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Korea Report - January 2008

Author : Hwang & Co Date : 08-02-08 09:00 Hit : 40040

Topics.
-President-elect Lee Myung-bak’s transition committee starts to work.
-President Roh challenged his successor.
-Probe by independent prosecutor on Lee’s alleged violation of laws.
-Prosecutor indicted captain of tug boat as wells as the tanker Hebei Spirit on oil leak.
-Lee proposed to raise NK’s per capita income to $3000.
-Korea’s trade deficit widened in Jan due to increased oil bill.
-Court ruled that the Lone Star Funds committed fraud in acquisition of KEB.
-Iraq suspended the supply of crude to SK Energy.
-Top 5 builder forms a consortium for the construction massive canal across the country.
-Special prosecutors raided all key offices and residents of Samsung Group executives.
-Court ruled Samsung Group to pay debt on car maker to creditors.
-KOSPI plunged below1,600, due to global credit crunch.
-Korean Shipbuilders maintained triple crowns in their performance.
-Korean yards seriously consider cruiseship for the future.
-Noh Joeng-ik left HMM.

GOVERNMENT AND SOCIETY

President-elect Lee Myung-bak’s transition committee plans to run the government with 43 top agencies, including 13 ministries and 19 sub-organizations, a dramatic scaling down of the current 56 agencies of 18 ministries and 22 sub-organizations. The committee seeks to slash some 7,000 government jobs, over 5% of the current workforce, this year to create the most streamlined government since 1969.
The Government Information Agency, which played a central role in implementing the controversial press policy last year, is to be shut down, with its key functions being transferred to the Culture Ministry.
The proposed abolition of 5 ministries, the Ministry of Information and Communication, the Ministry of Science and Technology, the Unification Ministry, the Maritime Affairs and Fisheries Ministry, and the Gender Equality Ministry, will require new legislation that promulgates their dissolution and merger into other agencies.
The transition committee pledged to drastically reform the current egalitarian education system to foster globally competitive students. It plans to help the private sector establish as many as 100 elite high schools and 50 specialized high schools, and give colleges greater autonomy in selecting new students. Lee expressed his determination to push through with his plan to incorporate the use of English into the mainstream curriculum.
The committee is pushing to start construction of the cross-country canal network from Feb next year, amid controversy over its economic feasibility and effect on the environment. KW16 tril project ($17.1 bil) is aimed at building a 3,100 km long network of waterways that links major northern and southern rivers in SKorea, and links to major cities in NKorea. It will consist of 17 routes, including a 540 km Seoul-Busan waterway, linking the Han and Nakdong rivers, a 378 km Honam waterway connecting the mouth of the Yeongsan River on the southwest coast to the South Han River, and a 18 km Seoul-Incheon canal.
The presidential transition committee pushed forward with public sector restructuring, including the privatization of state-run enterprises. The new government will aim to reduce state spending by 10%, or about KW24 tril ($25.5 bil), in 2009, and to bring down government debt to below 30% of GDP from the current 33.4%.
Lee promised to speed up the nation's economic growth to attain the 7% annual GDP growth. In consideration of a credit crunch from the US subprime mortgage crisis, as well as rising oil and raw material prices, Lee convinced that 6% growth is possible through deregulation and by boosting corporate investment in 2008.
The incoming government has decided to abolish the newspaper act to secure the freedom and fairness of the press, and rejuvenate the media industry. The regulation includes a clause that any daily newspaper with a market share of 30% or any 3 dailies with a combined share of 60% are subject to monopoly regulations under the Fair Trade Act. The new government is also seeking to ease rules that prohibit newspapers from entering the telecommunications and broadcasting sectors. It confirmed that press working rooms will be reinstated as part of Lee's "press-friendly" policies.
Lee's team urged the Defense Ministry to adjust the existing defense reform plans, launched in 2005, aiming to reduce the number of SKorean troops from 680,000 to 500,000 by year 2020 and equip the armed forces with state-of-the-art weapons.
President-elect Lee is working to attract foreign investors such as oil-rich Gulf states to his proposed large-scale public projects, the construction of a cross-country canal and the development of the Saemangeum tidal flats in South Jeolla Province.
President-elect Lee plans to allow people of foreign nationalities to join the government workforce, amid some lingering worries about appointing foreigners to key government positions, mostly on account of national confidentiality issues. But he stressed that foreigners were "just as good in keeping secrets."

President-elect Lee has sent 4 leaders of his party to USA, China, Japan and Russia, as his special envoys, as a gesture to show his desire to maintain close relations with these powers. Park Geun-hye, Chung Mong-joon and Lee Jae-oh, visited Beijing, Washington and Moscow, respectively, and are vying to clinch the helm of the party and perhaps become its standard bearer in 5 years. Lee Sang-deuk, the elder brother of the next president, visited Tokyo.
Lee named Han Seung-soo, 72, the UN special envoy on climate change and a former foreign minister, as his first Prime Minister. He has served as ambassador to USA, chairman of the UN General Assembly and deputy PM-cum finance minister. Lee expects Han to use his wide-ranging experience and networks to revive the Korean economy and focus on resources diplomacy.
President-elect Lee abruptly postponed a scheduled meeting with leaders of the Korean Confederation of Trade Unions, for the reason that the KCTU chief's refused to answer police questions over his involvement in illegal demonstrations. Lee has been critical of the umbrella labor group, which has frequently engaged in strikes over political issues, and violent and illegal labor actions.

President Roh Moo-hyun fiercely challenged his successor, reaffirming his opposition to President-elect Lee's plan to trim the ministries and slash the number of civil servants. The GNP controls 130 seats in the 299-member National Assembly, 20 short of the majority needed to pass a bill. The liberal United New Democratic Party, which has 137 seats, opposes the restructuring plans. If Roh makes good on his threat, Lee may be forced to run his Cabinet without ministers until the April 9 general elections, after which GNP is sure to become the majority party.
President Roh Moo-hyun appointed an independent counsel for the probe on the President-elect Lee’s alleged violation of laws. The independent inquiry will look into whether the president-elect failed to disclose assets in violation of law pertaining to civil servants' ethics and elections, and whether prosecutors pressured Lee's former business partner, Kim Kyung-joon, to make statements in favor of Lee as Kim has claimed. Kim Kyung-joon is currently on trial for financial fraud. The special prosecutor will have 7 days to organize his investigation team. The independent inquiry is mandated to last a maximum of 40 days. The team consisted of 10 state prosecutors, 5 special assistant, and other supporting staff. The special investigator is expected to report the results of the inquiry before Lee takes office on Feb 25.
In early Dec, the state prosecutors cleared Lee of all charges. The case is expected to remain politically contentious in the lead-up to the April 9 general elections.

Billionaire FIFA vice president Chung Mong-joon is moving into the political spotlight again. The 5-term lawmaker was elected as a member of the Supreme Council of the GNP after he returned from his trip to Washington as a special envoy of President-elect Lee. The former independent entered the GNP in Dec declaring his support for Lee Myung-bak. Chung, 57, has emerged as a potential leader in the conservative party. Chung, a son of the late Hyundai Group founder Chung Ju-yung, is the largest shareholder of Hyundai Heavy Industries. Chung had a series of meeting during his visit to USA with White House officials, including President George W. Bush and the vice president.

Hebei Spirit, single-hulled 270,000-dwt VLCC, leaked 10,500 tons of crude oil into the sea off Korea following a collision on 7 Dec 2007. It was declared a national disaster after 385 sea farms and 221 hectares of beaches were affected. P&I Club Skuld, insurers of the Hebei Spirit, agreed to pay KW12 bil to aid the clean up effort.
In slightly more than a month since the disaster, many of the affected beaches have been cleaned up, thanks to the hard work of volunteers and locals who have literally wiped off the toxic slick from the rocks and sand with rags. While the beaches now seem normal in pictures, the fish and oyster farms have been severely damaged, and fisher folk can no longer sell fish caught off the West Coast.
The prosecutors indicted 3 captains of a crane-carrying barge and 2 tugboats, all of which are Korean belonging to SHI, and a captain and a sailor of the Hebei Spirit, who are Indian nationals. Prosecutors also indicted SHI and Hebei Spirit Shipping on the same charges. Prosecutors said "When the barge lost control due to strong winds and waves just 1.6 km away from the Hebei Spirit, it failed to communicate with the control tower and the oil tanker, and take proper measures.” Regarding Hebei Spirit, the prosecution said that the captain and a sailor neglected their duty of carefully watching the possible approaches of stray vessels under adverse weather conditions. Prosecutors did not specify whether the oil spill was caused by the "recklessness" of SHI, which could determine the scope of the reparations. Hebei Spirit Shipping, the owner of the ship protested its innocence in the incident.

The state-run “Korea Advanced Institute of Science and Technology” and the “Ames Research Center,” affiliated to NASA, signed the agreement on cooperation of R&D, involving research projects on satellite communication and navigation systems, planetary exploration, rovers and small satellites. KAIST has been operating a satellite “Arirang 2,” which can distinguish objects as small as 1 meter in diameter on land, since July 2006.

40 workers have been killed and 10 injured in a fire resulting from explosions inside a cold storage facility in Icheon. The fire broke out in the basement of the 2-story building owned by logistic company Korea 2000, while a total of 57 people were processing urethane foaming in the plant. More than 400 firefighters and 200 policemen were mobilized but they were having a hard time approaching the site as chemical substances inside the warehouse continued to explode.

KJ Choi, 41, won wire-to-wire victory on PGA Sony Open champion at Waialae in Hawaii. It was Choi's fourth straight year with a PGA Tour victory. Choi earned $954,000 for his seventh PGA Tour win, and donated around a third of his prize money to families of victims of a deadly warehouse blaze in Incheon.
A SKorean bobsled team won a bronze medal at the America’s Cup 4-man competition in Salt Lake City, bringing Korea its first ever medal in the sport on a borrowed US-registered bobsled.
Lee Kyuo-hyuk made the sprint speed skating world championships. Lee won the 500 m at the Thialf Stadium in 34.85 seconds.
SKorean men and women handball team secured a berth to the Beijing Olympics. Women’s team beat Japan 34-21, avenging its loss at a tainted round in Kazakhstan in Aug last year. Men’s squad also beat Japan 28-25 next day. In the original qualifying rounds, Kuwait won the men’s berth in Japan last Sept and Kazakhstan took the women’s spot at home in Aug on a referee’s unfair judge. The International Handball Federation later declared the match invalid, allowing a rematch to be hosted by Japan. AHF, tightly controlled by Middle East has challenged the IHF decision, threatening to expel Korea and Japan from its membership.

A Korean actress, Ok So-ri, 39, indicted for having an extramarital affair, filed a petition to scrap the country's adultery law, rekindling debate over if restricting one's sexual activities is constitutional. Ok's actor husband, Park Chul, 39, sued Ok and 2 men who allegedly had affairs with her in Oct, filing a divorce and property suit against her.
The number of female managers at the nation's banks has been increasing steadily, and 52% of 1,289 department managers who were promoted during the latest staff shuffle at Kookmin, Woori, Shinhan and Hana banks have been women. Bank officials attributed the surge to increased numbers of female newcomers since 2000, and their better performance and meticulous marketing skills. The number of high-income, unmarried women sharply increased in recent years. The number of women who are unmarried, aged between 30 and 45, college-educated, and earning more than KW40 mil annually increased 11 fold to 27,233 in 2006 from 2,152 in 2001.
The population in Seoul totaled 14.21 million at the end of 2007, up 0.63% on year. Foreign residents made up 2.2% of the total population of Seoul, up 30.9% on year to 229,000. Korea has world's 24th largest population with 50.09 mil as of Oct in 2007.

NORTH KOREA AND NATIONAL DEFENSE

Pyongyang had vehemently opposed the conservative opposition candidate Lee during the election campaign late last year, however, NK has yet to officially respond to Lee’s election last month, spawning speculation that it was seeking rapprochement with the hard-line leader so as not to jeopardize the economic cooperation projects with the South.
President-elect Lee Myung-bak has proposed to raise NK's per capita income to $3,000 as his main incentive to prod the communist country to reverse its policy of confrontation. Lee also said he would have an "honest and open" discussion with the North on human rights issues.
The transition committee has no immediate plan to fully participate in the US-led program the Proliferation Security Initiative interdicting the spread of weapons of mass destruction. The PSI is US-led international network established in May 2003, aiming fight the trade of weapons of mass destruction and related materials. SKorea is currently participating as an observer in 5 of the 8 PSI initiatives.

SKorea hopes to see the full denuclearization of NK by 2010. A road map to denuclearization aims to end the second phase of the 6-way disarmament deal no later than March, and draw up a concrete timetable for the dismantlement of the North’s nuclear programs within the first half of this year. NK was supposed to have finished the second phase, disabling its main plutonium-producing facilities and detailing all of its deal by the end of last year, but failed to meet that deadline. Pyongyang refuses to provide a correct and complete list of its past and current nuclear activities, including its alleged uranium-enrichment program and connection with Syria. USA warned that NK will stay on the US list of state sponsors of terrorism until it fully discloses its nuclear activities.

The Navy plans to arm its Aegis-equipped destroyers with improved anti-ballistic missiles able to intercept NK's long-range missiles, as a part of its efforts to build an independent missile defense capability against NK. NK is believed to have more than 800 ballistic missiles, including long-range missiles which could potentially strike USA and could carry a nuclear warhead.
Lee vows to accelerate the creation of network-centric warfare capability with 'scientific, high-tech and elite' armed forces. His reform drive will focus on improving the military's operational efficiency, while downsizing the number of troops.
The Army appointed the first solider who voluntarily extended his service term for another 18 months, in accord with the Defense Ministry's plan to introduce the so-called "salaried volunteer soldier" system. The ministry allows conscript-xs to remain in the military for an additional 6-18 months after their 2-year mandatory service, to offset an anticipated reduction in overall manpower in the military. The voluntary soldiers will be paid KW22-33 mil ($23,000-$35,000) for their entire service term.

Thailand will begin deporting NKorean refugees to SKorea at a faster pace than before. The Thai immigration detention center sends less than 45 NKoreans to SKorea a week, on average. Thailand has been regarded as a destination for NKorean defectors, as a safe passage to SKorea or USA. Some 1,500 NKoreans entered SKorea last year via Thailand, and about 700 are believed held in custody for illegally entering the nation.
NK’s population increased gradually to 23.6 mil in 2004. The figure represents a steady increase from 22.1 mil in 1996, 22.9 mil in 2000 and 23.3 mil in 2002.

ECONOMY AND POLICY

The IMF cut its 2008 forecast for world growth, warning no country will entirely be free from a crisis in the US subprime mortgage market. The IMF lowered its projection to 4.1% from 4.4%, the weakest since 2003. The IMF cut its US growth forecast by 0.4% to 1.5% and lowered the euro-zone projection by 0.5% to 1.6%
Government predicted the Korean economy is likely to expand 4.8% on year in 2008 on the back of solid consumer spending, despite growing external uncertainties. The figure is far lower than the 7% target set by President-elect Lee. Korea's GDP is likely to surpass $1 tril in 2008, growing from the last year's $970 bil.
Goldman Sachs raised Korea's economy projection to 5.1% at the fastest pace in 6 years in 2008 from its Nov prediction of 4.8%, as the new president's plans to encourage investment and spending provide "much-needed impetus."
The economy has expanded 5.5% in the fourth quarter on year, the fastest pace in almost 2 years. For the whole of 2007, the economy posted 4.9% GDP growth.

Korea’s trade deficit widened sharply in Jan to $3.38 bil, compared with $865 mil in Dec, as imports grew at a much faster pace than exports, due mainly to high crude prices. Exports rose 17% to $32.8 bil in Jan, while imports shot up 31.5% to a record $36.2 bil.
Korea posted a current-account deficit for the first time in 8 months, recording the shortfall of $813.8 mil in Dec, compared with a $1.5 bil surplus in Nov and a $64.2 mil surplus in Dec 2006. Korea's current account surplus was $5.95 bil in 2007. The shortfall on the services account was $1.24 bil in Dec, compared with $1.46 bil in Nov.
Korea’s trade surplus with China fell to a 4-year low last year, while the country’s trade deficit with Japan surged to a record high for the second consecutive year. Korea logged a trade surplus of $18.1 bil with China between Jan 1 - Dec 20, down from $20.9 bil in 2006 and marking 2 consecutive yearly falls, while its trade deficit with Japan jump to $28.9 bil, up from $25.4 bil in 2006 and $14.7 bil in 2002. Korea netted a $1.23 bil trade surplus with USA in Nov 2007, up from $786 mil in Oct. Korea's cumulative surplus rose to $12.45 bil as of Nov last year. Korea's exports to USA in Nov were valued at $4.17 bil and imports $2.94 bil.

Standard Chartered Plc agreed to buy Yeahreum Mutual Savings Bank in Korea from Korea Deposit Insurance Corp for unknown price. Yeahreum gives the bank more than 50,000 new retail customers, and more than 800 corporate clients. Standard Chartered also agreed to buy an 80% stake in Korea accounting firm A Brain Co in Oct. Standard Chartered paid KW3.4 tril ($3.6 bil) to buy Korea First Bank in 2005.
Prudential Financial Inc bought the remaining 20% stake in its Korean brokerage unit, Prudential Investment & Securities, from Korea Deposit Insurance Corp, for undisclosed price. Prudential had paid KW355.5 bil ($375 mil) to buy an 80% stake in Hyundai Investment & Securities and an asset management subsidiary in Feb 2004, renaming the company Prudential Investment.

The Federal Reserve lowered its benchmark interest rate by 0.5% to 3%, the second cut in 9 days, after it dropped 0.75% to 3.5%. The deficit for the current US budget year seems to jump to about $250 bil, as a weaker economy and lower corporate profits. The Bank of Japan kept interest rates unchanged at 0.5%. Japanese stocks have plunged this year, falling to a 2-year low, and JYen surged to 106 against the dollar. China’s economy expanded more than 11% for the fourth straight quarter with GDP rose 11.2% in fourth quarter, compared with 11.5% in the third quarter. The benchmark Shanghai Composite Index fell to below 4,500, down almost 30% from its peak in Aug.

Lone Star Funds chairman John Grayken testified at the Seoul Central District Court as a defense witness for Paul Yoo, the president of Lone Star's Korea unit, who is under trial for suspected manipulation of the stock price of Korea Exchange Bank's credit card unit to lower its acquisition price in 2003. Yoo is accused of spreading false information of a capital reduction to cut down the stock price. Grayken had commented that acquisition of the credit card unit was "a very risky investment" for KEB, which was pursued because of pressure from financial regulators. If Lone Star's ownership status is not legitimate, regulators can order the fund to cut its stake less than 10%. John Grayken left Korea without reaching a conclusion.
A trial court ruled that Lone Star Funds committed fraud in 2003 by attempting to lower the stock price of KEB's credit arm, dealing a blow to Lone Star, which said that it would appeal the ruling. Lone Star would be required to sell 41.02% out of its 51.02% stake within 6 months of the final ruling. The court handed a 5-year jail term to the fund's Korean CEO and had him detained in court. It also slapped KEB and LSF-KEB Holdings, the paper company through which the equity fund purchased KEB, each with KW25 bil in fines. Lone Star, which has already recovered 85% of its KW2.15 tril investment in KEB, stands to gain KW6 tril in profits from the sale of its stock.
KEB has begun to offer foreign exchange services in the Slovak currency, the koruna, allowing the customers to transfer money, purchase export bills, open a letter of credit and open a savings account in koruna.

With few signs of abatement in the US subprime mortgage crisis, Korean banks are expected to suffer a lot of losses in their subprime-backed structured securities. Woori Bank is considering writing down about KW240 bil in subprime-related CDOs, almost 50% of the total KW469 bil. Nonghyup Bank reported a KW8.9 bil write-down in the third quarter, expecting the loss exceeding KW10 bil. KEB sold down $3.1 mil out of its $3.7 mil exposure in the third quarter, not confirming any fourth quarter losses yet. Shinhan Bank is to report losses of $1.5 mil out of its $5.3 mil exposure.

Iraq, on Jan 1, suspended an annual contract with Korea’s top refiner, SK Energy, to export 90,000 barrels per day, in a protest over an exploration deal involving Korean firms in Iraqi Kurdistan. A consortium of Korean firms signed a deal in Nov with the Kurdish government to explore the Bazian field, which is estimated to hold 500 mil barrels of crude oil. Iraq has demanded the consortium cancel the project, but the corporation has refused.
Korea’s energy import would grow 15.4% to $104.78 bil this year after a 6.1% rise in 2007. Crude oil, which accounts for more than 60% of the country’s total energy imports, will probably grow 7.8% to $64.72 bil this year. Korea is the world’s fifth-largest crude buyer. Consumption of petroleum products dropped to a 21-month low in Dec last year, to 70.94 mil barrels last month, down 6.4% on year. Korea guzzled a total of 786.7 million barrels in 2007, up 2.8% from 2006.

CHAEBOL

The country's nearly 300 public enterprises are bracing for a major overhaul under the incoming government of President-elect Lee Myung-bak. The state-run have been criticized for their ineffective and reckless management practices. The debts of public corporations surged by over KW100 tril ($106 bil) since 2002, reaching KW295.8 tril in 2006. Lee plans to privatize, disband and consolidate some public organizations as part of his plan to slim down the sector. Among 3 government-funded banks, KDB and IBK will be privatized, except KOEXIM Bank. The administration is also expected to pursue privatization Woori Bank, as well as Incheon International Airport, Korea Airports Corp, Incheon Port Authority and Pusan Port Authority.
The mergers and acquisitions market is expected to heat up this year, following the speed up the sale of government stakes. Major conglomerates in Korea are gearing up for the bidding war as creditors plan to sell companies they had bailed out in the aftermath of the 1997-98 financial crisis. Companies up for sale include Hyundai E&C, DSME, Daewoo International, Ssangyong E&C, Korea Express and Hynix Semiconductor. The incoming administration considers selling the investment banking unit of KDB and merge it with Daewoo Securities, in which KDB has a 39.09% stake.
Local refineries expects to enjoy handsome profits in the new year, expecting to earn around $7 on each barrel of crude oil they refine, about $2 below the 2007 average, but it is still nearly double the level of the historical average. Korean oil companies have shipped half of their output abroad. Due to a lack of facilities, China has imported a massive amount of refined oil from Korea.
Korean companies still lead the global liquid crystal display industry, fending off the fierce challenge from Taiwanese rivals. Samsung Electronics (SEC) sat on top of global display rankings by shipping a total of $18.59 bil worth of panels in 2007. LG.Philips LCD (LPL) followed with $15.59 bil in sales.
SEC and KTF have jointly developed a mobile communications technology, named “3.9-generation,” that allows data transmission 7 times faster than what is currently available. The technology enables people to use various multimedia services at rate 30 megabits per second while moving at a speed of up to 120 km per hour. SEC plans to commercialize the technology in late 2009.

SEC plans to increase the output of 1Gb DRAM chips in the first quarter of this year, which may help them speed up the crossover from 512 Mb to 1Gb in DRAM chips. Samsung and Hynix, which collectively dominate nearly 50% of the global DRAM market, have been hit by the falling prices of the memory chip in the past year. 1Gb chips require a more advanced manufacturing process, which is an area where 2 Korean companies maintain a strong lead over latecomers in Taiwan and other countries. SEC and Hynix will benefit the most when the higher-performing chip becomes the mainstream. The spot price of the 512 Mb DRAM chip was about $0.95, while 1Gb Dram chips were trading at $1.93, signaling that the crossover is imminent. SEC and Hynix agreed to jointly invest in a broader state-supported R&D program to acquire the necessary technologies. A total of KW52.58 bil will be spent so that Korea will be able to design and build such futuristic chips as spin torque transfer magnetic random access memory and various non-volatile memory devices.

An independent investigation into allegations of sweeping corruption with Samsung Group began. The special inquiry will look into whether or not Samsung amassed and managed illegal slush funds, illicitly transferred managerial rights to the chairman's son and bribed high-profile figures in the government, media and prosecution. The National Assembly passed a bill to initiate an independent probe into the group. The investigation has a mandate of up to 105 days.
The special inquiry team searched Samsung Group chairman Lee’s office and house, and the private residences of 6 other Samsung officials in charge of the group's finances, for evidence of the group's use of slush funds and other alleged corrupt activities. The independent probe extends to outgoing President Roh, whose election camp officials are accused of having taken congratulatory money from Samsung just after his election in late 2002.
Whistleblower Kim Yong-chul, who worked as a senior attorney at Samsung from 1997 to 2004, claimed that until 2000, he took part in amassing over KW7 tril ($7.5 bil) in slush funds for Samsung. He claimed in Nov last year that there was a safe hidden in a wall within the finance department on the 27th floor of Samsung's headquarters. Kim also claimed that Chairman Lee's wife Hong Ra-hee and other relatives bought around 30 expensive paintings at Christie's auction house in New York during 2002-2003, valued at tens of billions of won.

Samsung is involved another trouble, as a Seoul court ruled in favor of creditors of the failed auto making unit of Samsung Group. The creditors took Samsung Group to court in 2005, demanding the conglomerate repay KW4.7 tril ($4.5 bil) of debts they say are still outstanding from Samsung Motors. After 2 years of legal debate, the Seoul Central District Court held Samsung Group responsible for selling non-listed shares of one of its affiliates to waive the debt. Samsung Motors went into court receivership in 1999 before being taken over by French automaker Renault SA in 2000 to create Renault Samsung Motors. To waive the debts to the Samsung Motors creditors, Samsung Group gave them non-listed shares in Samsung Life Insurance, with an agreement that they would be subsequently listed. The 14 creditors received 3.5 million shares, with each share calculated at KW700,000. The listing has not taken place, and the creditors could not sell their shares and recoup their money. Before the agreement was to expire at the end of 2005, the creditors filed the suit. Samsung said the agreement is invalid as it came under "unjust pressure" from the creditors. KW4.7 tril of debt consists of KW2.45 tril in principal and KW2.29 tril in accrued interest. Presiding Judge ruled Samsung at that time took benefits from the agreement, which saved its chairman and other executives from financial sanctions and uplifted its corporate image. But Samsung will pay for only 2.3 million shares, rather than 3.5 million, as the key creditor, Seoul Guarantee Insurance, has already sold the margin to another firm. The ruling also reduced the 19% interest rate of the bad debt to 6%.

SEC has signed a deal to officially sponsor “Africa Cup of Nations” one of Africa’s largest regional football festivals held in Jan.
Samsung Corp purchased in an auction 100% of Japanese steelmaker, Myodo Metal, as a part of Samsung’s efforts to diversify its business base in high-end stainless products. Myodo Metal is one of Japan’s top 5 manufacturers of stainless steel products, producing 50,000 tons of high-end stainless steel products.
Samsung is to build “Dubai Exhibition World,” the Middle East’s largest exhibition center in Dubai, adding to its projects in Dubai that include the world’s tallest tower. It was awarded the project at a 1.3-bil-dirham ($354.3 mil) contract to construct by 2010.

Hyundai Motor (HMC) signed a MOU to acquire a 29.76% stake in Shinheung Securities, a small local brokerage firm, at about KW100 bil ($106 mil) to get a foothold in the financial sector. Shinheung Securities specializes in corporate notes and property financing with 14 branches and 313 employees.
Kia Motors signed the sponsorship extension agreement for the Australian Tennis Open. The carmaker, which has been sponsoring the event since 2002, will continue to do so until 2013.
Hyundai Rotem won 6 orders worth KW1 tril in a month from abroad and domestic buyers. The company agreed to supply 28 electric locomotives to Kazakhstan, 76 units to Tunisia, 358 electric cars to Seoul Metro and 90 bullet trains to KTX.

Korea Electric Power Corp and partners agreed to pay A$90 mil ($79 mil) to buy 10% of Felix Resource’s coal project in Australia. The group will also pay 10% of the development costs for the Moolarben project in New South Wales State. A group led by KEPCO will also jointly explore for uranium in Canada with Fission Energy Corp. They will invest KW14 bil ($15 mil) over the next 3 years for a 50% stake in the project in Canada's Waterbury Lake area. KEPCO leads another group of Korean companies in a uranium-exploration project in Canada with CanAlaska Uranium.
KEPCO signed an agreement with the Bolivian government take part in building a 120-megawatt a hydro-electric generation project in the Miscuri mountain valley.

Kumho Asiana Group was selected as the preferred bidder to acquire a controlling stake in Korea Express, equivalent to 24 million new shares and valued at some $2.7 bil. Korea Express has been under court receivership since Nov 2001, when it failed to pay debt inherited from former parent Dongah Construction. Korea Express is likely to cement its leading position in the domestic delivery market once it is integrated into the country’s major transport group, Kumho Asiana.

Hanwha Chemical plans to build a polyvinyl chloride plant in China to begin production in Nov 2011. The project will cost about KW360 bil ($385 mil), with the capacity to produce 300,000 tons of PVC and 500,000 tons of ethylene di-chloride and 300,000 tons of vinyl chloride monomer a year.

The country's top 5 builders, such as Hyundai, Daewoo, Samsung, GS and Daelim, have agreed to form a consortium in a bid for the construction of a massive canal planned by President-elect Lee. Lee looks to attract KW14 tril from the private sector to the KW20 tril waterway project, the construction of which might begin one year after his inauguration. Lee claims that the mammoth project will help jumpstart the economy by relieving the country's heavy logistics costs, creating jobs and developing the tourism and leisure industry, among others.
Korean companies secured a record $42.2 bil worth of overseas industrial plant orders in 2007 as demand from Middle Eastern and African countries rose. The total marks the first time orders for oil and gas, petrochemical, power generation and offshore plants exceeded the $40 bil mark.
GS E&C is leading the consortium has won a deal to build a LNG plant near the Map Ta Phut port in Thailand for completion in June 2011. The plant will be able to unload, store and distribute 5 million mt of LNG on an annual basis.
Korea’s biggest builder Daewoo E&C has clinched a $443 mil order to build a shipyard in Oman jointly with Galfar Engineering and Contracting.

GM Daewoo will cut the price of its Matiz minicars by 20% to KW6.23 mil from next month on its home turf as it is losing sales to Kia Motors’s Morning models. It would be the first time a Korean based carmaker has offered a price cut.
Korean builder Halla E&C plans to buy back Mando Corp, the nation’s largest auto-parts maker it sold in the wake of the 1997-98 financial crisis. Mando has been put up for sale by its biggest shareholder, a consortium led by JP Morgan which bought a 72.3% stake in Mando for $446 mil in 2000. Halla will sign with foreign consortium, named Sun Sage, to allow it to regain control of Mando over 8 years.

Millinet Solar completed a plant in Daegu which has the capacity to generate 30 megawatts of electricity with solar cells. Daegu plant will generate KW60 bil ($63 mil) in sales this year, and have the power to supply energy to 12,000 homes, after investing KW40 bil. Korea will be able to generate 4 gigawatts of electricity through solar power in 2020, and boost this to 18 gigawatts by 2030.

Shinsegae, the Seoul-based retailer, garnered the highest credit rating of A3 in the retail industry by Moody's Investors Service. In other words, the operator of Korea's largest discount store chain, E-Mart, ranks among the top in Asia's retail market, on par only with US-based Chelsea in the world.
Eugene Group acquired 100% stake in Himart at KW1.95 tril ($2.08 bil) from Korea CE Holdings (Netherlands) BV. Eugene Group is a construction material producer, and Himart is the country's largest electronic goods retailer with 252 stores and 17% market share.

MONETARY AND ECONOMIC INDICES

Korea Composite Stock Price Index tumbled to fathomless bottom due to a global credit crunch on US subprime mortgage. KOSPI started the month at 1853, continuously plunged below 1600 to reach 1589 and ended at 1624 on the news as FDR drastically lowered bench mark interest rate.
Foreign investors sold a net $29.1 bil worth of shares on the bourses in 2007, compared with $12.7 bil in 2006. Despite the selling spree by foreigners, Korea’s share prices jumped 32.3% last year in line with rises in Asian markets. The Seoul bourse was the fifth-strongest performer among Asian markets. Over KW7 tril ($7.4 bil) of foreign capital has been taken out of the Seoul stock market in Jan. The foreigners have sold more stocks in the Korean market than in other Asian markets, as the foreign stake has still kept high with its total market capitalization above 40%, far above the average level, such as about 30% in Taiwan, European and Japanese bourses.

The exchange rate of KWon against USDollar has kept firm through the month. It started at 936, weakened to hit 955 as foreigner sold KWon, earned by selling Korean stocks, into USDollar, and ended the month at 944. Korea's foreign exchange reserves amounted to US$261.9 bil as of the end Jan, down $350 mil from the previous month, due mainly to lower foreign currency reserves deposited by financial institutions.

BOK left its key interest rate unchanged at 5% for the fifth consecutive month, widening the gap with US rate, as a number of external uncertainties such as high oil prices are pressuring the local economy. The benchmark yield on 5-year government bonds stood at 5.78%, up 0.78% on year, as of the end of 2007. The return on 3-year treasures reached 5.74%, up 0.82% on year. The yield on 3 years corporate bond has eased from 6.91% to 6.28% in the month.

Consumer price inflation breached the BOK's target range of 2.5-3.5% and stood at 3.6% in Dec. Import prices in local currency rose 15.6% in Dec on year, accelerating from 13.7% in Nov. The price of Dubai crude, surged 56% in 2007, posing a heavy burden on businesses and consumers.
The country's unemployment rate in 2007 declined to an 8-year low to 3.2%, compared with 3.5% in 2006 and 3.3% in 2003.
Korea's unemployment rate fell to 3.1% from 3.2% in Nov, matching the lowest rate in 5 years, stoked by an increase in jobs in the services industry.

SHIPBUILDING AND SHIIPING

Korea’s shipbuilding industry has achieved another record in 2007, leading the global market in all aspects. It received order of 32 mil CGT, 40.4% of world order, with the order backlog of 64.4 mil CGT, 36.1% of world, and delivered 11.2 mil CGT, 34% of the world market. HHI has the world's largest order book with a 12.17% market share, followed by SHI’s 7.55%, DSME of 6.31%. China's Dalian got 2.38%, Japan's MHI with 2.17%. Universal 2.12%, Imabari 1.83%, and Sungdong 1.72%.
Korean government and oil companies considers bringing forward a single-hull tanker ban, after the VLCC Hebei Spirit had the worst spill in the nation's history in Dec. GS Caltex Corp has a plan to ban the use of single-hull crude oil tankers from next year. Korea National Oil recommended shippers hire double-hulls. SK Energy is to ban single hull ships from 2010. S-Oil Corp also tries to hire more double-hull tankers. SKorea’s indication to ban single-hullers after 2010 is putting pressure on Japan, Singapore, the Philippines and other Asian countries in banning single-hull tankers after 2010. However, it is doubtful if Korea, the world's largest user of single-hullers, could sustain the ban because of a chronicle shortage of double-hull tonnage.
Korean builders cautiously predicted that the global credit crunch might provide better atmosphere to them. Under the shrunken financial circumstances, ship financiers shall be very selective to offer the financing on the basis of credibility of the yards, in favor of Korean and Japanese, which are in better position than Chinese yards. Under such circumstances, as Japanese yard have filled their berths upto 2013, Korean yards are left alone to receive quality orders for the berths from 2011.
Korean yards have been encouraged to bid for cruiseship by authorities, as a passport to future prosperity, overcoming challenges from China on traditional market. The Korea's ministry announced last year of a KW40 bil ($42.68m) budget for cruiseship-research project. STX took a 39.2% stake in major cruiseship builder Aker Yards, emerging recently as a contender to build a likely 30,000- 40,000 GT vessel of at least 700-passenger capacity for UK-based Saga Shipping. SHI has pushed hard for years to win cruiseship orders, HHI and DSME are hoping of securing orders from Carnival and Royal Caribbean.
Japanese steel mill raised their steel plate prices by $150-200 per ton. A mill offered JY90,000 ($843) and another did $800 for the shipment in April/2008-March/2009, concerning rising the value of JYen. POSCO and Dongkuk indicated same move to raise the price by KW60,000-80,000 per ton from Feb.

HHI, who invested KW300 bil for the block fabrication plant in Kunsan, planned to increase investment with the additional KW407.2 bil for actual the shipyard there, aiming the completion by Jan 2010. HHI’s own model HIMSEN engine is rapidly expanding its market share. The annual output of the engines has been rapidly from 123 units in 2004, to 214 in 2005, 422 in 2006 and 832 last year. The company set its 2008 target at 1,500 units. The engine recorded 72% share among all of HHI’s medium size engine output in 2007, overwhelming European origined models.
HHI won the orders from Keoyang Shipping for 2 x 313K VLOC and DongA Tanker 1 x 180K bulker, and Hyundai Samho from HMM for 2 x 180K bulkers. HMD received orders from Asia and European owners for 4 and 2 x chemical carriers, and ST Shipping & Transport 7 x 37K handysizes and 3 x 47K MR units chemical tankers.
SHI got the orders from Pride International for a third deepwater drillship and Oceanic Owner 2 x drill ships.
DSME won the order from Brunei Shell Tankers for 2 x 147K LNG-carrier and Korea Line 2 x 180K bulkers.
STX received order from Adnatco for 4 x 58K supramax bulkers, Samudera Shipping Line 2 x 57.7K supramax, a Greek 2 x 181K capesize bulker and Avra Maritime Services 4 x 181K caper.
21st Century committed to Rigel for 5 x 13K IMO-II and III chemical carrier and Kirgan Holding 2 x 34K bulker.
Daesun signed the contract with RCL for 2 x 1000 teu cont, SLS with United Arabic Chemical Carrier for 2 x 45K chemical carrier and Sungdong with Grand Union for 2 x 180K and 7 x 170K bulkers. SPP got the orders from a European for 2 x 81K Kamsarmax, GESCO 2 x 81K bulker, Aegean Bulk 2 x options for 59K supramax bulkers, and Navina Maritime 2 x 59K supramax bulkers, and Gestioni Armatoriali and UK-listed Goldenport 2 each x 59K supramaxes. C&HI agreed with Grand Union to build 3+2 x 180K bulker and 4+2 x 81K bulker, and Clipper Group 6+4 x 81K bulker.
Nokbong Shipbuilding and St Lawrence Energy of USA have agreed on a share-swap deal that will provide the energy firm 6 x 8K chemical carriers. Nokbong will buy up 20 million unissued shares in for $30 mil and the energy company will shell out $30 mil for 400,000 shares in Nokbong, equivalent to a 33% stake in the shipbuilder. Nokbong is the builder of small and medium-size vessels of up to 10,000 dwt class.

Hanjin Shipping has won the right to operate Isla Verde Exterior Terminal at Algeciras in Spain. It has been granted a 30-year concession to develop the facility, representing the first direct investment by an Asian shipping line in the western Mediterranean. It operates 12 terminals worldwide. The most recent addition was Jacksonville, Florida, its first US east coast investment.
Noh Jeong-Ik, 55, has left HMM as CEO for personal reason after 5 years service. He played a leading role in the financial restructuring of the HMM in 2002.
HMM appoint 61-year-old Kim Seong-man as a new CEO. Kim, a former vice chairman of Hankuk Glass, is determined to acquire Hyundai E&C, which was the backbone of the old Hyundai Group till 2001, when the builder was bailed out in the wake of the 1997-98 financial crisis. Following the family feud, HMC and HHI were separated from the group. In 2006, HE&C graduated from 5-year debt workout program. The acquisition of HE&C by HMM cab be interpreted as the regain of the old glory of Hyundai Group.
The board of STX Pan Ocean has approved the use of $810m for fleet investment to add 13 vessels in 2008, including 11 bulkers and 2 boxships in new building or second hand. The company is seeking to become one of the world’s top 5 shipping companies by 2010. The company currently owns and operates more than 70 ships.