Tuesday, July 08, 2008

Vietnam Crisis Strikes Korean Firms

By Jane Han
Staff Reporter

It's no secret that Vietnam's economy is slipping. The country's economic growth recently hit a seven-year low, the stock and property markets are tumbling and even talks of IMF-style assistance is stemming. All of this is happening thousands of miles away, but for Korean firms with billions of dollars invested there, the looming crisis can't feel any closer.

Currently, about 20 domestic companies are carrying out projects of all sizes in the Southeast Asian country. Among them, POSCO, Samsung Electronics, Kumho Asiana and GS Engineering & Construction have been working up some of the most lucrative initiatives.

Already a number of them, however, are starting to show signs of looking shaky.

Most recently, steel giant POSCO lost its significant joint venture partner Vinashin, which cancelled plans last month to invest $1 billion in a $5 billion steel mill project. The Vietnamese state-run shipbuilder decided to pull out as part of its government's efforts to cut spending.

POSCO said it would proceed alone with the plan, but the fallout of the high-profile venture raises alarm bells for foreign investors and shareholders, which hold a large stake of the company.

Another big gambler in the Vietnam game is Kumho Asiana Group, which is pumping heavy cash into its diverse projects there. From building hotels, golf courses to a major urban center, the conglomerate has been kicking off new leads one after another.

But it is so far seeing little or no returns with ongoing problems over government clearances and land acquisition.

Analysts warn that if some of the heavily-invested projects don't see solid results soon, the company's entire operations could be at risk due to mounting debt.

Also into the building business in Vietnam is GS Engineering & Construction, which plans to invest trillions of won to build a new urban city in the Cu Chi district of Ho Chi Minh City.

Despite concerns that the property market will be at one of the biggest risks, GS says its current undertaking is safe as it will take more than 10 years to be completed.

Handset makers LG Electronics and Samsung Electronics are also under similar pressure as Vietnam's worsening domestic economy is not only taking a toll on local sales, but affecting plans for production facilities there.

Samsung Electronics started building a new handset facility near Hanoi, with aims to beat out its rival Nokia, but progress has been slowed due to difficulties hiring workers and other external factors largely triggered by Vietnam's financial instability.

Other global investors are taking similar steps back, but are generally planning not to withdraw from the country.

``Vietnam was hyped up too early, too fast, but its potential is still there,'' says a Vietnam specialist at KOTRA.