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Korea Report - October 2005

Author : Hwang & Co Date : 05-11-14 16:51 Hit : 34647

Topics.

-Ideological dispute reflared.
-World Stem Cell Hub established in Seoul.
-Korean scientists acknowledged by world science magazines.
-Japanese PM visited Yasukuni Shrine again.
-NK made a trouble with Hyundai for tour business to NK.
-USA reaffirmed to provide SKorea with a unclear umbrella.
-Export kept breaking monthly record.
-Samsung Group involved in a feud over ownership transfer.
-BOK raised interest to 3.50%.
-Korean yards won the record volume of order in 2005.
-KOGAS announced the winners of 4 LNG carriers tender.
-STX Pan Ocean is ambitious to go logistics.
-John Fredriksen acquired the stake in Heung A Shipping.

GOVERNMENT AND SOCIETY

A decades-long ideological dispute is flaring again, when Kang Jeong-ku, a professor at Dongguk Univ, described the Korean War which Northern forces invaded the South as one of the attempts to unify the Peninsula that have occurred repeatedly throughout Korea's 5,000 years history. The Conservatives sharply criticizied his view as positive pro-North. Kang also described US General Douglas MacArthur as a war maniac. MacArthur is widely viewed in Korea as a hero who successfully led UN forces to recapture Seoul from NKorean communist forces in the 1950-53 Korean War.
Justice Minister Chun Jung-bae ordered the prosecution not to arrest professor Kang on charges of violating the National Security Law for his comments allegedly glorifying NK's 1950 invasion of the South, and Kim Jong-bin, top prosecutor, resigned after fulfilling just 6 months of his 2 year tenure in protest of the justice minister's interference. The resignation added fuel to growing political strife between the ruling and the opposition parties over whether Justice Minister Chun should be ousted to take responsibility for the confusion.

The government launched the World Stem Cell Hub at Seoul National University Hospital, headed by scientist Hwang Woo-suk, to preserve the nation's pioneering role in stem cell technology for treatment of diseases. It will distribute stem cells to other laboratories across the world and work with them for tailor-made treatment for individual patients. The hub plans to set a network with 2 other planned stem cell banks in USA and England. A Korean health institute predictd that the first clinical application of embryonic stem cell therapy by Korean researchers could be made at the end of this year or early next year, and the first stem cell medications to cure cells may come out by 2015.

The science magazine “Nature” reported that a sharp increase in the number of works done by Korean biologists. It said 112 original research submitted to Nature in 2005 from SKorea out of 10,896 submissions in total; 12 Korean papers published in Nature this year out of 690 papers in total. This month, it showed article that Prof Kim Kyeong-kyu discovered a three-dimensional, X-ray crystal structure of a crucial part of DNA, and Dr Hwang Woo-suk's stem cell research and his successfully cloned dog Snuppy were featured in “Nature” Aug. In July, Dr. Park Se-pill and his team obtained a US patent for technology used to harvest human embryonic stem cells using surplus frozen embryos that have been thawed. Further, Kim Jae-seob and his colleagues found a receptor regulating circadian behavioral rhythm. Korea has surpassed most countries in terms of papers published in top-notch science journals such as Cell, Science and Nature and the number of patents obtained.

Japanese Prime Minister Koizumi visited the Yasukuni Shrine in Tokyo where Class A war criminals are honored along with 2.5 mil Japanese World War II dead, ignoring the Osaka High Courts ruling that the PM's visit to the shrine violates the constitution. It was his fifth visit since taking office in April 2001, in defiance of furious protests by China and Korea.
At the inaugural assembly of the Parliamentarians Alliance for Peace in Asia, over 60 lawmakers from 11 countries adoptd a joint declaration of peace and a charter, and criticized Japanese Premier for atempting to glorify its past aggression on neighboring states. Chinese Vice Foreign Minister said it would be very difficult to hold Sino-Japanese summits on the sidelines of upcoming international meetings and it made Beijing impossible to support Japan's bid for a permanent seat on the UN Security Council. The human rights group Amnesty International urged the Japanese government to provide compensation for Korean women forced to serve as sex slaves for the Japanese military during WW II.

Pandemic influenza anxieties have reached fever pitch amid growing concern that the H5N1 avian flu virus may be developped into human-to-human transmitter that could claim hundreds of millions of lives. Romania and Turkey reported new cases of avian flu following outbreaks in Russia and Kazakhstan. A parrot imported from SAmerica has become the first bird to die of avian flu in Britain, bringing the danger of the deadly virus much further west across the EU. Another avian influenza outbreak was reported in the southern Urals region in Russia and among swans at a Croatian lake.
Korean Government plans to prepare anti-virus medicine to protect 1 mil people, and care fully observe the situation in NKorea. US government tagged a $3.9 bil pandenmic influenza preparedness rider onto 2006 Defense Department appropriation bill. Asian Development Bank is to spend $58 mil on 2 projects to help combat avian flu in Asia and the Pacific.

Iranian authorities refused custom clearance for $1.8 mil worth of steel exports along with 5,000 sets of refrigerators, $560,000 worth of polypropylene products and $100,000 worth of PVC products from Korea, who exported $2.13 bil worth of goods to Iran last year and shipments reached $1.58 billion in the first 9 months of this year. The Foreign Ministry met Iranian Ambassador to determine whether Iran had slapped an embargo against 5 types of Korean products in retaliation for Seoul's support of IAEA action on the Iranian nuclear program, with no official news from Iran. Iran was reported to take the similar action against the nations like Great Britain, Argentine and Checkoslovakia.

The government has raised $1 bil by selling debts, including its first euro-denominated bonds with $604 mil in 10 year debts sold at 3.74% and $400 mil 20 year at 0.95% over comparable US Treasuries.
FT reported that Korea ranked first in terms of growth in research and development investment, by a sweeping increase in R&D expenditure with its leading companies’ innovation investment by 40% last year, while EU by 2%, USA 7% and Japan 4%. Korea's R&D budget raised more than double over last years to $1.73 bil, while Samsung Electronics boosted its R&D spending by 77% over the last 4 years with $4.44 bil in total. 11 Korean companies were included in the list of the global 1,000 R&D active companies.

Choi Kyoung-ju, Korean pro golfer, won the Chrysler Classic of Greensboro with a 22 under par, a two shots victory over Shigeki Maruyama, which was his first PGA Tour victory since he won 2 tournaments 2002. In the same week of Choi's victory, Han Hee-won grabbed two-stroke, wire-to-wire victory in the Office Depot LPGA Championship, which was her fourth career LPGA title and first this year. Her compatriot, Kang Soo-yun, finished second.
The brothers Lim Dong-min, 25, and Dong-hyek, 21, shared the third prize in the International Frederick Chopin Piano Competition.
Korea's per-capita GNI is expected to reach $16,000 this year, propelled by improved economic data. Government expects $18,000 by 2007 and $20,000 over the next 5 years. The per-capita income was $14,162 last year.

NORTH KOREA AND NATIONAL DEFENSE

SKorea, USA, China, Japan and Russia are working together to urge NKorea to abandon its nuclear ambitions in exchange for economic and security aid, and normalization of diplomatic relations. The 6 parties are to gather again for a fifth round of talks in Beijing next month to negotiate how to implement principles which they settled last month.

NK threatened Hyundai Asan that they would reconsider all its business ventures with Hyundai Group if the conglomerate does not resolve troubles involving the groups former pointman on business with the North, Kim Yoon-kyu, who was dismissed by the company this month. The NK's counter part said the dismissal of Kim, who was the leading figure for the cross-border tourism business, has caused distrust among Hyundai and NK, and that the action was ingratitude toward to its leader Kim Jong-il. Hyundai Group and NKoreans are expected to meet early next month in an effort to normalize their strained business relations.

US Defense Secretary Donald Rumsfeld reaffirmed that USA is to continue to provide SKorea with a nuclear umbrella as protection against any attack in a joint conference with Korea's Defense Minister, after the 37th annual Korea-US Security Consultative Meeting in Seoul. USA announced to remove 7,000 Marines from Okinawa in a major overhaul of American troops and bases in Japan under a US global plan to make its military more flexible. The base realignment also boosts bilateral military cooperation in areas ranging from disaster relief to ballistic missile defense to counter proliferation.
USA, intensifying pressure on NK, targeted 8 NK's companies suspected of helping to proliferate weapons of mass destruction. US Treasury Department will freeze any bank accounts or financial assets belonging to the 8 companies in USA. Amercians are forbidden from doing business with them.

The Ministry of Unification confirmed that 21 SKorean abductees and prisoners of war are still alive in the North. As part of a tacit agreement between the countries over the reunion of separated families, Seoul asked for information about the fates of abductees and POWs living in the North. Families in the South of 51 abductees and 52 war prisoners have also requested the ministry to ask for information from the North on their missing relatives. Seoul has estimated that 542 POWs are alive in the North, and that 485 civilians have been taken to the North since the end of Korean War.

ECONOMY AND POLICY

Citing strong exports and improvement of consumer spending, Finance Minister forecasted a 5% growth for the Korean economy in the second half of the year, expecting to achieve its goal for annual growth rate of between 4-5% set by the government. BOK reported the Korean economy in the third quarter expanded at the fastest pace in almost 2 years, expecting the growth of GDP to 4.4% on year. A local think tank predicted Korean economy is expected to grow 4.6% next year following this year's estimated 4% expansion
Fitch raised credit rating of Korea's sovereign rating for long term USD denominated bond from `A` to `A+` with stable level, and KWon bond `AA-` to `AA`, citing reduction of geopolitical risk after 6 parties' agreement on NK's nuclear development, last month.

Exports hit a record high in Oct buoyed up by robust shipments of machinery, automobiles and ships, rising 13.4% on year to total $25.71 bil, replacing the record of $24.56 bil achieved in Sept. Imports rose at a double-digit rate of 11.6% to a record $22.78 bil, posting a trade surplus of $2.93 bil.
Korean exports of new autos surpassed $30 bil in the first 10 months of this year thanks to their elevated brand image and improvd quality. Korean exports of information-technology goods in Sept increased 11.6% on year to reach $6.92 bil, the biggest-ever clip amid improving global market conditions, thanks to bulging shipments of semiconductors and mobile phones. Korea's machinery industry is seeing a shift from a chronic trade deficit to a export surplus due to rising demand from China. The exports in 9 months surged 31% on year to $16.2 bil. Imports in the same period stood at $13.2 bil, up 10.9% on year.

Goldman Sachs Group is to aquire a 9.4% stake in Hana Bank, in a move that will make it the largest shareholder of the envisioned Hana Financial Holding Group. Hana Bank decided to sell 13 mil shares in the holding company to Goldmansachs in Dec as part of a startegic alliance. Lone Star is suspected of having evaded taxes in its bad loan management units in Korea, by allegedly having manipulated the earnings of its 14 special-purpose companies by selling assets of loss-making SPC's companies which administer problem assets acquired from banks and non-bank financial institutions to its highly profitable SPC's at prices lower than the fixed prices.

Brunei aims to renew long term LNG deals with major buyers from Japan and Korea. Brunei supplies a total of 6.7 mil tons per year of the natural gas to Japan and Korea under longterm supply contracts due to expire in 2013.
Korea has completed the release of 2.9 mil barrels of strategic oil reserves as planned, in line with global efforts to help ease US supply disruptions.

CHAEBOL

Samsung Group Chairman Lee Gun-hee was named as 23rd among 25 world top billionaires by FT, citing his contribution to convert SEC from cheap mass production to the most valuable IT producer in Asia, while Bill Gates ranked first for 2 consecutive year. Fortune magazine elected SEC's Vice Chairman Yoon Jong-yong as the most influential enterprenuer in Asia, for his effort to bring the best products into the market, giving inspiration to his competetors.

The number of mobile phones produced in Sept by Samsung Electronics (SEC) topped 10 mil units, the largest on a monthly basis in its history, brightening its chances to produce 100 mil this year. Apple Computer plans to buy as much as 40% of SEC's flash memory output in the second half of this year for its popular iPod Shuffle and other music players. SEC has established Samsung Communications India in India, investing KW10.4 bil to produce mobile phones from the first half of next year. SEC agreed with US authority to pay $300 mil fine to settle the dispute on computer chip price manipulation. The amount is the second largest antitrust fine to be levied in US histroy. Hynix has paid $185 mil of fine esrly this year and Infineon also fined $1.6 bil.
Samsung Engineering won $500 mil worth world biggest Propylene and Polypropylene project from Saudi's Advanced Polypropylene, for the completion in Jubail Industrial Complex by June 2008. Samsung Corporation signed a $876 mil deal with Emaar Properties making it the main contractor in the construction of the Burj Dubai, the worlds tallest tower.

Seoul district court decided on case of stock deals between a Samsung Group affiliate and Chairman Lee Kun-hee's heir, which provoked a controversy over illegl ownership transfer and evasion of inheritance taxes. According to the prosecutors, Samsung Everland, the de facto holding company of the group, offered preferential rights to overtake some of its new shares to chairman's only son Lee Jae-yong and other scions in Dec 1996, at a cost substantially lower than the fair market price, making junior Lee the largest shareholder of Samsung Everland with 25.1%. Lee Jay-yong also allegedly bought convertible bonds for Seoul Commtech in 1996 at far below the fair market price, helping him become the largest shareholder of the firm with a controlling 50.7% stake.
Samsung Group Chairman Lee Kun-hee was ordered by the Supreme Courts to pay KW7 bil to SEC in compensation for his embezzlement about a decade ago.

Hyundai Motor (HMC) is set to invest 1 bil euros in building a plant in the Czech Republic as part of its global expansion plan. The envisioned plant, HMC’s first in Europe, will have an annual output of about 300,000 car and be used to produce models exclusively for the European market, where the company has been growing at about 20% annually. The mass production is expectd from the latter half of 2008.
Hyundai Mobis broke grounds to build a water treatment plant in Ho Chi Minh city for Thuduc Water Treament Plant to resolve shortage of drinking water in Ho Chi Minh and nearby cities. Hyundai Image Quest agreed to supply 37,000 units of LCD monitors to US federal government. Rotem, a subsidiary of HMC, won a contract to supply 40 un-manned light electrical trains to Vancouver.

SK Corp fixed the price to acquire Incheon Refinery at KW3.04 tril.
Kumho Group acquired 14.71% stake in Korea Express, becoming second largest share holder after STX Group, jumping into the race to buy the largest local logistics whose court receivership would be terminated in June next year. STX holds 21.3%, Goldmansachs 13.4% and Seoul Security Insurance 10% in the company.

An alliance of SK Engineering & Construction and GS E&C has won a project to build a petrochemical plant in Thailand worth $660 mil for the completion by July 2008. In a turn-key project, SK E&C will hold a 64% stake with the remainder going to GS E&C.
Dongkuk Steel Mill and Italy's Danieli SpA and Brazil’s Vale, signed the agreement for the construction of a $750 mil steel mill to produce 1.5 mil tons of slabs starting in 2009.
Korean Air signed a $200 mil contract with Boeing to supply wing tip parts for new B787, starting in 2007. KAL has already signed MOU for other parts of the B787 worth $1.5 bil.

KOGAS successfully issued Samurai bond of JY30bil for the maturity of 5 years on Libo+0.30%.
POSCO is to list securities worth 4% of its shares on Tokyo Stock Exchange on Nov 22, issuing depository receipts worth 3.5 mil shares to become the first Korean firm to be publicly traded in Japan. POSCO's dividend yield rate is expected to be around 3.5% while its Japanese counterparts offer about 1.5%.

MONETARY AND ECONOMIC INDICES

KOSPI repeated its habitual shape riding on the roller-coaster, frequently fluctuating more than 2% a day. It started the month at 1242, plunged to 1140 by continuous selling of foreign investors and recovered to 1158 at the end.
The exchange rate of KWon against USDollar kept rather stable through the month, in the box of 1141-1137-1157-1142. The exchange rate of KWon to JYen broke 900, for the first time in 7 years, closing at 899.50 against JY100 on the last day of the month. Korea's foreign reserves expanded to $207.31 bil at the end of Oct, up $580 mil from the end of Sept.
BOK raised the overnight call rate by 0.25% basis points from a record low of 3.25% as of Oct 11, the first rate increase in 11 months. The yield on 3 years corporate bond stayed above 5.0% level in the range of 5.03-5.29, influenced by the forecast that BOK's overnight call rate may go upto 4.5% next year.
Consumers price index in Oct rose 2.5% on year, keeping 2.0% level for 5 months. Korea's import prices rose 6.3% on year in Sept, up from a 1.9% rise in Aug. Korea's jobless rate in Sept surged to 4%, the highest in 4 years, from 3.7% in Aug.

SHIPBUILDING AND SHIPPING

Korean shipbuilders expect to win the record orders of $30 bil this year, renewing last year’s record of $26.46 bil. High oil prices gave them positive impact with additional order on offshore plants. HHI secured order worth above $14.0 bil as of end Sept, exceeding last year’s total of $13.4 bil. DSME got $6.25 bil, almost same as last year’s $6.66 bil, and SHI reached $5.6 bil, close to last year’s $6.4 bil. They expect substantial improvement in their profitability this year, thanks to the completion of higher value ships in the second half.
Korea Export Insurance Corporation is to provide export credit insurance for 2 Oman Shipping’s 147,000 cbm LNG carriers being built at SHI, as the first case for LNG vessels to have such protection. Financiers SG Corporate & Investment Banking and BNP Paribas confirmed a 12 year $320m loan to fund the ships, backed by insurance from KEIC.

HHI secured an order from Kuwait Oil for 1 x 3 mil bbl crude production and handling facility, Sanko Line 1+1 x 35K LPG and Solvang 2 x 60K LPG,
HHI’s president Yu Kwan Hong has resigned after 18 months in the top job for personal reasons. He had been CEO of HMD between 2002 and 2004.
Cido ordered 5 x MR PC, of which 3 x 47K at HMD and 2 x 51K at STX.

DSME agreed to build 2 x 320K VLCC for SCI and won from Bergesen Worldwide for 2 x 156.1K LNG, CONTI 4 x 10,000 teu and Frigstad Offshore 2 x Semi-submersible drilling rig.
SHI got the order from Claus Peter Offen for 6+6 x 5800 teu, European owner 2 x 150K LNG, Finaval 2 x Aframax tanker and Mosvold 1+1 x Drillship,
The Methane Kari Elin, LNG carrier built by SHI for BG, is observed with an increased nitrogen migration across the secondary barriers that exceed the manufacturer's specifications. However, the primary barriers in all 4 LNG tanks are fully intact with no leakage of LNG. SHI confirms that the ship's problems are “not so serious” and "not structural.”
Hanjin is considering building the world's fourth-largest shipyard in Subic Bay, capable to build 8,000-teu containerships and will take 5 years to complete, expecting firm contract by mid-Dec.
STX Busan yard won the order from a Greek owner for 2 x 9K ethylene carrier.
SungDong set to secure first-ever tanker newbuilding order, finalising a contract for a series of 73,000-dwt panamax-tanker with Prime Marine Management.
Daehan took the option from Normed for 1 x 10K GPC.

KOGAS announced the winners of its long awaited 4 LNG carriers tender. The most interesting selection is Hanjin Heavy-STX Pan Ocean consortium to build and run one ship to serve the Yemeni market. It marks the first ever involvement in the sector by STX Pan Ocean. It is also the first LNG contract for Hanjin Heavy in 5 years. DSME-Korea Line won the contract to build and operate 2 ships. Meanwhile HHI-HMM teamed up for the last vessel. All 4 new buildings will be fixed on long-term contracts for 20-year periods from 2008 to lift cargoes from Yemen LNG and Russia's Sakhalin-2 project. SHI and SK Shipping were a notable loser in the competition. Hanjin Shipping were rejected, and STX yard was excluded for lack of experience in the sector. In the joint venture operating company, KOGAS will have the stake of 28%, KLC 36%, HMM 18% and STX PO 18%.

STX Pan Ocean surprisingly acquire 21.02% stake in Korea Express which is under court receivership, becoming the biggest share holder. It aims to buy the company after its graduation from court management in June 2006, expecting a synerge effect in combining land and maritime transportation.
Seyang Shipping has struck a deal to take over Dongnama Shipping, spending around $40m. Dongnama operated a total of 40 vessels, of which 20 units are containerships of 700-1,800 teu and 20 are bulkers of 7-55K dwt. Seyang owns Seven Mountain Shipping, which operates both tankers and bulk carriers, including two VLCCs and MR as well as aframax.
Heung-A Shipping’s profits dropped 15% on year in the first three quarters of 2005, despite a slight revenue rise. Its net earnings were KRW15.53 bil, against KRW18.42 bil in the corresponding period of 2004, on the revenues of KRW 397bil compared to KRW393 bil. John Fredriksen bought a 6.67% stake worth about $5m in Heung-A, as his second involvement with the company this year.