras Gas III, another 12 for Q Gas IV, more less in 6 month interval.

HHI secured good volume of order in june from Primorsk for 2 x 104K tanker, CMA CGM 5 x 1700 TEU, built 3 units at HHI 2 Samho, Latsis nego 6 x 82K VLGC, QSL 4 x 82K VLGC, and Nigeria 1 x FPSO. HMD bagged the order from Gulf Nav for 4 x 46K IMO II chemical carrier, Cido 2 x 47K PC. HHI Group appointed Kang Soo-hyun, executive VP, as co-CEO with Lee Yun-jae, who became president in charge of Plant and Offshore division in HHI.

DSME agreed with Hamburg Sud on 6 x 3300 TEU box sips. DSME concluded an agreement with Oman authority to construct the biggest repair yard in Middle East. Oman will invest for the construction under DSME's managerial support, and the yard will be managed by DSME brand on completion. SHI received the orders from Eastern Drilling for 1+1 x FPSO, the biggest and most advanced ever built in the world. SHI plans to build second hull block factory by 2008 in Shandong China, for the annual production of 200,000 tons..

STX got the order from NYK for 3 x 2900 TEU container ships. STX is to establish a block fabrication shop in Shandung China, investing $50 mil to complete by 2008. STX and Gaz Transport agreed to work together on design and core engineering for the construction of LNG carrier. It has already start to make a mock up for cargo containment system, as they are sure that STX Pan Ocean is participating KOGAS JVC in coming project.
ShinA made contract with Stolt-Nielsen for 4 x 44K IMO II stst chemical, Unicorn Shipping 2 x 37K PC and SNTG 6 x 44K IMO II chemical carrier. Sungdong secured Refund Bank Guarantee for 8 x 93K, 12 of which were contracted with Marmaras last June. Sungdong also confirmed the order from DD Shipping, Russia, for 5+2 x 26.5K bulker. Daehan Shipbuilding agreed with CMA CGM to build 6 x 1600 TEU container ships.

Hanjin Shipping took the delivery of Hanjin Boston and Hanjin Miami, its first 8,000 TEU class box ships, for the first time in Korean shipping industry. They will be deployed on its Pacific Express Service, covering China-Korea-West Coast USA, from July 10 and Aug 10 respectively. It has 3 more ships of same class to come by the end of this year.
STX Pan Ocean filed the preliminary prospectus for its initial public offering with Singaporean authorities to raise S$762 mil. As of March 31, it booked a net profit of $83.5 mil, on the revenues of $731.4 mil, up 34.5% on year, operating fleet of 13.4 mil dwt with 269 ships.
GOLAR LNG increased its stake in HMM in June from 9.41% to 13.57% filing for merely investment purpose.
KOGAS's plan to establish a JVC for LNG transportation, for the transportation of gas from Yemen from 2008, seems to ride swift current. It plans to invite the bidding for the management of 4 LNG ships by July 7, and to conclude the registration of the company by Aug-Sept, thereafter selecting preffered bidders for 4 ships and order the new building for the delivery of one ship in March 2008 and 3 by Nov 2008. Because of the the procedure, the new comers like STX Pan Ocean and Seven Mountain seem to have a good chance to participate. KOGAS will take 28% stake and 4 participants will share the remaining stake.