A-list message, [A-List] Korean political economy

12/16 11:01
Foreign Investors Want Roh Victory in Korea's Presidential Race
By Yoolim Lee

Seoul, Dec. 17 (Bloomberg) -- Wilbur Ross, a New York-based investor, would
probably vote for Roh Moo Hyun in South Korea's presidential election
Thursday if he could. Overseas investors want a leader who will extend the
current government's push to sell assets such as Chohung Bank and mend ties
with North Korea.

Roh, a member of outgoing President Kim Dae Jung's ruling party, says he
will complete pending sales of Chohung and other state companies to foreign
investors and seek closer economic and diplomatic ties with military enemy
North Korea. His opponent, Lee Hoi Chang, has questioned those policies.

``My concern is that with a change of government, there may be people who
begin to say, `Why should we let foreign investors have important positions
in our equities?','' said Ross, head of U.S. buyout firm W.L. Ross & Co.,
which bid for Hyundai Group's financial assets earlier this year and has
said it plans other Korean investments.

Lee hinted last week he might oppose selling assets too cheaply to private
investors and said Kim has been too soft on North Korea. Roh has said he'll
keep the policies of a leader who's won investors' confidence by opening
capital markets, selling bank stakes to foreign buyers and ordering business
groups such as Samsung and Hyundai to cut debt.

Under Kim's leadership, Korea won five credit-rating upgrades since 1998.
The economy, which shrank 6.7 percent in 1998 as the Asian financial crisis
triggered the currency's collapse, is set to expand 6.2 percent this year --
among the fastest in Asia.

`Peace and War'

Kim, barred from running for a second five-year term, won the Nobel Peace
Prize in 2000 after holding a landmark summit with North Korean leader Kim
Jong-Il aimed at eventually reunifying the two Koreas.

North Korea may be the issue that most clearly divides Roh and Lee. Roh had
a 9.1 percentage-point lead over of Lee in a Nov. 26 poll by YTN television
station and the Munhwa newspaper, while other polls showed Roh with a
narrower lead. Opinion polls have been banned since late November.

Lee said yesterday Roh's pledge to keep extending cash to Pyongyang would
backfire and threaten security on the Korean peninsula. Roh responded by
saying South Korea has a choice between ``peace and war.''

Many overseas investors share Roh's stance. They say South Korea's next
leader must cool mounting tensions with North Korea to contain the North's
nuclear threat and revive momentum for the Stalinist nation's efforts to
attract more foreign investment.

North Korea admitted in October to developing nuclear weapons, chilling
diplomatic relations with its adversaries and prompting the U.S to halt fuel
shipments to the country last month. Pyongyang, which called Lee a
``madman'' last week, responded by threatening to restart its nuclear power
plants.

North Korea Investors

``It is an absolute necessity that peace be maintained on the peninsula,''
said Torsten Pedersen, chief financial officer at Maersk Korea Ltd., which
recently began a container transportation business between South and North
Korea. ``I'm an advocate of Kim's `Sunshine Policy''' of engagement with the
North.

Maersk, a unit of Denmark's A.P. Moeller, the world's largest container-ship
company, may expand into one of two planned industrial zones in North Korea.

``I strongly support the ruling party's view in normalizing relations with
the North,'' Ross said. ``We're very interested in doing business in North
Korea.''

Whoever wins Thursday's election will inherit an economy in danger of
overheating. Both candidates have pledged to rein in household debt to stem
surging consumer defaults and avert inflation. Roh said he'd make banks trim
household and credit-card lending, and Lee told reporters yesterday he'd
help bail out more individual defaulters by extending debt-rescheduling
programs.

Anti-U.S. Protests

Korea's new president will also have to balance growing anti- American
sentiment among voters with the need to maintain close ties with Korea's
main military and diplomatic ally.

About 50,000 South Koreans marched on the U.S. Embassy in Seoul on Saturday
to demand a formal apology for the deaths of two girls crushed by an
American military vehicle. The U.S. has 37,000 troops stationed in South
Korea.

Some analysts said Roh, a former human-rights lawyer who has supported labor
unions, may be more likely to distance South Korea from the U.S. than Lee.

``Because of his activist past, he hasn't earned the full trust of
Washington,'' said Michael Kurtz, Asian equity strategist at Bear Stearns
Asia Ltd.

The new government's approach to asset sales may be a more immediate concern
to some foreign investors as they vie for a piece of companies such as
Chohung Bank, Korea Electric Power Corp. and Korea Gas Corp. that are still
on the block.

Chohung Sale

Investors led by New York-based Cerberus Partners LP and Korea's Shinhan
Financial Group Ltd. are bidding for the government's 80 percent Chohung
stake. The two groups made offers last month that are likely to exceed 1.7
trillion won ($1.4 billion) in cash, analysts said. A government committee
will review their offers later today.

Korea needs to complete pending asset sales to recoup 157 trillion won it's
spent bailing out banks and companies since 1998. So far, it's gotten about
a third of that back.

Lee, running with the opposition Grand National Party, has signaled he may
reassess Chohung Bank's sale to ensure the government receives the maximum
price.

``While it's impossible not to open our markets, we have to maximize
national interests and minimize industrial losses,'' Lee said in a
television debate last Tuesday, commenting on Chohung Bank and other asset
sales.

Opening Doors

``Stakes in banks are still going to be sold, but the pace may change
depending on who comes in,'' said Dilip Shahani, a senior fixed-income
analyst at HSBC Treasury and Capital Markets.

Kim's government oversaw General Motors Corp.'s purchase of Daewoo Motor
Co., Korea's second-largest carmaker, earlier this year, and France's
Renault SA bought Samsung Motor Inc. in 2000. Both Korean carmakers became
insolvent during the Asian crisis.

Foreign investors owned 37 percent of Korean stocks' market value at the end
of last year, up from 15 percent at the end 1997.

Roh has signaled he's open to international investors.

``It doesn't make sense for us to keep our doors shut,'' Roh said.
``Companies such as Samsung Motor and Daewoo Motor would have been closed if
they weren't sold'' to foreign buyers.