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  Korea Report - August 2005
  Author : Hwang & Co     Date : 05-09-06 11:42     Hit : 23913    
Topics.

-Government intervened in Asiana Airline strike.
-Korea and Singapore signed FTA.
-Prof Hwang cloned a hound.
-Government hammered onto booming real estate market.
-6-party talks on nuclear programme broken off.
-2 Koreas military established a hotline to prevent accidental armed clash.
-Government lure foreign companies to become listed in Korean Bourse.
-FTC investigate HP, Epson, SEC, Intel and Microsoft on fair trade law.
-Koreas overseas construction orders surged.
-Sovereign completely withdrew from Korean market.
-Korean shipbuilders become stronger and more profitable on stable steel price.
-STX PanOcean performed very well in Singaporean Bourse.

GOVERNMENT AND SOCIETY

Prosecutors continued investigation the eavesdropping scandal in the 1990s involving the National Intelligence Service. The nation's spy agency admitted that its wire-tapping operations of high-profile figures did not stop until 2002 under President Kim Dae-jungs government, and the prosecution widened its probe by raiding a former NIS mans house, confiscating 274 copied tapes. The prosecution also raided the headquarters of the NIS as part of its investigation into illegal eavesdropping operations under past administrations. It was the first time outside inspectors have searched offices of the clandestine agency, as its chief is entitled by law to refuse confiscation of documents and files that contain top secrets.

Korea and Singapore, Korea's 10th largest trading partner, officially signed a free trade agreement. Singapore has bilateral commerce with Korea of $10.1 bil in 2004. The agreement is anticipated to offer Korean firms opportunities to bench-mark more competitive Singaporean companies in shipping, logistics and finance industries. It was Korea's second FTA next to its one with Chile which was effectuated last year.

Cloning pioneer, Prof Hwang Woo-suk and his team disclosed that they have carried out the first successful cloning of a dog, creating a duplicate of a 3-year-old Afghan hound by using the same technique that gave the world Dolly the Sheep. Prof Hwang received an endorsement on his works' ethical standards at an international medical law convention.
Korean scientists have successfully cloned pigs that can produce a protein used as a supplement to cancer treatment. When fully grown, 4 cloned Land Race pigs will secrete the protein GM-CSF in their milk, paving the way for mass production of the high-valued cancer treatment supplement. Currently, one gram of GM-CSF is sold for as high as $600,000.

Government intervened in the Asiana Airlines strike and impose emergency arbitration to prevent the 23-day walkout from crippling the national economy further, after Asiana management and its pilots union failed to end the dispute. Following the decision, the pilots should be banned from resuming collective action for 30 days. If 2 sides fail to reach an agreement during the cooling-off period, the Ministry of Labor will turn over the dispute to the state-run 10-member committee, composed of representatives of workers, employers and the government, for a binding arbitration ruling. Government has resorted to emergency arbitration only twice, such as a 1969 strike at Korea Shipbuilding Corp and a 1998 walkout at Hyundai Motor Co.

The government released a new real estate policy outlining higher taxes and more housing supply. Aiming to stabilize the booming property market by reining in speculative capital for short-term profits. Under the new set of measures, selling homes will become more expensive for owners of two homes who must pay taxes based on market value instead of government estimations that are about 20% lower than the actual price. The government plans to build 1.5 mil new homes. In another move to harness the real estate speculation, the government is to revive a real estate monitoring department that went extinct in 1999.
The value of Korea's land exceeded KW2,000 tril in April 2005 for the highest ever, nearly double the figure of 14 years ago when it surpassed KW1000 tril.

Japanese PM Junichiro Koizumi marked the 60th anniversary of Japan's defeat in WWII with an apology to the neibor countries for suffering caused by its military aggression and pledged never again to go to war.
Recently uncovered archives are shedding new light on the details of human experiments carried out by Japans infamous Unit 731. The files recorded details of 1,463 people secretly transported to Unit 731, which was notorious for experimenting on live humans in order to develop biological weapons, such as bubonic plague, typhoid, anthrax and cholera.
Korean government is to keep pressing against Japan's past illegal and inhumane crimes against Koreans during its 1910-45 colonial rule, saying Japan still carries legal responsibility. The government concluded that Korea-Japan negotiations between 1951 and 1965 were about settling claims deriving from the colonial period, but was not about compensation for its illegal human rights violations and damages.
A legendary Korean swimmer, Cho Oh-ryun, and his 2 sons completed an 18-hour relay swim on Aug 15, the Liberation Day, across 87.4 kilometer rough sea route between Ulleung Island and Dokdo, the islet on territorial dispute with Japan.

Korea's top football body dismissed Jo Bonfrere as the national team coach, after the poor performance of Korean national team in recent games.
28-year-old SKorean midfielder Lee Young-pyo of PSV Eindhoven in Holland reached a transfer agreement with Tottenham Hotspurs to play for 4 years, becoming the second Korean soccer player to join Englands Premier League.
Kang Soo-yun won, wire to wire, for the first time on the LPGA Tour, shooting for a 4-stroke victory in the Safeway Classic with a 15-under 201. Women's British Open winner Jang Jeong finished second.

Korea's birthrate fell in 2004 to the lowest level on record, and among the worlds lowest. A Korean woman on average gave birth to 1.16 children in 2004, down from 1.19 in 2003.
An 8 year old boy passed a national test for a certificate of high-school graduation, which qualifies him to apply for a college entrance examination. If Song Yu-geun's application is accepted next year, he will become the youngest Korean ever enters college.
Korea's per-capita tax burden reached a record KW3.16 mil in 2004, increasing 2.5% on year.

NORTH KOREA AND NATIONAL DEFENSE

The six-party talks on NK's nuclear standoff failed to force a breakthrough despite 12 days of intense efforts by all parties and on all points, as USA and NK failed to narrow their fundamental differences on the definition of denuclearization. NK claimed it had the right to the peaceful use of nuclear energy, but USA is calling on North to dismantle all kinds of atomic programs. China recommended NK to give up not only nuclear weapons but nuclear power plant, while Russia is for allowing NK to use nuclear power for peaceful purpose. SKorea viewed it as NK's general right to develop nuclear power for peaceful use, commenting that SKorea and USA saw the situation differently. Thereafter, US authority emphasized that there's no rift between USA and SKorea, particularly in denuclearizing the Korean Peninsula. China, the host nation, presented the draft 3 times on a joint agreement for the members, which NK refused. The negotiators agreed to resume the talk in the week of Aug 29 to continue searching for a solution.
After breakoff, Korean Foreign Minister visited Washington to have reached a certain level of consensus on the issue that NK may have the right to peaceful nuclear use. China's Vice Foreign Minister has been Pyongyang on a four-day visit in hopes of setting a date for the next round of talks. USA agreed to a delay till the week of Sept 12 on resuming talks.

A NKorean delegation, 27 civic and government officials, part of 165-member team visiting South for the joint Liberation Day celebrations with SKorea, paid an unprecedented visit to SKorean war dead from the Korean War at Seouls state cemetery, bowing in front of a 31-meter memorial tower. The visit, which has been a taboo to the North, can be interpreted as an indication for NK to admit to starting the war. Following the visit to the state cemetery, the delegation made another historic call to National Assembly, and met President Roh at Cheong Wa Dae, conveying personal greetings from Kim Jong-il.

2 Koreas' Red Cross met at the North's Mt Geumgang resort for the talks that the South hopes will lead to progress toward bringing home hundreds of prisoners of war and abductees believed held in the North. SK estimates that 538 of its soldiers from the 1950-53 Korean War and 486 abductees, including fishermen, since the war ended, are alive in the North. They failed to make efforts to identify SKorean prisoners of war and civilian abductees, but agreed in principle on 3 or 4 more video reunions at separated families before year end.

The ground breaking ceremony for the construction of a reunion center for separated families at the Mt Geumgang was held by both Koreas authorities. Hyundai Construction won the project at KW49.1 bil to build the facilities, a symbol of the reconciliation and cooperation between South and North, including 13 story building with 206 rooms and public hall for the gathering of 600 people for completion in April 2007.
NK unilaterally advised Hyundai Asan to reduce the number of tourists to Mt Geumgang from 1000 to 600 persons a day from 26th of Aug, complaining Hyundai Asan's dismissal of Kim YK, Vice Chairman, from CEO. Hyundai Asan elected Yoon Man-joon, former ship sales man in HHI, as president, replacing Kim Yoon-kyu vice chairman.

US military in SKorea reaffirmed that US Forces Korea has no nuclear weapons on Korean Peninsula since Washington fully supports the 1992 inter-Korean denuclearization accord. The commander of the USFK cofirmed there would be no further US troops cuts other than the 12,500 reduction by 2008 that has already been announced.

The militaries of 2 Koreas conducted trials of a new hotline that was established to help avoiding accidental armed clashes along their disputed western sea border. 2 Korea's military authorities have completed removing all propaganda signs, including slogan boards, posters, electronic signboards and loudspeakers from along the heavily fortified 250-kilometer border, in a move to reduce tensions between 2 sides.

ECONOMY AND POLICY

Asian Development Bank predicted Korea's economic growth rate for next year will be the second lowest out of a dozen Asian economies. It expected Korea's GDP growth rate of 4.7% next year. At 4.1%, only Cambodia is expected to show slower growth than Korea. So far this year, Koreas GDP has expanded at 3%, widely missing the 5% target set by Government. Korea's economic growth rate is projected to fall to 4% for the whole year, as the expected recovery in domestic consumption is not strong enough.

Koreas exports surged 18.8% on year in July to $23.5 bil, while current account surplus shrunk to $1.37 bil, down $930 mil from June, as Korea posted their largest monthly increase in overseas spending. Korea's industrial output in July rose by 1.3% from June for a fifth straight month, and expanded 7% on year, attributing larger production of cars and semiconductors. Korea's exports to USA took a downturn in the first half for the first time in 4 years, dropping 2.1% on year to $20.06 bil, due to the strength of KWon and stiff competition from relatively cheap Chinese products.

Banks saw their financial health improve in the first half as they reported record earnings. The capital adequacy ratio for top lender Kookmin Bank rose to 12.25% at the end of June, while Shinhan Bank recorded 12.3%.
KOEXIM Bank will loan $20 mil to Pakistan to help it enhance energy facilities.
Korea Exchange Bank reported that its first half net profit amounted to KW645.9 bil, up 149.7% on year, the highest quarterly record in its history, on solid operating activity and increased recovery of dud assets. 
Industrial Bank of Korea completed its borrowing of USD200 mil with 2 years maturity on Libor + 0.17%, the lowest since IMF financial crisis.

Governemnt is seeking to lure foreign companies to become listed on the Korean stock market. To better safeguard foreign capital from illegal stock trading, the financial watchdog is expected to adopt a mutual assistance system with its foreign counterparts. It will also attempt to upgrade accounting rules since they lag behind international standards. Foreign investment account for about 42% of the country's stock market, but there is no foreign company listed on KSE. Thanks to soaring share prices, total amount of foreign stake in 10 largest groups in Korea exceeds KW100 tril, increasing the holding to 46.81%.

Oil producers has had so many excuses to raise its oil prices in Aug, including the death of Saudi Arabia's King Fahd, over-demand everywhere in world, tight supplies and a decline in US gasoline stocks and even Hurricane Katrina in the Gulf of Mexico which sent crude oil prices surging above $70, more than 60% higher than a year ago.
Retail fuel prices in Seoul have reached a record high to KW1,600 per liter, amid the skyrocketing price of Dubai crude surpassed $60 level.

BOK held interest rates untouched at a record low of 3.25%, seeing that key macro economic indicators overall showed the signs of turn-around and domestic consumption is expected to pick up strong enough to offset a slow down in exports in the second half. Its bench mark interest rate rode the counter tide against the rate of USA, marking lower interest rate than American for the first time in four and half years. US Federal Reserve lifted a key short-term rate, by 0.25% to 3.50%, marking the 10th increase in 14-month campaign to tighten credit. The People's Bank of China is to manage its new currency system with KWon, USD, euro and JYen as the main components of its currency basket, as the first time for the Chinese authority to confirm the details of the currency basket.

CHAEBOL

A total of 11 Korean firms were included on Fortune magazine's Global 500 list this year, falling from 13 in 2003. Japan, despite a long-term recession, has 81 of its companies included on the Global 500, down from 107 five years earlier.
A son of the next CEO of Nokia Corp decided to study business at Seoul National University from this Sept.
The founder of Daewoo Group, Kim Woo-choong, underwent heart surgery. It might take 3 to 6 months for him to fully recover from the expected surgery, before he appears at court hearing.

The Fair Trade Commission warned that local conglomerates are exposing themselves to a growing risk of merger and acquisitions by foreign parties, as they render themselves vulnerable to hostile takeovers, by taking up more stakes in affiliates to defend their ownership.
FTC has issued an order for corrective measures against Hewlett-Packard and Epson Corp for coercing retailers into fixing the prices of their products. It also warned SEC for engaging in resale price maintenance practices. FTC is investigating Intel Corp on the company's marketing and rebate practices with Korean PC makers, concentrating on whether the chipmaker has unfairly used its monopoly position to coerce exclusive business dealings. FTC is to hold a second hearing on allegations Microsoft has violated the fair trade laws and exploited its dominant market position to the detriment of smaller competitors.

Samsung Electronics Co (SEC) has become the No.2 sellers of mobile phones in North America, selling 11.5 mil handsets in the first half, trailing Motorolas  23.2 mil units. LGE came in third with 11 mil, followed by Nokia.
SEC completed the purchase back of 3.8 mil common shares and 0.3 mil preferred shares of its own, earlier than slated Sept 15, investing KW2.14 tril.

SK Corp made an agreement on large scale sale of its LNG from 'Peru LNG' through Spanish Repsol-YTF. SK has jointly develop 88 and 56 fields in Peru LNG with Hunt Oil, for the annual production of 4.2 mil tons. The gas will be distributed to west coast America and Mexico for 18.5 years through Repsol. SK took the stake of 30%, while Hunt and Repsol have 50% and 20% respectively. SK has developped 20 oil fields in 12 countries and participated in 4 LNG projects.
The development of "Yemen LNG" is on the way in full swing by Korean consortium, after it obtained the approval from Yemen government. Total investment amounts $2.5 bil for liquifaction plant and pipelines, and $1.5 bil for shipbuilding, for the production 6.7 mil tons a year. KOGAS will import 2.0 mil tons of Yemen gas a year from 2008 for 20 years. Korean takes 21% stake of the project, while Yemen LNG has 43% and Hunt Oil 18%.
A Korean consortium, led by state-owned Korea National Oil Corp, KEPCO and DSME, has won the right to develop 2 offshore oil blocks in Nigeria that could contain 2 bil barrels of crude oil. It will hold a 65% stake, holding the control to run operations. Other stakeholders are India's ONGC and a local Nigerian oil company.

LG Chemical has developed a new production method for color filters for LCD screens. The new process, called ink jet printing process, enables ink to be spread over the surface of the LCD glass plate, saving production cost and time by simplifying the number of production stages from 16 to 3.
Signalling a complete withdrawal from the Korea stock market, Sovereign Asset Management sold off its entire stake in LG Group in 6 months after its investment, to incur a loss of over KW50 bil. But it returns home with an overall profit of KW804 bil gained from the stake sales in SK Corp. Sovereign has been accused as a cold hearted speculator, but on the other hand, appraised its contribution to improve the transparency in Korean business society.

Korea's overseas construction orders soared 74% on year in the first 7 months of 2005, largely thanks to booming demand from the Middle East. Construction companies won 154 orders abroad worth $6.23 bil, compared with whole last years orders at $3.77 bil. Local builders forecast to win an additional $4 bil orders during the rest of the year, pushing up the full year figure beyond $10 bil for the first time in 8 years.
Hyundai Construction won the project worth $68 mil from UAE to construct the first stage of wharf in Jebel Ali Container Terminal, with scheduled completion in 21 months. Hyundai has already exceeded its annual goal of contract of $2 bil.

Doosan Industrial Development, flagship subsidiary of the nations 10th largest Doosan Group, which is in the middle of family feud, admitted that it inflated sales of KW279.7 bil by adding expected earnings from unfinished construction projects between 1995 and 2001, before the financial regulators began the probe on its accounting fraud.
Doosan Heavy Industires & Construction made an agreement to cooperate with China's largest power facility builder, Harbin Power Equipment Co, in bidding for new projects in Chinese market. China plans to build 31 units of 1000 MW class nuclear power plants by 2020. Doosan Heavy Ind plans to participate in the preliminary bid in mid-Sept for the acquisition of Westinghouse Electric, a world leading nuclear power technology. Having filed a LOI to British Nuclear Fuels Ltd, which controls Westinghouse, Doosan was selected as one of the 15 eligible bidders along with GEC and Mitsubishi Eectric.

The consumer finance unit of General Electric and Hyundai Card signed a contract on a share purchase deal worth about KW700 bil. The GEs purchase of the Hyundai Card stake came after it bought a 38% stake in Hyundai Capital for $371 mil in Nov last year.
Hynix Semiconductor overtook Micron Technology as the worlds second-largest maker of computer-memory chips during the second quarter. Hynixs sales of DRAM fell 13% from the first quarter to $939 mil, while Microns fell 24% to $840 mil. Micron and Hynix have been swapping the rankings every quarter since last year.

Korea Aerospace Ind rolled out the nation's first supersonic military training jet, which marks a milestone in Korea's aerial defense industry, becoming the worlds 12th to produce a supersonic jet.
Korean Air's first-half earnings tumbled to KW16.8 bil, down 91.7% on year, on rising fuel costs. Its passenger numbers rose 8.5% on year in July to 4.75 mil, attributing to an increase in domestic flight passengers from a 25-day walkout by its smaller rival Asiana Airlines, while cargo volume declined 8.9% on year to 709 mil tons. Korean Air agreed to invest in China's first private airline Aokay Airways as part of its plan to deliver cargo in and out of Asia's second-largest economy. The agreement is non-binding and the size, value and timing of the investment have yet to be agreed on.

MONETARY AND ECONOMIC INDICES

KOSPI danced on the roller coaster, moving 1-2% ups and downs almost everyday. It started at 1115, renewing yearly highest, dived to 1089, on strengthened Kwon, high oil prices and hike of interest rate, then surged to 1130, the highest in 20 years with sharply increasing deposit to buy the stock to the biggest at KW12 tril, to finish the month at 1083.
The exchange rate of Kwon against USDollar has kept stable, thanks to continuous warning by governement to intervene, despite great fluctuation in bourse and oil market. It started the month at 1126, dropped to 1111 and weakened to 1138 at the end of the month. Kwons gain outpaced JYens, recording below 910 against Jyen100, the lowest since Aug 1998.
Koreas foreign reserves rose to a record high in Aug, as a weaker US dollar increased the dollar conversion value of non-dollar assets. Foreign reserves gained $1.03 bil from the end of July to $206.7 bil at the end of Aug, but below the record of $208.32 bil in the mid Aug this year. Korea's consumer prices were stable in August, rising by 2% on year at the slowest pace since May 2000. Koreas jobless rate rose for the second consecutive month in July to 3.7%, up from 3.6% in June and 3.5% in May, as companies remained reluctant in hiring amid concerns about weak domestic demand and slowing exports.

SHIPBUILDING AND SHIPPING

Korean shipbuilding industry proved itself as the outright leader among world shipbuilders. Korea won the new orders in first half of this year with 7.2 mil CGT, while Japan had 3.31 mil and China 2.2 mil. Korea delivered 5.0 mil, Japan 3.52 mil and China 1.8 mil CGT of ships. Order book shows greater gap, as Korea has 35.7 mil, while Japan with 21.22 mil and China 13 mil CGT. 
Bao Steel, the largest steel mill in China, lowered the price of hot rolled coil by 15% from CY5500 to CY4700. China Steel, largest mill in Taiwan, followed Bao Steel, lowering 750-2500 Taiwan Dollar per ton for its 7 steel products. Dongkook Steel Mill, Korea, further lowered the price from KW715,000 to KW685,000 per ton, discouraging POSCOs attempt to raise the price. After weeks of pushing, Japanese mills, who supply 33% of Korean demand, agreed to hold the price of export steel to Korea at current price of $680 per ton.
Korean shipbuilders saw real improvement of their performance in second quarter. HHI posted operational profit of KW42 bil, up 1267% on year, while DSME showed KW19 bil loss, compared with KW151.6 bil loss last year and SHI with KW3.4 bil profit, ending the losing streak. All of them expect good profit in second half, attributing to stable steel prices and contineous improvement of ships prices. Korean yards settled salary negotiation with average rise of 4-5% this year.
New building market remain quiet and ships prices are on downward pressure. Some options were not declared, as the owners find it hard to secure employment at acceptable rate. But German appetite for large container ships seems no end.

HHI won the order from C.P. OFFEN for 4 x 9700TEU box ship. HHI claims to have over 40% of the market share of current containership newbuildings over 8,000 TEU. HHI also won a $1.25 bil project to build onshore and offshore facilities in Kuwait to produce, transport and export crude oil of 3 mil barrel a day, for the completion by June 2008. Hyundai Samho appointed Kang Soo-hyun as sole CEO, president, ending dual president system with Lee Yun-jae.
HMD has continued to improve its performance with net profits to KW36.5 bil in the second quarter this year, from KW14.4 bil last year, as revenues grew to KW502 bil, compared to KW343.4 bil in 2004.

DSME was reported to have made an agreement with Gulf Marine Management to give it an access to 15 VLCC newbuilding berths over the next 5 years, with the prices to be subject to market conditions. DSME participated in the consortium with KNOC to develop Nigerian oil fields with 5-10% stake, taking the first step to energy business, expecting synergy effect with its tanker construction expertise.
SHI got the order from NITC for 3 x 318K VLCC, Danaos 2 x 4300 TEU container ships and Stena 1+1 x 11Km depth Drillship, the biggest ever in the world. Templeton Asset Management sold 2.16% stake in SHI, reducing its invovement to 4.13%.

STX Busan yard received order from Nakagawa Bussan for 2 x 11.2K PC. STX Shipbuilding is opening a representative office in London in Sept with GK Noh, as representative, and SM Kim, European marketing manager. STX obtained the certificates from GTT, LR, BV, DNV and KR for its first mock up for cargo containment system on Membrane Mark III, hoping to get in the tender to be invited in Oct by KOGAS for LNG ship new building project.
Daesun made a contract with Cosmoship Management for 1 x 1000 TEU and 1 x 980 TEU, and Namsung Shipping 2 x 1030 TEU box units. Daesun has improved its performance in first half to post the sale of KW44.4 bil up from KW39.3 bil last year, with operational profit of KW1.2 vs KW5.3 loss and net profit of KW1.2bil compared to KW910 mil last year.
Daehan Shipbuilding had Normed Line for 2 x 687 TEU and 21st Century Shipyard with Sekwang 3 x 13,000K chem tankers.

Downturn in earning at shipping industry has been reflected in the balance sheet of Korean shippers. Hanjin and HMM posted operation profit of KW113 bil and KW92.7 bil, down 49% and 31.2% on year in second quarter, respectively, due to reduced revenue, strengthened KWon and high fuel cost. Korea Line (KLC), reported that net income in the first half dropped to KW89 bil, from KW126 bil last year. Sales were steady at KW575 bil, a 1% drop in last year.

STX Pan Ocean's shares have leapt 12% to SGD1.05 in the first week of Aug in Singaporean bourse after Credit Suisse First Boston (CSFB) give an outperform rating, fixing a target price of SGD1.10. CSFB forecast an average dividend yield of 10% over the next 3 years at the current price or an average yield of 9% at our target price.