Author : Hwang & Co
Date : 08-06-13 08:14
Hit : 19542
Topics. -President Lee visited China for summit meeting. -The government is shaken with the reentry of US beef. -The bird flu spread over the country. -Parliament failed to ratify KORUS FTA before the tenure ends. -Japan again provokes sovereignty over Dokdo Islet. -Labor dispute at Allianz worsened. -NK handed over 18,000 pages key records of plutonium activity, but failed to resume 6-way talks as scheduled.. -SKorea in dilemma to handle the food aid to NK. -Government starts to work for the sale of Woori, KDB and IBK Bank. -¡°Posion pill¡± to be chosen against hostile M&A. -Samsung and LG start cross procurement. -Samsung, Intel and TSMC agreed on collaboration. -Hynix approved for the technology transfer to ProMOS. -Daewoo seek to revive its past glory in Uzbekistan. -Consumer price rose to highest in 7 years. -Korean yards optimistic on the market. -Earning surprise of Korean yard in first quarter. -HHI broke ground on new yard in Gunsan. -HHI acquired financial firm. -Doosan Infra jumped in the race to acquire DSME. -STX developed 22,000 teu design.
GOVERNMENT AND SOCIETY
President Lee myung-bak paid state visit to China during May 27-30. Lee held summit talks with Chinese President Hu Jintao and agreed to raise SKorea-China relations from the comprehensive cooperative partnership to a strategic and cooperative partnership. The new strategic relationship would include dialogue between the foreign ministries and cooperation in areas such as trade, environmental protection and nuclear energy. Lee also met Chinese PM Wen Jiabao and held in-depth discussions on ways to widen bilateral practical economic cooperation in the fields of energy, IT, atomic power generation and natural resource development. President Lee visited on May 30 China's earthquake-devastated Sichuan Province to deliver his condolences to the Chinese people suffering from the unprecedented natural disaster, contributing to boosting mutual friendship and trust between 2 countries and their peoples. The Foreign Ministry mobilized Korea's emergency headquarters at the consulate general in Chengdu and the Korean Embassy in Beijing, in addition to dispatching officials to the site of the disaster by unprecedented earth-quake. Korea sent 41 rescue workers with sophisticated equipment to help search for survivors. Korea also sent emergency aid including 1,300 tents and 5,000 blankets to Chengdu by special plane. The Korean government has pledged emergency aid worth $1 mil. Firms and banks promised to donate aid worth about $2.43 mil, with SK Group contributing $1.4 mil.
The 3-month-old Lee administration has been shaken by a mounting barrage of criticism for agreeing to the reentry of US beef. Resuming the beef importation was one of the 4 preconditions Seoul agreed to in return for the FTA with Washington. In April, Seoul agreed to resume US beef imports, allowing beef on the bone from cattle of any age, except for selected parts which are deemed to have a higher risk of transmitting the human form of mad cow disease. Seoul previously accepted only boneless beef from cattle under 30 months old. Korea was the third-largest market for American beef before it banned shipments in Dec 2003, following a confirmed case of mad cow disease in USA. Many Korean consumers are confused as to whether it is safe to eat US beef. The public concern over the resumption of US beef imports was bolstered when a recent TV program made the suggestion that Koreans were innately more vulnerable to the human form of mad cow disease than Americans and Britons. The program also reported that downed cattle were slaughtered and sold in USA, leading to a massive recall of US beef early this year. The program sparked public outcry over the Lee administration's decision to lift the ban on US beef imports. Tens of thousands of people participated in a series of candlelight vigil across the nation, in downtown Seoul, Busan, Jeju and Cheonju. The people continued their protest stretched overnight occupying roads and trying to march toward the presidential office of Cheong Wa Dae causing clashes between police and protesters in the demonstration. Illegal protests have led to scuffles with police and caused traffic jams in central Seoul for consecutive days. On May 27, police apprehended a total of 97 protestors. Opposition lawmakers continued to pound the government, demanding a delay in implementation and that the deal be renegotiated. In an interpellation session of the National Assembly, the oppositions slammed the government for "giving up national health and quarantine rights." The US Department of Agriculture reasserted that American beef is "among the safest in the world" and does not pose human health risk. A top US trade official recognized Korea's right to suspend beef imports if mad cow disease occurs in USA. Korean associations in USA are seeking to calm the growing angst in their homeland over the importation of US beef. They expressed their concerns over "groundless fears". President Lee tried to calm the rapidly spreading angst over US beef and urged opposition parties to stop fanning ungrounded fears about mad-cow disease and "politicizing" the trade issue. Lee insisted it would bring cheap, good-quality US beef to Korean tables. The government and the ruling party had ruled out any possibility of renegotiations. The Cabinet will push for a revision of the law to require all restaurants to specify the country of origin of the meat they serve so that all consumers will be able to distinguish between domestic and imported beef. The government will ban imports of specified risk materials, brains, eyes, spinal cords, and other organs, if they do not carry a label that proves the animal was younger than 30 months when butchered. Seoul has made an additional agreement with Washington to have the right to ban US beef imports if they pose health risks, confirming both partners' top priority on public safety. The government sent 9 officials to 31 US meat-processing facilities from May 12-25 to check whether US butchers properly remove risky materials and they made a report that they did not find problems with the sanitary conditions of US meat-packing plants. The Korean government took the final administrative step on May 29, announcing the new import conditions in a news conference, in which the government will take immediate actions to protect public health and the local cattle industry. The new rules take effect as soon as they are published on the government gazette, likely on June 3. Thereafter, quarantine inspection starts for some 5,300 tons of US beef stored in container yards. New shipments of US beef are expected to enter the local market around the end of June.
Government called on the National Assembly to ratify the Korea-US FTA within the current session. The 17th National Assembly was scheduled to end on May 28. A new parliament will be formed in June, with newly elected lawmakers. The National Assembly's new special session opened on may 26, but opposition parties boycotted all proceedings. The 4-day session was convened on the request of the GNP as part of the ruling party's last-ditch struggles to win parliamentary ratification for the Korea-US FTA, before the tenure of the current Assembly ends. GNP urged a prompt ratification to help the nation reinvigorate its sluggish economy and create jobs for youth. However, the oppositions rebuffed the ruling camp's calls, pledging an all-out struggle to push the government to renegotiate the beef accord.
The bird flu pandemic that has spread to 6 of Korea's 9 provinces hit Seoul at last. Tests confirmed that 2 pheasants that died last week in a vivarium at a ward office in eastern Seoul were found to be infected with the H5 avian influenza virus. Most of the initial bird flu cases reported this year were centered in the Jeolla region in southwestern Korea. It has since spread through most of the country including Gyeongsang region in the southeast and 2 cities in Gyeonggi Province, south of Seoul. Health officials issued emergency warnings to all hospitals in Seoul to watch out for possible bird flu symptoms. A total of 34 cases of the highly pathogenic avian influenza, which could lead to disease in people, have been confirmed nationwide. The measures came after it was confirmed that 2 dead pheasants were found to be infected with the virus in Gwangjin Park in eastern Seoul. Over half a mil people visited the nearby Children's Grand Park on Children's Day, following the deaths of 2 pheasants and 5 other birds. This is the first time the virus has hit the capital. As a follow-up measure, the regional government held blood tests and medical examinations, as well as administering antiviral drug Tamiflu to the residents living in farming areas and health officials in charge of decontamination. The government decided to prohibit the sale of live chickens and ducks to consumers and merchants at markets nationwide, since they are the locations most vulnerable to diseases. Korea plans to increase its emergency reserves of the Tamiflu for up to 2.5 mil people from the current reserve for 1.24 mil by the end of the year to cope with humans possibly contracting the virus amid the country's worst bird flu outbreak. Korea has culled more than 6.8 mil birds since the latest bird flu outbreak started on April 1, causing KW53.2 bil ($50.8 mil) in estimated damages. Even though no human deaths have been reported in Korea, some 240 people have reportedly died from the deadly H5N1 strain around the world.
President Lee met Microsoft chairman Bill Gates and discussed cooperation in the areas of automobile-based IT and computer games. The president also named Gates, as one of the government's "global advisers" on formulating policies for pushing Korea to advanced country status. The presidential office plans on naming around a dozen other such advisers, from scholars, business people and country leaders. The software magnate met with Hyundai Kia Automotive Group to sign a MOU for jointly developing automobiles equipped with sophisticated IT features. Microsoft signed a separate deal with the Institute for Information Technology Advancement to establish a global gaming center here, where Microsoft plans to invest up to $20 mil by 2012. The software company also will jointly educate professional gamers.
The Korean government warned against the reported move by Japan to reinforce its sovereignty claim over the Dokdo islets in the East Sea by revising its school curriculum. Seoul's measures followed media reports in Tokyo that the Japanese Education Ministry will describe in a revised curriculum handbook the rocky islets as its territory. The revision is conducted every 10 years. Japan's latest provocation came barely a month after President Lee and Japan's PM met in Tokyo for summit talks and vowed a future-oriented partnership through expanded economic cooperation. The handbook also contains Japan's argument regarding 4 other islands currently in a sovereignty debate with Russia. Like many of his predecessors, President Lee began his office this Feb with energetic ambitions to put the historical row with Japan in the past and to prioritize economic cooperation. But it did not take long before the vicious cycle of controversy turned again. Some say the challenge came sooner than anticipated. Korea and Japan are mainly at odds over the sovereignty of the Dokdo islets in the East Sea. Korea, which controls the islets with a group of permanent maritime police, views Dokdo as a symbol of its independence from Japanese rule.
The prolonged labor dispute at Allianz Life Insurance Korea worsened when the management executed a lockout after a 115-day standoff with unionists over an incentive-based compensation system. Allianz acquired local insurer Jeil Life in 1999 on the back of the 1997-1998 financial crisis. Allianz reported a huge loss for the first 3 years. After a series of capital increases and marketing efforts, the company returned to the black in 2002, 2003 and 2005. Last year it is estimated to have made a net profit of KW49 bil ($47 mil) after posting a profit of KW125.1 bil in 2006. It is the second-largest foreign insurer after ING Life Insurance, with a market share of 3.9%. The labor union insists that the management made a unilateral decision to introduce a performance-based salary plan. The union represents 1,300 employees, including more than 200 branch managers. Company assessed many union members have given up their membership, and only 936 out of the 1,570 total employees were still members. The European Union Chamber of Commerce in Korea brought the case to the presidential office last month, calling on the Korean government to take action to end what it calls an "illegal strike." The Labor Ministry reiterated its stance that the government will not intervene in the Allianz dispute.
The nationwide average price for diesel fuel surpassed that of gasoline for the first time, putting a further strain on truckers and transportation businesses. The average price for a liter of diesel shot to KW1,892 ($1.84), higher than KW1,888.38, the average price of gasoline. Higher prices are eating away the already-thin profit margin of freight and transportation businesses and increasing the burden on farmers, fishermen and low-income households. The truckers are threatening collective action, unless the government expands the oil tax exemptions or reduces the taxes on diesel fuel.
SKorea is one of the lowest birthrate countries in the world. As of 2006, the total fertility rate was 1.2, a steady decline from 1.6 in 1990 and 1.4 in 2000. SKorea had the lowest rate among 193 countries surveyed. Japan had the second lowest birthrate of 1.3, with Singapore, Germany, Italy and Switzerland had a rate of 1.4. Korea joined UN's list of "aging countries" in 2000, as citizens aged 65 or older comprise over 7% of the total population. The percentage of senior citizens rose to 9.9% in 2007 and is expected to climb to 14.3% in 2018 and to 20.8% in 2026. Beginning in Jan, about 60% of the total senior population, or 3.01 mil seniors, started receiving monthly pension premiums that range KW20,000 ($19)-KW84,000, which is far lower than the one-member household's minimum monthly living costs, set by the government at KW460,000. Korea spent 6.4% of its GDP, or KW54.5 tril ($52 bil), on medical costs in 2006. Each Korean spent an average of KW1.13 mil in medical fees, 12% increase from 2005. OECD members spent an average of 9% of their GDP on medical costs in 2005.
NORTH KOREA AND NATIONAL DEFENSE
NK has handed over the key records of its plutonium activity to the visiting US team of experts. The documents detail its weapons-grade plutonium program as far back as 1986. The 18,000 pages covered 3 major periods when plutonium was produced by NK for nuclear weapons. The next step includes thorough verification of the North's declaration, which would involve on-site visits by a multinational team of nuclear experts.
USA still argues that NK must fulfill its other obligations, including a full declaration of its nuclear programs that is complete, correct and verifiable, dismantlement of its plutonium production infrastructure, abandonment of any alternate route for producing nuclear weapons materiel, and an end to all proliferation activity. The State Department said over the weekend that 8 out of 11 disablement activities have been completed. They include discharging spent fuel rods from the reactor, disabling the control rod mechanism and disabling the fresh fuel rods. The next step of verification would involve having access to the sites to take sampling and interviewing those involved in the nuclear programs.
After deciding whether the documents are legitimate and helpful for scientific verification, Washington is likely to begin the process of removing NK off the list of states sponsoring terrorism, one of the key incentives promised to the North in return for its disablement of nuclear facilities and declaration of its nuclear programs. Pyongyang is also in the process of receiving bulks of energy aid that would be eventually worth a total of 500,000 tons of heavy fuel oil. Separately, the US administration was working on a new proposal to send food aid to the North with better food monitoring system. One of the potential sticking points in the next phase is the North's long-held demand for a light water reactor. The members to the 6-party talks had agreed on the Sept 19 Joint Statement in 2005 to discuss the matter of a light water reactor at an "appropriate time." The light water reactor was a key incentive for NK back in the 1990s upon the Geneva Agreement on denuclearizing Pyongyang. But the construction of the reactor was halted on the second nuclear crisis in 2002 following fresh allegations that NK was running a clandestine uranium enrichment program.
SKorea has developed the core technology for radar-evading stealth fighters and is preparing for a test flight of a fighter equipped with the technology. The Agency for Defense Development successfully conducted a test flight of a miniature fighter equipped with the technology late last year. SKorea has a plan to begin purchasing up to 60 stealth fighter jets, like F-22s or F-35s, in 2012 for deployment until 2019. The US House passed legislation that eases restrictions on arms sales to SKorea. The Resolution gives SKorea the same status as members of NATO, Japan, Australia and New Zealand regarding US military sales to other countries.
Korea is in dilemma to handle the food aid to NK, as USA unilaterally prepares food aid of 500,000 tons of rice to NK. There is a principle that South can only give aid when the North requests it. Cheong Wa Dae is also apparently mindful of the fact that Pyongyang has been accelerating its offensive against Seoul and its new President Lee, and the North is unlikely to make any direct plea for help for the time being. Observers argue that the longer the Lee administration holds off its humanitarian assistance, the stronger both international and domestic pressure will become. South can try substantially helping them through international organizations. There is a budget at the Inter-Korean exchange and cooperation promotion on medical aid through WHO and the UNICEF worth KW10 bil ($9.9 mil). The North has been suffering from a chronic food shortage, estimating that between 200,000-300,000 people could die of hunger. It needs at least 1.42 mil tons in humanitarian aid to get by this year. A total of 2.1 mil tons of rice was sent on loan between 2002 and 2007, except in 2006 when the North conducted missile and nuclear weapons tests. SKorea plans to donate more than $1.18 mil worth of anti-malaria supplies to NK. The donation will be made through the World Health Organization to buy medicine and diagnosis equipment.
The US federal aid agency announced it is resuming food aid to NK with an agreement on improved monitoring and access in the communist state to ensure its assistance is reaching the intended recipients. USA intends to provide NK with 500,000 tons in food commodities over the course of a 12-month program beginning in June 2008. The first shipment is expected in June. The US decision to resume food aid to NK came as hopes for the reopening of the 6-nation talks aimed at denuclearizing the North were increasing after months of standstill.
ECONOMY AND POLICY
The government is targeting growth of 6% in 2008 after the economy expanded 5% last year. Korea economy expanded in the first quarter this year to 5.8% on year, the slowest quarterly growth since the fourth quarter of 2006, as facility investment dipped amid slowing domestic demand.
The price of Dubai crude, Korea's benchmark, soared 66% in the first quarter of this year on year. Imports jumped 28.5% in April on year, and exports rose 26.4%. The surplus on traded goods widened to $1.65 bil from $474.5 mil in March as exports surged. The Finance Ministry forecasted that the current account deficit is estimated to reach as much as $10 bil this year.
The government plans to sell some 20% of Woori Finance Holdings shares over the next 6 months, reduce the ownership of Woori to 51% from 72.97%. The remaining 51% stake would be put up for sale later on. The stock sale of Woori Finance and the IBK could come ahead of the complete privatization of the KDB. The Government is preparing to sell a 49% stake in the KDB by 2010 after reshaping it into a holding company and unload the remaining 51% by 2012. Moody's Investors Service has cut down its credit rating of the KDB to negative from stable, saying the privatization plan could affect the credit status of the policy bank in the coming years.
Woori Bank, a flagship banking unit of Woori Financial Group, has pursued aggressive expansion while making sound progress in terms of profitability, growth and asset quality. Last year, Woori's total assets reached KW218.5 tril with its non-performing loan ratio at a record low of 0.63%. The lender's total deposits soared 37% to KW107.6 tril from KW78.3 tril for the past 3 years. An acquisition of non-banking businesses, such as Hanmi Capital and LIG Life Insurance would help Woori diversify its revenue structure and create value as a financial holding company. In order to enter the insurance industry, Woori Finance formed a consortium with AVIVA to acquire a 92% stake in LIG Life Insurance. Woori added LIG Life Insurance as its subsidiary and re-launched LIG Life Insurance as Woori Aviva Life Insurance last month to provide comprehensive financial services to Woori Group customers to meet their insurance demands. Kookmin Bank's stellar performance in retail banking is reflected by the sheer number of branches spread out nationwide totaling 1,205, and the number of customers reaching 26 mil as of 2007. After becoming the first local financial firm to achieve KW2 tril ($1.9 bil) in net income in 2005, Kookmin further raised its net income to KW2.77 tril in 2007. The bank is also the largest mutual fund seller in Korea, with the total sales of KW36.4 tril as of Dec 31, 2007. As of March, the bank's total asset amounted to KW233.1 tril, up 16.9% on year. Despite the fierce competition with domestic banks, Kookmin's loans in KWon, the major income for the bank, rose 17% on year to KW159.4 tril as of March. Kookmin's ratings have been upgraded by Standard & Poor's to "A" from "A-" based on improving quality of assets and solid profits. In March this year, Moody's Investors Service gave an "Aa3" rating to the bank. Kookmin agreed in March to purchase a 30% stake in Kazakhstan's Bank CenterCredit, spending KW620 bil to buy a 30% stake to increase its holdings further up to 50.1%. Kookmin is planning to turn itself into a financial holding company in Sept with the Capital Market Consolidation Act taking effect in 2009. The leading bank acquired a small securities firm Hannuri in Nov last year to enter the brokerage market.
The government is contributing $3.5 bil to a new fund to provide loans to finance infrastructure projects under the Asian Development Bank over the next 3 years. Korea's short-term borrowings rose to $158.7 bil, which accounts for about 42% of the $380 bil in overseas debt, as of late 2007, stemming from increased foreign exchange hedging activities by Korean exporters. The growing popularity of investments in overseas equities and funds played an important role in increasing hedging activities at Korean brokerages as well.
Korea Gas Corp, the world's biggest buyer of LNG, and Gazprom OAO, the biggest natural-gas producer, extended an agreement until 2013 to secure a stable supply of the fuel. Under the deal, KOGAS is seeking to import 1.5 mil m tons of gas a year from Gazprom's Sakhalin-2 project. The 2003 agreement between the companies was initially scheduled to expire at the end of May. Korea Resources Corp and Daewoo Int plan to jointly invest A$5 mil ($4.8 mil) in an Australian nickel project over the next 3 years. The Koreans will get a 50% stake in the project near Laverton. Korea, the world's fifth-largest oil importer, purchased 1.4% less oil in April on year, or 67.1 mil barrels, but the import bill shot up 57% to $6.69 bil because of high prices.
The government plans to cut the maximum corporate tax rate to 22% from 25% in June to help spur economic growth, as the global slowdown puts brakes on the economy. The government decided to choose the "poison pill", above other anti-acquisition measures like the "golden share" strategy, and the dual class stock system. Poison pills allow firms to issue new shares to existing, friendly shareholders at a discount, effectively diluting a hostile bidder's stake. Corporate circles have long demanded these self-defense tools, as Korean companies have become increasingly vulnerable to foreign takeover bids in recent years. 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. As many as 70 energy firms and other corporations in the group of 305 state-owned enterprises will be subject to the government's privatization plan. A blueprint for public sector reform includes the privatization of the KOGAS, the Korea District Heating Corp and sales of subsidiaries of the Korea Electric Power Corp. Public enterprises account for more than 10% of the GDP. Under the grand restructuring project, the number of state-owned enterprises will shrink to 250 from the current 305, and the total number of employees could be reduced by 59,000 to 200,000.
Samsung Electronics (SEC)'s share of the Chinese mobile phone market rose to a record high in March to 16.3%, widened its lead over Motorola at 9.2%. Nokia leads the market with 44%. Since Nov 2007, SEC¡¯s monthly sales increased 60% to 2.4 mil units in March. Samsung SDI, the display affiliate of SEC, has developed a new display screen, the 12.1-inch prototype, ideal for use in laptop computers, in another step toward the full commercialization of AM OLED screens. AM OLED is billed as a next-generation display technology which will one day replace LCD panels currently favored in electronic gadgets such as TV, computer monitors and handsets. SEC has raised its share of the global TV market to 20.8% in the first quarter of this year, both tube TVs and flat-screen sets, on a revenue basis. Sony saw its market share drop by 1.2% to 13.2% and LGE came in third with 11.6%. SEC has developed the world's fastest solid-state drive, a new-concept storage device promising to replace traditional hard disks in laptop computers. The new SSD can store 256 gigabytes, and is 2.4 times faster than current hard disk drives and only 9.5 mm thick. Samsung plans to begin mass production of the 2.5-inch 256GB SSD by the end of 2008.
Samsung and LG, Korea's top 2 electronics makers and bitter rivals in the global market, are likely to procure TV screens from each other. In a deal, SEC buys 37-inch LCD modules from LG Display, while LGE purchase 52-inch ones from Samsung, starting from July. Currently, Samsung self-produces 40% of the LCD panels it uses in TV and buys the rest from display firms in Taiwan. LGE buys 66% of the TV screens from its affiliate LG Display and depends on shipments from Taiwan for the rest. Samsung and LG will also jointly develop a mobile TV technology. 3 global chip manufacturers, SEC, Intel Corp and TSMC, have agreed on the need for collaboration to move on to the 450 mm wafers starting in 2012 for continued growth of the chip industry. Intel is the world's largest chipmaker and SEC ranks No 1 in the field of memory chips while Taiwanese TSMC is the top foundry. With the planned transition, the firms are likely to strengthen their lead over those who have been trying to keep up. Some smaller players have not completed their transition from 200 mm to 300 mm. The bigger wafers help lower the production cost dramatically. The fixed price of 512 Mb and 667 MHz, main products of DRAM, raised $1.06 from $0.91 in April, giving the industry a hope that the price hit the bottom.
LG Display, the world's second-largest maker of LCD, plans to acquire 2.04 mil new shares, a 20% stake in Korean LCD equipment maker Avaco, for KW6.2 bil ($6.1 mil), becoming the second-largest shareholder LGE unveiled the world's slimmest LCD TV. The Scarlet Super Slim is 44.7 mm thin, 0.2 mm thinner than the 44.9-millimeter Bordeaux 690 which SEC introduced in April. Flat-panel TV sets, using LCD, are typically about 105 mm thick. LGE recently launched Scarlet TV series, planning to spend $100 mil in marketing globally. The unit is priced at KW2.5 mil ($2,500).
Hyundai Engineering & Construction has won a $2.07 bil preliminary deal to build a desalination and electric power plant in Qatar. Hyundai E&C received the order from Japanese trading house Mitsui & Co, which won a construction contract from state-run Qatar Electricity & Water Corp. Hyundai will construct the facility by 2010 in Ras Laffan Industrial City, with a generating capacity of 2,728 megawatts and a fresh-water production capacity of 25,000 tons a day.
Hyundai Kia Automotive Group and Microsoft signed an agreement to form a partnership in developing in-car infotainment systems. The first product planned is a voice-activated automobile audio system that allows portable devices such as mobile phones and MP3 players to be linked up to the car's system. Hyundai-Kia is the first Asian carmaker Microsoft is working with, sharing much of Microsoft's Automotive Business Unit's vision for the field. Hyundai Rotem has signed a contract to supply electrical components for an urban train line in China, including traction motor, train control and diagnosis systems and auxiliary power supply systems for use on the third line of the Shenzhen metro scheduled for completion in 2011.
Doosan HI&C received a KW300 bil ($286 mil) order for 2 nuclear reactors and 4 steam generators from Westinghouse Electric, for a new power plant of 1,100 megawatt being built in Georgia, USA, for the delivery of March 2014. The order is the first time Doosan received for nuclear reactors in USA. Korea declared independence in nuclear power plant technologies, in 30 years after the first nuclear power plant has started the operation. Doosan HI&C demonstrated its Man Machine Interface System for nuclear power plant, solving the final problem for the total solution of the technologies.
SK Energy, Korea's top oil refiner, agreed to construct an ethylene plant in China with Sinopec Corp. The deal makes SK Energy the first Asian firm to build an ethylene plant in China. SKE signed a framework agreement to acquire a 35% share in a joint venture with Sinopec. The deal is to represent SKE's largest investment in China's petrochemical sector. The plant is expected to produce 800,000 tons of ethylene and 400,000 tons of other petrochemicals per year, is set to begin operation at the end of 2011 in the central Chinese city of Wuhan. In China, SKE runs petrochemical, chemical, asphalt, gas and other businesses, which generate KW600 bil in revenues per year. S-Oil Corp has launched S-Oil Total Lubricants Co, a joint lubricant venture with Total SA, aiming to further tap the fast-growing global lubricant demand. 2 companies agreed to hold a 50% stake each in S-Oil Total Lubricants, which they will jointly manage with a capital of KW35 bil ($35 mil). They also hope Total's global sales network will help boost the company's overseas sales.
Hynix agreed to transfer its 54-nanometer chip-processing technology to ProMOS in return for an 8-10% stake in the Taiwanese firm. The company is expected to reap additional revenues of $500 mil over the next 3 years from the contract. A rebound in chip prices will also add momentum to Hynix's stock prices. Hynix suffered an operating loss of around KW480 bil ($460 mil) in the first quarter. The Korean government ruled that Hynix's plans to share the 54-nano chip processing technology with ProMOS Technologies "does not constitute a major threat to national security." However, SEC expressed regrets on the ruling, saying "The decision may lead to very worrisome consequences on the competitiveness of the nation." A power cut for about 15 hours halted production at Hynix Semiconductor's Chinese factory in Wuxi, causing losses of around $18 mil, far smaller than initially suggested. With a monthly output of some 160,000 wafers, the Chinese factory contributes more than 45% of the company's entire production of DRAM chips. It took as long as a week for the output to return to the pre-incident level.
Before it was bankrupted, Daewoo Group took a pioneer's role in the country by building an automobile assembly plant in 1993, expanding into wide-ranging industries in Uzbekistan in the 1990s, including banking, construction, mobile communications, electronics and textile. Daewoo Int seeks to revive its past glory in Uzbekistan by entering the country's auto parts, energy sector and textile industry. The textile arm of Daewoo Int is to become the largest cotton producer in Uzbekistan with the acquisition of the Bukhama firm for $43 mil in April 2008. It has successfully managed its 2 existing cotton mills, Daewoo Textile Company and Daewoo Textile Fergana. Many cars now running on the streets in Uzbekistan were made by Korea's No 3 automaker, GM Daewoo. In 2005, state-owned Uzavtoprom took over 100% of shares from Daewoo Motors and in 2007 signed a joint venture agreement with GM. In Feb 2008, Daewoo Int came into natural resources and signed an agreement with Uzbeknefgaz to conduct geological surveys on the 36 and 37 blocks in the Ustyurt region. Daewoo Int has signed an agreement to ship 1,000 buses to Azerbaijan for about $100 mil, as an extension of a previously signed contract and that it will export 300 buses to the country this year and the remaining 700 at a later date beginning next year. Korean auto retailer Daewoo Motor Sales Corp and Paramount Pictures Corp of USA launched a joint venture, under the name of "Paramount Movie Park Korea," spending a total of KW1.5 tril ($1.4 bil) to build the theme park in the airport city of Incheon for the completion, before the city hosts the 2014 Asian Games.
MONETARY AND ECONOMIC ENDICES
Korea Composite Stock Price Index started the month at 1848, and fluctuated between 1888-1800 to end the month at 1852. The Seoul stock market has mostly recovered from harsh setbacks to below 1,540 in March, down nearly 20% from the beginning of the year, due to the US financial crisis earlier this year, on the fast-improving investor sentiments at home and abroad. The Korea Exchange and Standard & Poor's have signed a MOU to cooperate in launching a new index product. S&P will offer technical know-how to the KRX, which will list a wide variety of financial investment products on the index in the Seoul stock market. Investors from the Middle East are increasingly plowing petrodollars into the Seoul bourse despite a recent global credit crunch, buying over KW1.5 tril ($1.4 bil) of Korean stocks during the first 4 months of the year. Around KW340 bil of Chinese funds also flowed into the Korean stock markets during the same period. On the contrary, many US and European investors have shed a massive amount of Korean shares, nearly KW18 tril so far this year. The foreign stake currently accounts for slightly over 30% of the market capitalization. Warren Buffett said he might invest more in Korea, following a successful investment in the steelmaker POSCO. Berkshire has ended 2007 with a $2.14 bil stake in POSCO, or 4.5%, for which it had paid $572 mil. Buffett added that Iscar Metalworking Cos, an Israeli company that in 2006 sold an 80% stake to Berkshire for $4 bil, has a Korean unit whose performance has been "just miraculous."
KWon strengthened to 1011 at the beginning, weakened to 1050 and settled at 1030 in the end of the month. KWon, the world's worst-performing major currency this year, slumped to 1050 against USDollar, the lowest since Nov 2005, as BOK said its weakness will help bolster the economy. KWon lost 11.8% this year, the most among the world's 16 most-active currencies. BOK left the benchmark interest rate at 5%, as inflation prevented the use of lower borrowing costs to encourage spending. The Bank of Japan left the overnight lending rate at 0.5%, the lowest among major economies. The yield for 3 years corporate bonds has been raised from 5.84% to 6.41% through out the month. Consumer prices rose 4.9% in May on year at the fastest pace in 7 years due to soaring energy prices and weak local currency. The prices of petroleum products rose 25.3% in May on year, the highest since Nov 1998. Producers¡¯ price index rose 9.7% in April, again the highest since Nov 1998. As of the end of May, the nation's foreign reserves decreased by $2.28 mil to $258.2 bil from April.
SHIPBUILDING AND SHIPPING
Braemar warned that up to 10-15% of the world ship order is at risk because contracts will fail to secure refund guarantees, especially in China. Whereas it used to take a few days or weeks in Korea, it can 6-12 months in China. By the time RG is obtained, ship prices may need to be raised because steel or other material costs have risen, forcing the yards not able to go ahead with original terms. Korean yards are optimistic on the market expecting explosive orders, with sharply increasing super large projects like LNGC, drillships, big bulkers, jumbo container ships and VLCCs. They expect 12 LNGCs from Nigeria, 14 LNGCs IRISL, 40 drillship Petrobras in coming 9 years, 9-10 units of 11,000 teu box ships for UASC, 14 units of 400K class VLOC with VALE and a number of VLCCs from various owners. Most of them except LNGCs are expected to be concluded in the first half of this year.
HHI has received the accumulated orders for 45 ships of 5.09 mil GT worth $6.7 bil, in first 4 months this year, enabling them to expect more than $10 bil of orders within May. HHI broke ground on a new shipyard in Gunsan, which will be capable of building 28 ships a year, and will bring in additional annual revenue of KW3 tril ($3 bil). HHI will invest KW1.2 tril in the yard, going into operation by Aug 2009. The Gunsan yard has already secured advance orders for 21 vessels, including 9 oil tankers, valued at $2.6 bil in total. HHI is to make record 7 naming ceremonies in a week from May 27 to June 2, starting with Hellas Glory of CMM and ending with Sixth Ocean of IRISL, for the first time in global shipbuilding history. HHI is investing KW340 bil ($329m) to expand the factory to produce excavators and other gear, whose market is growing remarkably. The investment will extend up to 2010 and is forecast to increase sales to about KW4.2 tril by 2012. HHI is to buy stakes in CJ Investment & Securities and CJ Asset Management, the 2 financial units of CJ Group. The transaction will allow HHI to fund expansion and offer shipping finance. The 73% stakes are worth about KW800 bil ($770m). The deal would help HHI to better manage its abundant cash. HHI and its affiliates HMD and Hyundai Samho have reportedly combined cash assets of about KW6 tril, sufficient amount to actively engaged in the variety of M&A deals. HHI has shown its interest in acquisition of Hyundai Construction and it is in a legal battle with International Petroleum Investment of UAE, the largest shareholder of Hyundai Oilbank, to buy back a controlling stake in the country's third-largest oil refiner. HHI plans to build a second solar-cell plant in Eumseong, about 108 km southeast of Seoul, with an investment of KW300 bil ($288 mil), to generate sales of KW1 tril by 2010. The solar energy business has been growing an average 35% a year in the past 5 years and is expected to quadruple in size by 2015. HHI won the order for Suezmax tankers from various owners, such as 2 for NS Lemos, 5 for Grand Union, Stamford Navigation and Newfront Shipping, 2-Zacchello and one for the unnamed. HHI received capsize bulkers of 180K, one from Daebo Shipping, 2 for Japanese owner and 2 for ER Schiffahrt. It also got 2 x 320K VLCCs from Hanjin Shipping and 2 x 350K VLCC from Polys Haji-Ioannou. Hyundai Samho secured 2 x 180K bulkers. HMD won the orders from 3 European companies for 8 x 35-40K bulkers, built in Vinashin, European owner 2 x chem tankers, and 2 x container/ro-ro. Hyundai-Vinashin Shipyard, a joint venture between
SHI received orders from BG Group for 2 x 170K cbm DFDE LNGC, Geden Lines 2 x 318K VLCC and George Economou 2 x 115K tankers. SHI is to buy back its 2 mil share from the bourse by Sept 2008, aiming at stabilizing share prices.
DSME won the orders from Lykiardopulo-controlled Neda Maritime Agency for 2 x VLCCs and unidentified American 2 x drillships. The Korea Development Bank decided to self-manage the sale of a 50.4% stake in DSME. The KDB selected last month Goldman Sachs as co-advisor for the sale, but it decided to scrap the contract as it has acquired 20% of China¡¯s Yangfan Group, raising the question on the conflict of interest over the advice of Goldman Sachs. KDB schedules to choose a preferred bidder by the end of Aug after a 4-week due diligence on the shipbuilder. The market value of DSME is estimated at KW8.8 tril ($8.4 bil), based on its stock price. A team of Korean military intelligence are likely to participate in due diligence of DSME to curb leaks of its navy ships¡¯ technologies. Doosan Infracore, a flagship unit of Doosan Group, which successfully purchased Bobcat and 2 other construction equipment businesses of US-based Ingersoll-Rand Group for $4.9 bil, has shown positive interest in the acquisition of DSME, which will complete the group's heavy-industry focused business portfolio covering construction equipment, onshore and offshore facilities, power plants and shipbuilding. POSCO, Hanhwa and GS Group also said to be preparing bids. DSME¡¯s labor unions have argued that 19.1% held by Korea Asset Management should be offered to 7,000 strong workforce, renewing a threat to strike if its demand is not met.
STX got an approval from EU government for a stake purchase in Aker Yards, materializing its blue print for its expansion of capacity. Aker assigned Kim Seo-joo, CEO of STX Enpaco, as new director. STX is now able to complete its global portfolio, which is STX Jinhae for large complicated commercial ships, Dalian for bulker and PCTC, and Aker for cruise and specialized vessels. Since STX already supplies Aker with engines which are hard to come by, the relationship could prove beneficial. Aker has "fantastic potential" in all 3 market sectors in cruise ships and icebreakers, as well as Aker's proximity to the Arctic oil and gas cluster and its harsh environment technology. STX has developed the world's largest box ship of 22,000 teu, for the first the time in the world. STX has designed 2 models of the 22,000 TEU ship, one with a single propeller and the other with twin propellers. STX estimated that its ultra-large vessel would cut the cost of delivery per container by 40% than large container ships. STX received the orders from local owner for 2 x VLCC, European 2 x 320K VLOC and European 2 x bulker,
The government plans to encourage institutional investors such as pension funds to plow more capital into ship investment funds, aiming to offer a better financial environment to shipping companies. The investment funds are used for purchasing vessels, which are leased to shipping lines. Korea had a total of 36.8 mil tons of trading vessels as of last year, the sixth-largest fleet in the world. Local shippers are expected to add around 22 mil tons of new ships to fleets in the coming years. The expansionary mood seems to continue for several years as international trade is fast expanding. Local shipping companies for coastal service, such as Korea Maritime, Sinokor Merchant Marine and Heung-A Shipping, have been facing extreme hardship in their management, as the rate is not matching skyrocketing fuel cost, while ocean going tanker and bulker operators are enjoying unprecedented booms in their business. Furthermore, they are experiencing excessive competition with Chinese shippers since the Korea-China route opened. What deteriorating the situation is they could not find any counter measure to cope with.
Hanjin Shipping has ordered 2 x 320K VLCCs at HHI for delivery in 2011. Korea Line Corp (KLC) booked in March 2 x VLCCs at HHI for delivery in late 2010 and 2011 at a reported $150m each. STX PO is to diversifying its business to tanker and container sectors, riding unprecedented booming dry cargo market. STX PO is to invest $1.6 bil, equivalent to half of its total investment, to non-bulker sectors, aiming to raise the sale of non-bulker to 30% of total turn over by 2010. Under the scheme, the company will take the delivery of 5 NB tankers, 4 NB PCTC plus longterm TC of 3 PCTC. Chang Myung Shipping plans a massive expansion upto 100 ships in its fleet of 10 mil DWT by 2015, when the turn over is targeted $5 bil. The company is presently operating 20 ships mainly bulk carrier. It has ordered 33 ships of 2.6 mil DWT. Daelim H&L placed order with Japanese yard for 2 x 5K LPGC, KW20 bil, for the delivery of 2011. Daelim was also reported to have ordered 2 x 50K pc to a Korean yard for the delivery of 2011.