Economy

Foreign currency reserves top $65.7 billion

Korea's foreign currency reserves edged up to $65.74 billion as of Oct. 15th from $65.48 billion at Sept. 30th, the Bank of Korea said Oct. 18th. The central bank attributed the increase to profit generated while holding the foreign reserves.

The reserves increased  without any repayment of dollar-denominated loans made to local financial institutions, a bank official said. Beginning in August, the bank no longer makes a distinction between total foreign reserves and usable foreign reserves, which  are total reserves minus the central bank¡¯s deposits at overseas branches of local banks, because it has completely withdrawn its deposits from these overseas branches.

Consumption on the upswing

Domestic manufacturers and retailers are  reporting brisker sales lately, suggesting that the real economic sector is entering a boom stage. The Lotte, Hyundai and Shinsegae department stores, the three major retailers based in Seoul, said that turnover from their regular autumn bargain sales in the first half of this month increased by as much as 55 percent over the year-earlier period. Lotte said that it posted 257.8 billion won ($213 million) from its autumn sales in the first 15 days of October, marking a 55-percent rise from last year? event, while Hyundai and Shinsegae also registered year-to-year gains of 41 percent and 21.9 percent, respectively.

Local family restaurant chains saw their turnover grow by five percent on average in October which is generally considered a dull season. Confectionery and luxury liquor makers are reporting stronger-than-expected sales this fall while the preference towards larger-sized apartments is on the rise. "Consumption is likely to continue to expand, partly as a result of the gradual monetary flow from the financial markets into the real economy," said an industry analyst.

Moody's likely to boost Korea's credit ratings

Moody's Investors Service is expected to raise Korea's debt ratings from the current Baa3 (the lowest investment grade) to Baa2 around the end of next month at the earliest, an official of the Ministry of Finance and Economy said Oct. 18th. According to the official, it usually takes three to four weeks for the ratings agency to raise a country's debt ratings after undertaking a review, and to that end, a team of analysts from Moody's Investor Service will arrive in Seoul early next month.

They will visit ministries and state institutions such as the Finance and Economy Ministry, the Bank of Korea, the Financial Supervisory Commission, the Korea Development Institute,   along with three state banks - Korea Development Bank, Export-Import Bank of Korea, and Industrial Bank of Korea.

Credit ratings of local private firms and financial institutions are also likely to go up following the upgrade of the country's sovereign ratings, the official said.

Moody's said the review was prompted by continued improvement in the external liquidity position, which should significantly reduce the country's vulnerability to external shocks and help Korea avoid another balance of payments crisis.

Korea's sovereign rating stood at A1 prior to the 1997 foreign currency crisis, five grades above the current Baa3 level.

Regent Pacific to invest $30 mil. in Haedong

The United Kingdom-based Regent Pacific Group will invest $30 million in Haedong Insurance to acquire a controlling position. Haedong officials said yesterday that the two sides have  signed a memorandum of understanding (MOU) to that effect. Under the deal, Regent Pacific will acquire a 27 percent stake from Haedong's majority shareholders for $10 million and invest another $20 million to acquire new issues. The U.K. financial group will also take over management  from Haedong.

Haedong had sought foreign investment to shore up its capital. One of the smallest non-life insurance firms, Haedong suffered a 194 billion won losses in fiscal 1998. Capitalized at 15.7 billion won, its assets stood at 349.2 billion won as of the end of March this year.

With the acquisition of Haedong, Regent is taking shape as an integrated financial group. It already operates Daeyu Regent Securities and is trying to acquire Kyungsu Merchant Bank. In July, the British financial group  signed an MOU with Daehan Investment Trust  on an equity investment to the tune of  250-350 billion won, but negotiations stalled following the outbreak of the Daewoo Group crisis.

Stricter outside director rules to be enforced in 2001

Listed companies with assets of two trillion won ($1.6 billion) or more will be required to fill 50 percent of their board membership with outside directors  starting 2001. It will also become mandatory for firms of such asset value to have three or more outside directors sit on their boards of directors from next year, according to revision bills of the Securities Transaction Act and five other laws.

Unveiling the bills aimed at improving the governance  structure of local firms, the Ministry of Finance and Economy said Oct. 20th that it will submit them to the current session of the National Assembly for approval. If passed, the revised laws will go into effect from next year.

The nation¡¯s family-controlled conglomerates, or chaebol, have opposed the introduction of the stricter requirement, citing that more  outside directors may infringe upon their managerial rights. However, the reform-minded  Kim Dae-jung government has pushed for the rewriting of the related laws in a bid to change the way decisions are made at the nation's  conglomerates.

In local conglomerates, boards of directors usually have nominal influence, while chairman-owners wield almost uncontested power over group affairs and make all the important decisions.

According to the revised bill, a total of 92 non-financial firms, or 13.5 percent of those listed on the Korea Stock Exchange, will be subject to the fresh outside-director requirement. The new rule will also be applied to eight securities brokerage houses, and 19 investment trust companies (ITCs) and investment trust management firms.

Samsung wins oil refinery projects in Mexico

Samsung Engineering Co. has received oil refinery projects worth $260 million  from Mexico¡¯s national oil firm Petroleos Mexicanos (Pemex). Samsung will build two factories for naphtha processing in Salamanca on a turnkey basis, taking charge of planning, construction, test operation, and repair of existing factories there. The entire project will cost $150 million and will be completed by February 2002.

It will also construct two factories for gas and oil desulfurization and repair factories in Tula for at a cost of $110 million by March 2002. Samsung, which participated as a single bidder, unlike other bidders in this international  bidding, expects  to secure more construction orders in Central and South America in the future. The company also won orders to build oil refining factories in Brazil worth $1 billion last month.