Author : Hwang & Co
Date : 08-04-08 08:25
Hit : 19115
Topics -President Lee to meet US President Bush in April. -General Election Campaign started. -Inter-Korean relations deteriorated after inauguration of new government. -Korea posted trade deficit for 4 consecutive month. -KDB, Daewoo Shipbuilding and Hyundai construction to be sold. -Government is all in for stable energy supply. -President Lee opens hot line with conglomerates. -Samsung Group turned 70 years birthday, amid special probe of its corruption scandal. -LG Electronics marked 50th anniversary. -KWon exchange rate broke 1,000 against USD. -Korea¡¯s consumer price rose 3.9% in March. -Korean yard secured two third of global order in Feb. -HHI raked the biggest monthly order in Feb. -STX PO and Korea Line kept expanding. -Glovis entered shipping.
GOVERNMENT AND SOCIETY
President Lee Myung-bak is scheduled to meet US President George W Bush April 18-19 at Camp David, during his first overseas tour since his inauguration last month. Lee will be the first SKorean president invited there. Prior to the visit to Camp David, the president will be in Washington to meet the leaders of the US House and Senate to discuss key economic and defense issues, including FTA deal, which has yet to be ratified. Next year marks the 55th anniversary of the USA-SKorea alliance, which went into effect in 1954 following the 1950-53 Korean War. During April 15-16, President Lee is to visit New York to meet with prominent business leaders to promote foreign investment. On the way back home, Lee will meet with Japanese PM Yasuo Fukuda in Tokyo, resuscitating bilateral ties by reviving the annual summit, which came to a halt in 2005 after former PM Junichiro Koizumi's repeated visits to a Japanese shrine that honors Japanese soldiers, including war criminals.
President Lee Myung-bak stressed to do away with negative election campaigns and clamp down on illegal strikes, in order to implement his plans for reinforcing law and order, as a crucial step in reviving the economy and, more importantly, raising the level of national competitiveness. Observing that the law is often superseded by collective action, Lee and ministry officials agreed to implement stricter policies against unlawful strikes and to eradicate negative election tactics.
2 major parties have moved to drop many incumbents in favor of fresh faces for the April 9 parliamentary elections. The threat of factional strife is looming within the ruling conservative Grand National Party after its candidate screening committee decided to exclude 5 incumbent lawmakers. Park Geun-hye, the daughter of former President Park Chung-hee, has called the exclusion of her close associates as the start of "political revenge" by lawmakers associated with President Lee. Leaders of the opposition liberal United Democratic Party, meanwhile, have delayed a planned announcement of the nominees for many days for the same reasons. The ruling GNP is still widely believed to win a majority following its landslide win in last year's presidential election, while some of its nomination rejects have run as independents. A sizable number of incumbents loyal to President Lee have also been rejected by the GNP nomination committee. For the upcoming parliamentary elections, 26 parties registered with the National Election Commission, comparing with about 16 in the 2004 elections.
Billionaire, assemblyman, defacto owner of HHI and FIFA vice president, Chung Mong-joon made is running for a seat in Seoul's Dongjak district, where he will face off with rival UDP's former leader Chung Dong-young. In a recent public poll, Chung Mong-joon was ahead of his rival with 49.3% to 37.4%. Chung joined the GNP in Dec, 15 days prior to the presidential election, when he declared his support for President Lee. Chung has been elected for 5 consecutive terms in Ulsan.
The Korean government decided to support the independence of Kosovo. The choice is in line with its new administration's goal to fortify an alliance with USA, likely aggravating relations with Russia. Among the permanent 5 of the UN Security Council with veto power, USA, UK and France have extended the recognition, while China has expressed concern and Russia has rejected the declaration as illegal.
Seoul City government unveiled a set of guidelines on outdoor advertising. The size, content and number of signboards will be restricted to meet the needs of different neighborhoods. Shops on streets wider than 20 meters will be prohibited from placing neon signs or having more than one signboard each. The current rule allows up to 3 signboards. Advertising on windows and poll signs in gas stations will also be banned. The new guidelines will help buildings and advertisements look better together and offer a pleasant urban space for the people. The new rules will apply only to new towns and new buildings.
The Korea Advanced Institute of Science and Technology has pink-slipped 6 professors for poor research records, including one who faked research. Of the 25 professors whose contracts with KAIST end this year, only 17 had their 3-year contracts renewed. The length of contract for KAIST professors were reduced from 5 years to 3 as part of a reform drive for more competition. Last year, the school rejected 15 out of 35 professors who applied for tenure. This came as a shock as being a professor in Korea is largely considered a lifetime job. KAIST has introduced a new tenure system for professors, which informs them whether they can stay at KAIST permanently, within the first 7-8 years of employment. The school currently employs about 420 professors, approximately 200 of whom were granted tenure before the launch of the new system.
The government designated 54 elementary schools as Green Food Zones, where sale of unhealthy food is restricted. The administration will conduct tests of the new system which bans foods such as fast food and carbonated drinks from being sold within 200 meters of the listed schools. The first test operation was conducted last year with 12 elementary schools. The Seoul Office of Education is promoting a plan to hire more male teachers at elementary and middle schools, as their number has been steadily declining. The share of female teaching staff was 74% in elementary schools, 64% in middle schools and 42% in high schools nationwide last year. There were more than 103,394 Korean students studying in USA as of the end of last year, making them the largest group of foreigners at American academic institutions, and accounting for 14% of foreign students studying in USA. Female students entered the Air Force academy for the first time in its 38-year history. The Air Force Aviation Science High School held the 40th admission ceremony for 150 freshmen, including 15 women, ending its history as one of the last military domains closed to women. After graduation, they will serve as noncommissioned officers in the Air Force, or enter the Air Force Academy.
FIFA ruled that the inter-Korean qualifier for the 2010 World Cup in South Africa be held in the Chinese city of shanghai instead of North Korea¡¯s capital, the original venue. NK suggested earlier this year that 2 Koreas use a neutral flag depicting the Korean Peninsula and play the traditional folk song ¡°Arirang,¡± rather than use 2 countries¡¯ respective national anthems and flags at the March 26th match in Pyongyang. The South dismissed the idea, saying it runs against FIFA rules regarding World Cup qualifiers, and sought intervention by the world¡¯s football governing body.
NORTH KOREA AND NATIONAL DEFENSE
Inter-Korean relations are further deteriorating as Pyongyang threatened to take action against a SKorea-US military exercise. Pyongyang has also denounced SKorea for demanding an improvement to the North's human rights situation. Tension will certainly be on the rise until Pyongyang accommodates a change in SKorean policy on the North. The new SKorean administration under a conservative president has set itself apart from 2 previous liberal administrations by demanding greater reciprocity for SKorean aid and calling on Pyongyang to stop human rights abuses of its people. Within just 2 days, the North expelled SKorean officials from the joint industrial complex in Gaeseong, fired short-range missiles and released a strongly versed statement threatening to pull the plug on the denuclearization process.
The statement came a day after SKorean Foreign Minister and US Secretary of State jointly expressed in Washington that patience "was running out" and urged the North return to 6-party talks by next month and make substantial progress by Aug. NK forced 11 SKorean officials to leave the inter-Korean economic cooperation office in Gaeseong, in protest against SKorean Unification Minister¡¯s remarks "It will be difficult to expand the Gaeseong complex if the North's nuclear problem is not resolved." The economic exchange office was set up in 2005 to help SKorean businesses gather information about setting up shops in the North, and to arrange direct deals and contacts with their NK counterparts. NK threatened to bring its denuclearization efforts to a halt in an apparent warning to Seoul and the other 6-party talks members. The North also fired several short-range missiles into the West Sea, but SKorean officials said the move appears to be part of a seasonal drill.
As a reflection of SKorea's new "creative and pragmatic" diplomacy, Seoul's envoy at the UN Human Rights Council called on the North to improve its human rights. It was a notably tougher stance from the last decade, when the previous governments maintained a more cautious approach, simply "addressing" its concerns. Pyongyang slammed the Seoul government for "negating the spirit of unification," responding to a SKorea's speech which called for NK to "take appropriate measures to address the international concerns" on its human rights abuses. NK threatened "It is a treacherous plot that abolishes the fundamentals of the June 15 joint declaration¡±. The Korean government has also decided to vote in favor of extending the mandate for the UN Human Rights Council's special rapporteur on NK's human rights situation. EU and Japan have passed a draft resolution on NK, urging Pyongyang to respect fully all human rights and fundamental freedoms and ensure safe and unhindered access of all humanitarian assistance delivered impartially on the basis of need. The special rapporteur on NK is authorized to investigate, monitor and recommend solutions to human rights problems. While most western countries support the extension of the mandate, socialist countries such as China and Cuba claim such resolution is discriminatory. The SKorean government has either been absent or abstained from the past 3 occasions of NK resolutions at the Human Rights Council. NK has publicly executed 15 people for attempting to flee the country or helping others flee, by a firing squad on a bridge in the northeastern border town on Feb 20, as a warning to others who may cross the border into China with the spring season.
Tens of thousands of SKorean and US military troops had a massive drill during March 2-7. US aircraft carrier Nimitz is deployed off the Korean peninsula and about 27,000 American troops are taking part in the week-long "Key Resolve" exercise. A significant portion of SKorea's 680,000 troops are participating in the exercise. The joint military exercise was a clear sign of President Lee's determination to enhance the bilateral military alliance and to convince NK to comply with international agreements on denuclearization. The Combined Forces Command is promoting US strategic equipment and scenes of the drills exceptionally to the SKorean media.
NK raised the stakes in the escalating tension with the South, threatening again to suspend all dialogue unless Seoul apologizes, for the new chairman of the Joint Chiefs of Staff¡¯s comment on the parliamentary confirmation hearing that the South's military could strike the North's nuclear sites if NK attacked the South with nuclear weapons. The NKorean military condemned the remark as a "provocation" by Seoul, with an intention to conduct preemptive strikes against the Pyongyang. The North demanded Seoul retract the remark and apologize for it. It threatened to suspend all inter-Korean dialogue and contact. The North's regime warned that it would retaliate if SKorea showed any sign of making a preemptive strike against the North. The government has decided to take time before responding to NK's letter of demand for an apology. Rather than responding to every warning and threat by the defiant neighbor, the new administration aims to handle them with firmer resolve.
A war of words between USA and NK continued. Washington expressed hope to complete the second round of 6-way talks, including a full and complete declaration of its nuclear program from the NKoreans, and then move on quickly towards the third process, which is the actual dismantling of NK's nuclear program. The North was referring to the delay in its removal from Washington's list of terrorism sponsoring states, in addition to termination of the application of the Trading with the Enemies Act. Washington has repeatedly argued both measures will be implemented in line with NK's "complete and correct" declaration of all of its nuclear programs. The main sticking point is how to address the contentious uranium enrichment program and proliferation activities, both of which Pyongyang denies.
By 2012, Korea plans to deploy three 7,600-ton class Aegis-equipped destroyers. The plan is also to build three 14,000-ton-class large-deck transport ships and nine 1,800-ton Type 214 submarines equipped with advanced systems including air independent propulsion (AIP) and flank array sonar (FAS). The Navy plans to build a naval base on Jeju by 2014, at a cost of KW800 bil ($850 mil), which will be a key asset for securing maritime transportation routes and wielding a sea-going deterrent to various threats.
NK has demanded that every SKorean resident in the North's Kaesong industrial park, built with SKorea's investment under a 2000 inter-Korean summit agreement, pay an annual registration fee of US$100. About 800 SKoreans, mostly government officials and businessmen of SKorean companies that invested in the Kaesong complex, work in the industrial complex. NK has unilaterally informed South that they will block the entry of any SKoreans who fail to pay the registration fee from Feb 11. The German auto parts maker Prettl became the first foreign firm to start a plant inside a joint inter-Korean factory complex in NK. It aims to open the factory by Dec and hire about 550 NKorean workers.
ECONOMY AND POLICY
The government set up the target to achieve an economic growth rate of about 6% this year, by cutting corporate taxes and easing investment regulations. The government plans to bring about an economic recovery, develop a business-friendly environment and establish long-term growth engines. A private institute downgraded its growth outlook by 0.3% to 4.7% due to the faster-than-expected global economic downturn. BOK also cut its growth forecast by 0.3% to 4.7% last month. Deutsche Bank offered the most pessimistic outlook for Korea, saying GDP will only expand 3.9% in 2008. BOK predicted the exports are to grow 11.5% thanks to KWon¡¯s depreciation and expected strong demand for Korean products in developing nations. The country¡¯s trade balance deficit, however, will likely increase to $9.7bil, up from a $6 bil deficit last year, due to an increase in import costs from raw material price hikes.
Korea posted a trade deficit for the fourth consecutive month in March due mainly to a surge in crude oil imports. The deficit stood at $670 mil, narrowing from over $1.25 bil in Feb and $3.79 bil in Jan. The exports rose 19.1% on year to $36.2 bil in March, while imports shot up 25.9% to a record $36.87 bil. Korea posted a current account deficit for a third month in Feb, but the shortfall narrowed as exports grew at a faster pace amid a slowdown in imports. The current account shortfall reached US$2.35 bil in Feb, compared with $2.75 bil deficit in Jan. The mounting grain prices pushed the nation's agriculture trade deficit to a historic high to surpass KW10 bil in 2007, up 25.7% on year. As one of the world's top 5 grain buyers, Korea imports 73% of its grain requirement.
BOK confirmed that the nation's per capita GNI surpassed $20,000 to $20,045 in 2007, up nearly 9% on year, for the first time ever. In 1995, the nation's income level first touched the $10,000 mark, but the figure fell to $7,355 in 1998 following the 1997-98 Asian economic crisis. The proportion of the country's GNI generated by international trade has risen to 94.2% last year, breaking the 90% mark for the first time. 47.6% was accounted for by exports, while imports for 46.6%.
The government aims to attract more than $12 bil in foreign direct investment this year by greatly improving the domestic business environment. The foreign direct investment, which peaked at $12.72 bil in 2004, fell for 3 years in a row. It hit $10.51 bil last year or a drop of 6.5% from $11.24 bil in 2006. Annual money supply growth rose to a 5-year high in Jan, continuing a double-digit growth rate for the 17th straight month. The country¡¯s liquidity aggregate reached KW2,078.1 tril($2.19 tril) in Jan, up 13% on year. The foreigners have purchased a total of KW5.8 tril of domestic bonds so far this year. They currently hold around KW41 tril of bonds, accounting for nearly 5% of the total bond market. The widening interest rate gap between USA and Korea is encouraging foreign financiers to invest in higher-yielding bonds in the Korean market.
Korea's top lender Kookmin Bank plans to purchase a 30% stake in Bank CenterCredit in Kazakhstan to speed up its expansion into the global financial market, spending KW620 bil ($623 mil) for a 30% stake, making it the second-largest stakeholder. It will increase its holdings further up to 50.1% through additional stock purchases or new share offerings. It is the largest M&A deal done by Korean bank. Bank CenterCredit is the sixth-largest commercial bank in Kazakhstan with a total asset of $7.3 bil. The Kookmin Bank plans to raise the proportion of overseas assets to 20% by 2015 from the current 1.2%. Fitch Rating has affirmed the ratings of Kookmin Bank at long-term issuer default ratings 'A plus' and the outlook on the long-term issue default ratings is 'stable¡¯ after the announcement. The Korean government would sell the Korea Development Bank next year. The KDB will be transformed into a financial holding company ahead of the sale. Woori Bank will give KW6 tril ($5.9 bil) to small- and medium-sized companies to help them spur the local economy, helping SMEs create more jobs and become more competitive, especially at a time when SMEs are faced with mounting burdens from rising raw-materials prices. Shinhan Bank has joined the trade financing program of the Inter-American Development Bank as Confirming Bank to support companies that export products to Latin America and the Caribbean. IDB extends guarantees to cover the risk assumed by Confirming Banks on documentary and stand-by letters of credit, promissory notes and other instruments used in the financing of international trade transactions. Korea became the second Asian country to join the IDB's program following Japan. Lehman Brothers Bankhaus AG, the company's German unit, received the go-ahead from the Financial Supervisory Service to open a bank branch in Korea. Hana Financial Group and HSBC Holdings launched a joint insurance venture, aiming to become among Korea's top 10 life insurers in 5 years. The company plans to inject KW20 bil ($20.5 mil) this month to expand its operations. Hana HSBC Life aims to raise its insurance premium income to KW2 tril from the current KW230 bil in the coming 5 years and to increase annual net income to KW100 bil.
The Korean government is considering pumping capital into Korea National Oil Corp to make it 5 times bigger than now, amid the global race to secure stable energy supply. The firm's paid-in-capital stands at KW4.7 tril, while its stated capital totals KW10 tril. The company is ranked 98th among oil firms across the globe in 2006 with its daily production of about 50,000 barrels. Korea, the world's fourth-biggest oil buyer, imported 97% of its energy needs as of 2007. By 2012, the incumbent administration aims to own overseas oil and gas fields that would meet 18% of local demand, up from 4.2% in 2007. The government agreed with Cameroon government to send a survey team to Cameroon to examine opportunities to explore energy and mineral reserves of the resource-rich nation. Cameroon has the third-largest natural gas reserves in Africa. Iraq¡¯s oil minister said that his government will not recognize any oil deals that the northern Kurdish self-governing region has unilaterally inked with foreign companies. The Kurds have signed 15 production-sharing contracts with 20 oil companies. The ministry has threatened to exclude and blacklist participating oil companies from future opportunities in other parts of Iraq. Iraq¡¯s Oil Ministry ended Korea¡¯s SK Energy¡¯s term contract to import Basra crude oil because it refused to abandon its exploration project in the Kurdish region as part of a Korean consortium.
Koreans consumed a total of 63.46 mil barrels of oil and Petroleum-related products in Feb, down 2% on year, amid high crude oil prices in global markets, marking the fourth consecutive month decline. The military is joining a nationwide campaign to save energy. The Defense Ministry aims to cut oil consumption by up to 11% from this year's quota, taking emergency measures to cut their oil use. The Army plans to save 180,000 barrels of oil, worth KW27.2 bil.
President Lee installed 24-hour hotlines so that companies may directly access the president himself to discuss corporate policies, without having to go through his secretaries first. Lee committed to creat a friendlier environment for companies, so as to spark corporate investment and rejuvenate the economy. The government will introduce a set of measures this year to help companies protect themselves from hostile takeover bids. The ministry also pledged more stringent punishment of violent and illegal collective action by labor unions and interest groups. Businesses welcomed the policies and responded with promises to boost employment and enhance competitiveness. The ministry has decided to accommodate corporate demands for measures to fight hostile takeover bids, including the "poison pill" and a dual class stock system, which are in place in USA, Japan and other advanced economies. The measures would ensure that companies focus on business activities and long-term growth without concerns about their managerial rights. But civic groups and shareholder activists oppose the measures, saying that they will only help consolidate chaebol families' control of their business affiliates, at the cost of corporate governance and minor investors' interests. Chung Mong-joon, the biggest share holder of HHI, topped the stock wealth list with KW3.63 tril last year, received KW61.5 bil in dividends. Chung Mong-koo, HMC Group chairman and elder brother of Chung Mong-joon, ranked second, receiving KW30.8 bil from 5 Hyundai Motor related affiliates. Third place went to Lee Kun-hee, chairman of Samsung Group, who earned KW21.6 bil in dividends, followed by KCC Group chairman Chung Mong-jin with KW16.7 bil, GS Group chairman Huh Chang-soo with KW14.7 bil, LG Group chairman Koo Bon-moo with KW13.6 bil, KCC Group honorary chairman Chung Sang-young with KW10.8 bil, and LG International vice chairman Koo Bon-joon with KW10.2 bil.
The Korean steel industry is expected to spend the largest-ever amount of money on new plants and equipment in 2008 to meet growing domestic demand. The facility investment by 33 companies is predicted to reach a record KW7.06 tril ($7.37 bil) this year, up 63.2% on year. POSCO broke ground in California on a plant which will have the capacity to produce up to 270,000 mt of steel pipes annually for transporting gas and petroleum, in accord with API specifications, with a thickness of up to 25.4 mm and diameters varying between 61 -162.5 mm. The $129 mil joint venture spearheaded by POSCO, SeAH Steel and US Steel to make steel pipes is to be completed by April next year, and will be fully operational by the following year. The project is the second-largest of such ventures in California, following USS-POSCO Industries, a JV between POSCO and US Steel that was established in 1986 to produce cold-rolled and galvanized steel. Hyundai Steel, Korea's second-largest steelmaker, may spend KW2.3 tril ($2.4 bil) to build a third blast furnace by 2015 as demand for steel used in cars and ships soar. The plant may produce 4 mil mt of steel a year. Output from its first 2 blast furnaces under construction will start from 2010 with a combined capacity of 8 mil tons a year. It has secured 70% of the 13 mil tons a year of iron ore needed with Rio Tinto Group and Cia Vale do Rio Doce. It expects to complete a contract with BHP Billiton to buy as much as 5 mil tons of iron ore by June. It also expects to confirm an accord to buy 1.5 mil tons of coking coal from Rio. Hyundai Steel currently produces 11 mil tons of steel from its electric-arc furnaces.
Hyundai Motor (HMC) signed an agreement with the St Petersburg government to build a $400 mil assembly plant in the Russian city by 2010 to. The company plans to make 100,000 vehicles annually in the city¡¯s Kamenka industrial zone. Hyundai Mobis, Korea¡¯s biggest auto parts maker, will build a plant in the same location. Kia Motors Corp, the country¡¯s second-biggest carmaker, will replace co-chief executive officer Chung Eui-sun, the 37-year-old son of the company¡¯s chairman, after profit dropped 98% during his 3 year tenure. He will remain a board member with the title of president and be in charge of overseas operations. Kia, 39% owned by HMC, has lost customers in China to Toyota Motor and General Motors. HMC signed a deal to export 5,100 CKD kits of its Aero bus to Caparo India Private Ltd by 2013. HMC announced that its Indian subsidiary Hyundai Motor India's exports broke the 500,000 units mark. By Oct 2004, the company's exports exceeded 100,000 units and its exports have increased by 100,000 units each year. Hyundai Motor India currently has an annual production capacity of 600,000 units. Kia Motors has opened a new training facility in US state of Georgia, the first building of the planned US$1.2 bil automobile factory there in 2009, as part of its global expansion plan. Once completed, Kia in the USA will produce 300,000 vehicles a year.
Korea's 2 major mobile-phone makers, SEC and LGE, are battling it out in the premium touch-screen phone market. Samsung introduced the Haptic phone, stressing that the new product features an innovative user interface specially designed to enhance the convenience of touch-screen phones, while delivering more fun to users. LG, which launched the first full touch-screen handset PRADA in early 2007, is continuing its touch-screen momentum with Viewty, a 5-megapixel camera phone which also has a touch-screen. SEC was the No1 supplier of DRAM chips last year in all of the 5 product categories, chips for personal computers, servers, graphics, mobile and consumer applications. Korea's 2 major chipmakers, SEC and Hynix, together covered 44% of the global DRAM supply last year. Samsung took the share with a 22.7%, and Hynix with 21.3%, followed by Qimonda of Germany at 9.7%, Elpida of Japan at 8.8% and Micron of USA at 7.7%. SEC was a leader in the Mobile DRAM field, with a 46% share, followed by Elpida at 34.9%. Hynix and Qimonda with market shares of 6.7% and 4.4%, respectively. Samsung, Hynix and Qimonda rounded out the top 3 in the graphic memory segment, with their market shares standing at 33.9%, 28.6% and 27.9. SEC ranked No 1 out of all cell-phone makers in the Brand Keys Customer Loyalty Engagement Index in USA for the seventh straight year. Samsung also came out first in categories of LCD TVs and DVD players. Japan¡¯s camera makers control 70% in the $22 bil global digital camera market, which is expected to have grown 15% in 2007 and expand 11% this year. But Samsung Techwin is making a serious bid to build its brand to take on the big guns. Samsung Techwin more than doubled its digital camera market share to 7.8% in 2006, making itself the fifth-largest digital camera maker behind Canon, Sony, Eastman Kodak and Olympus. Samsung Techwin aims to boost its digital camera sales by 46% to 17.5 mil units this year and become the world¡¯s No 1 digital camera maker by 2010. SEC reduced its market share gap with Motorola in the mobile phone market in USA last year. Motorola's market share stood at 34.6% last year, falling 3.2% on year, while Samsung's rose 3.3% to stand at 18.2%. Samsung Group turns 70 years old. From its humble beginning as a small trading company exporting fish, vegetables and fruits, the rise of Samsung to one of the world's major corporate giants is considered as epitomizing the country's rags-to-riches rise. However, the Group is facing one of its toughest challenges now, the outcome of which could set the course of the conglomerate for decades to come. They will hold no major events to celebrate the anniversary. It canceled celebrations for the 20th anniversary of chairman Lee Kun-hee's inauguration last Dec.
A majority of Korean CEOs think the ongoing independent probe of Samsung Group¡¯s corruption scandal will have a positive impact on Korea¡¯s economy by enhancing corporate transparency. Hong Seok-hyun, chairman and publisher of the JoongAng Ilbo, Samsung chairman Lee Kun-hee's brother-in-law, is claimed to have abandoned his company's right to acquire convertible bonds in Samsung Everland, the nation's largest amusement park operator, in exchange for ownership of the major daily. The purported goal was to help Lee's only son, Jae-yong, acquire a controlling stake in 1996 at below market price, so as to facilitate the father-to-son transfer of managerial rights. The younger Lee, a senior executive of SEC, currently holds a 25.1% stake in Everland, the group's de facto holding company. The case is pending in the Supreme Court. The inquiry team has decided not to charge Lee Jae-yong and 27 group executives, citing lack of evidence. The civic groups that filed the suit said they will appeal the case. Investigators raided the Samsung Life Insurance. Group chairman Lee Kun-hee and his family are suspected of owning shares of the insurer, a de facto financial holding company, under the names of company executives. The inquiry team is verifying whether dividend payouts for shares of the group's life insurance unit were used to amass slush funds in an attempt to evade taxes. The team confirmed that the group has been operating about 1,300 bank and stock-trading accounts under names of more than 1,000 former and current executives. The Korea Federation of Small and Medium Business urged the independent counsel leading the Samsung probe to swiftly conclude the investigation, as many companies that have business interests with Samsung are struggling to stay afloat, battered by the delays and suspensions of projects and investment plans related with the group. The country's 5 major business organizations released a joint statement to call for an early close to the Samsung investigation. Samsung accounts for one-sixth of Korea's GDP, one-fifth of stock market capitalization and one-fifth of the country's total exports. The investigative team is widely expected to extend its inquiry deadline for a second time by 15 days from the current April 8.
Kumho Asiana Group signed an official contract to buy a 60% stake in Korea Express, the nation's largest overland shipping company, for KW4.1 tril ($4.4 bil), becoming a global logistics group. Korea Express has been under the control of the court since Nov 2001 in the wake of the 1997 Asian financial crisis. Kumho Tires opened its plant in Binh Duong province near Ho Chi Minh City. The $200 mil plant is Kumho Tires' fourth overseas plant and has an annual production capacity of 3.15 mil tires, considering further expansion for the Vietnamese plant's output to 13 mil tires a year. With the completion of the plant, Kumho Tires now has 4 overseas plants and plans to expand its Chinese plants to raise their combined annual production capacity to 34 mil tires. The company is also planning to begin the construction of an additional plant in Georgia, USA, during the first half of this year.
Doosan Corp has agreed to buy a 53% stake in Tongmyung Mottrol, the No 1 maker of hydraulic motors and pumps in Korea, for KW104 bil ($110.79 mil). Doosan Heavy Industries, Korea¡¯s biggest maker of power equipment, has won a KW311 bil ($318 mil) deal from Kuwait¡¯s Ministry of Electricity and Water to build a Reverse Osmosistype disalination plant in Kuwait. The plant will produce 140,000 tons of water a day when it is completed in Sept 2013.
SK Telecom, the top mobile carrier, has entered China's rapidly growing music industry by acquiring a 42.2% stake in TR Music, becoming one of the label's 2 largest share holders, along with Taihe Media. The deal is valued at over $10 mil. TR Music, the largest Chinese music company, owns copyrights to about 1,000 songs by popular stars. SK Telecom has launched a mobile financial service firm with US-based Citigroup, tapping the growing mobile banking market in USA and other nations. The 2 firms have invested a combined $16 mil in the 50/50 joint venture, called Mobile Money Venture.
Hynix Semiconductor, the world's No 2 computer memory chip maker, completed the construction of a KW1.1 tril ($1.16 bil) production line with a monthly output of 20,000 wafers. The company considers investing an additional KW3.2 tril in the plant, depending on the market situation. The US Department of Commerce decided to slash the countervailing duties imposed on Hynix Semiconductor for the calendar year 2005 by 8% to 23.78%, from 31.86% for the previous year. Following the decision, it estimated that only a 5% tariff would be levied for 2006, and none of countervailing tariff for 2007. Rambus Inc, the designer of chips for Sony's PlayStation video-game console, won the final phase of its patent suit against Hynix. The jurors in federal court in San Jose, rejected claims by Hynix, Micron Technology and Nanya Technology that Rambus illegally used information obtained at industry meetings in the 1990s to get its patents. Hynix may appeal to a higher court. The verdict concludes a 7-year patent-infringement lawsuit against Hynix. It allows Rambus to collect a $133.4 mil award against Hynix in 2006 after a jury found it infringed Rambus's patents.
LG Electronics, Korea's leading maker of domestic appliances, marks its 50th anniversary. LGE was started in 1958 as Goldstar, a small manufacturer of radios, by the late founder Koo In-hoe, the grandfather of LG Group chairman Koo Bon-moo. It has grown exponentially: In 1959, it became the first company to manufacture radios; in 1961 the first to make automated telephones; in 1965 the first refrigerator. Other innovations include the black-and-white TV in 1966; the window-type air conditioner in 1967; the washing machine in 1968, and the color TV in 1977. In 1958, the company had only 300 employees. There are now more than 82,000, 50,000 of whom are in foreign countries. The firm operates in about 120 countries, and has 82 overseas units. Revenues, which amounted to KW50 mil in 1959, were KW41 tril last year.
MONETORY AND ECONOMIC INDICES
Korea Composite Stock Price Index fluctuated through out the month. It started month at 1617, moved up to 1697 by the gains among exporters, plunged to 1574 on the news of Bear Stearns bankruptcy, then recovered 1700 level after Wall Street rallies, to end the month at 1709. Investors from the oil-rich Middle East sold off Korean shares with net-selling of KW275 bil ($280 mil) in Jan, while Chinese investors tip-toed into Korean markets with net buying of KW25.1 bil ($26.5 mil).
The exchange rate of KWon has been uncontrollably shaken. KWon started at 947 against USDollar, broke 1000 barrier for the first time in 27 months to reach 1029 on the news of Bear Stearns bankruptcy, soaring crude prices and foreign investors¡¯ continuous selling the local currency after dumping Korean stocks, and sending dividends abroad, recovered to 981 after the finance ministry¡¯s indication of intervention into the market, to end the month at 991. The Finance Ministry and BOK had agreed to set up a joint team to monitor the currency market and act if KWon maintains its sharp fall against the dollar. On Oct 1, 2007, KWon peaked at 913.7, the strongest it has been since the 1997-98 Asian financial crisis, then closed highest at 1,029 on March 17 this year. KWon has lost almost 9% this year against USDollar. The Korean currency's loss was compounded by the unwinding of carry trades, where Korean companies borrow JYen to invest in higher-yielding countries, as well as the reversal of hedging by institutional investors who built KWon positions after overseas stock investments. KWon¡¯s depreciation contrasts with other Asian currencies. JYen gained more than 15% versus the dollar over the past 6 months, while KWon lost around 10%. As of the end of March, the nation's foreign reserves increased by $1.88 mil to $264.3 bil from Feb.
BOK left its key interest rate unchanged at 5% in March for 7 consecutive months in an attempt to curb mounting inflationary pressures despite the slowing economy. The yield on 3 years corporate bond kept stable in the range of 6.1-6.06-6.24-6.01%. Korea¡¯s consumer prices rose 3.9% in March, breaching the central bank¡¯s inflation target range of 2.5-3.5% for a fourth consecutive month. The index also increased 0.9% in March on month, the largest climb since Jan 2005. Korea¡¯s producer prices rose to 6.8% on year at the fastest pace in more than 3 years in Feb. The government will freeze public utility fees and lift tariffs on price-sensitive products to curb rising prices amid concerns of a global recession. The new government also decided to take steps to seek to control the prices of the 50 items of household necessities to keep them at a minimum. The government plans to release 50,000 tons of state-controlled rice in April to help stabilize steady price gains. Rice is one of the 52 basic commodities and the country maintains an emergency reserve of about 1 mil tons of rice. Korea¡¯s jobless rate stood at 3.5% in Feb to an 11-month high as cold weather and the nation¡¯s Lunar New Year holiday discouraged people from seeking jobs.
SHIPBUILDING AND SHIPPING
Korean shipbuilders secured two third of global order grabbing 14 mil DWT out of total 21.1 mil DWT during Jan-Feb this year, followed by China with 5.5 mil, Japan 1.1 mil and Taiwan 0.4 mil DWT. Last year, China kept No 1 position in getting new building order of 153 mil DWT, and Korea was second with 96.4 mil DWT. The financial uncertainties brought the owners to Korea as a ¡°premium brand¡± for the secured quality and on time delivery of the ships, rather than taking just lower price. The weakening of KWon is in favor of Korean builders and the prices of steel plates are more reasonable in Korea. State prosecutors in Busan arrested a local businessman for stealing core technologies from one of the major shipbuilders. The accused sold secret designs to a Korean competitor, potentially causing the developer trillions of won in lost sales. The 35-year-old suspect stole technology documents for about 800 ships when he quit the company in 2006. The man sold part of the documents to a Korean shipyard for KW7 bil. The company spent KW68 bil ($70 mil) in developing the technologies, which are used in making about 80% of its ships.
International Oil Pollution Compensation Fund decided to pay upto $332m for clean-up costs and compensating victims, suffering with the oil spill from Herbei Spirit. It is about 60% of the victims¡¯ estimation that revealed the total scale of damage would be around KW352-424 bil. If claims exceed the limitation amounts, both the P&I club which pays on behalf of the shipowner and IOPC Fund, backed by cargo interests, are entitled to scale back settlements. The third trial on Hebei Spirit was opened on March 3. The prosecutors stated that both SHI and the owner should share the responsibility, while Samsung lawyer insisted that the VLCC moved about 200 m towards the crane ship, while tugs were sailing on a regular route before collision. In Dec last year, over 12,000 tons of crude oil leaked into the sea on Korea¡¯s central west coast when Hong Kong-registered VLCC Hebei Spirit hit a barge-carrying crane owned by SHI. The accident had ruined seafood farms and beaches covering thousands of hectares in the western coastal area.
Chung Mong-joon, a GNP lawmaker and the biggest share holder of HHI, is to donate KW20 bil ($21 mil) to a think tank he set up in honor of his father, Chung Ju-young, the founder of Hyundai Group, and to charity groups. Chung raked in KW61.5 bil in dividends in 2007, the highest dividend-earnings ever for an individual in the country. HHI plans to spend KW41.7 bil ($43.9 mil) in cash to set up a polysilicon-producing joint venture with KCC Corp, a chemicals producer. Polysilicon is an essential raw material in the production of solar cells for panels that convert sunlight into electricity. HHI raised its order target for this year by 9.7% to $29.4 bil on rising demand for high-priced ships, compared with an earlier estimated target of $26.8 bil. HHI is also expecting KW18.06 tril ($18.34 bil) in sales and plans to spend KW1.64 tril on investment this year. Ridiculing all the adverse prediction this year, HHI raked the orders for 25 ships worth $5.7 bil solely in Feb, the biggest ever monthly volume of order. The orders included 9 x 13.100 teu, 6 x 8,600 teu container ships, 5 x 318K VLCC, 1 x drillship, 1 x FPSO and 3 x 180K bulkers, all of which are high value added ships. HHI decided to notify the International Petroleum Investment Co to exercise a 'deemed offer' for the whole 70% stake in Hyundai Oilbank owned by IPIC aiming to bring the country's fourth-largest oil refiner back under the Hyundai umbrella. HHI is Hyundai Oilbank's second-biggest shareholder with a 19.87% stake with the pre-emptive right to buy the stake held by the state-owned Abu Dhabi company.
DSME contacted with NKorean officials in a bid to keep a joint shipyard construction project afloat and to conduct a geological survey in Anbyeon area. The shipbuilding project was part of a package of new inter-Korean joint businesses and projects agreed last Oct between South and North Korean leader. 2 governments agreed to conduct a joint geological survey in Anbyeon and Nampo in NK in the first quarter of this year as part of preparatory measures to build shipbuilding yards there. The Korea Development Bank is soon to start the process of selling its stake in DSME. KDB is the largest stakeholder, with a 31.3% stake and the state-run Korea Asset Management Corp is the second with a 19.1% stake. DSME¡¯s market value surged over the last 7 years since it graduated from a debt workout program in 2001. The company's market capitalization has ballooned more than 6 times to KW6.3 tril ($6.3 bil), from KW1 tril in 2001. POSCO, Doosan, GS and STX had been reported to show interest in buying DSME.
STX Pan Ocean and Korea Line Corp (KLC) are implementing an aggressive chartering strategy. STX PO is reportedly taking in 8 bulkers on one-year charters, while KLC has fixed another half-a-dozen for 2-3 years. At the end of the year, it had chartered in 298 vessels, as compared with 261 vessels at the end of 2006. STX PO attained a 287% leap in 2007 profits to $497 mil. KLC is said to have around 20 capesize newbuildings on charter, mostly for domestic charterers such as KEPCO and POSCO. KLC placed order with HHI for 2 x 320K VLCC for the delivery late 2010-early 2011.
Glovis, the logistics affiliate of Hyundai Motor, has signed a contract to buy 3 x PCTC from Eukor Car Carriers for $101.6 mil to transport cars built by Kia Motors. SH Marine declared bankruptcy and put itself under the court protection. SH Marine recently expanded faster than it can manage and freight has failed to meet its expectation. They have operated with small tankers of 3-9K, but suddenly jumped in the market chartering about 30K second hand chemical carriers at high rates. Furthermore, they were involved in delivery crunch with Chinese yard for the conversion of 5 x 30K class chemical carriers into double hull. The yard delayed delivery of 4 ships for 7-22 weeks and kept asking extras, while the vessels were firmly committed for 6-9 months.