South Korea political scandal puts corporate decisions on ice www.reuters.com

Korea Inc is moving in slow-motion, mired by the country's political crisis, with a vacuum in planning and decision making as corporate giants such as Samsung and Lotte delay traditional year-end management reshuffles, company insiders say.

Last week, the heads of nine of the biggest conglomerates, or chaebol, were subjected to an unprecedented 13-hour grilling by a parliamentary panel investigating the scandal that led to Friday's vote to impeach President Park Geun-hye.

While no executives have been charged with wrongdoing, many have been questioned by investigators and the offices of the Samsung, Lotte and SK groups were raided.

"With no hint on when top management changes will be announced, what we are seeing right now is a chain reaction that slows down lots of things," said an executive at a key Samsung Group unit that makes electronics components, who declined to be identified given the sensitivity of the matter.

Between them, the nine groups have revenue of 910.5 trillion won ($780 billion), equivalent to more than half of South Korea's GDP.

Executive promotions, an annual ritual at the big family-controlled conglomerates that dominate South Korea's economy, typically set the stage for new initiatives in the coming year, with decision-making tailing off in the weeks beforehand.

With that period of uncertainty stretching on longer than usual, an employee at a Samsung affiliate said staff had been occupying themselves reading news reports and surfing the corporate intranet.

"There is a definite slowdown in day-to-day work as well, because companies are holding off on concrete expansionary plans or changes," said the person, who declined to be named.

The scandal has also sown uncertainty about government policies and the economy, coming at an inopportune time for companies such as Samsung Electronics Co Ltd and Hyundai Motor Co, which are looking to reverse sliding market share in core businesses.

Hyundai, which is bracing for its fourth consecutive year of annual profit decline, said it was also undecided on whether it would announce personnel changes in late December as usual.

"The mood is not great and our chairman had a very tough time at the parliamentary hearing," said a Hyundai Motor Group executive who declined to be named. "It would be fortunate if I don't get sacked in these difficult times."

WHO'S IN, WHO'S OUT?

Park has been accused of colluding with long-time friend Choi Soon-sil and an aide to pressure big businesses to contribute tens of millions of dollars to two foundations set up to back presidential initiatives.

Samsung Electronics, part of the conglomerate that donated 20.4 billion won ($17.5 million) to the two foundations - the most of any group - has seen delays in setting next year's sales targets, a company source said, declining to elaborate.

The company has also yet to announce its yearly management reshuffle. Samsung traditionally announces executive changes in early December, with some investors expecting a major shake-up after it was forced to discontinue its fire-prone Galaxy Note 7 smartphone.

It declined to give a timeframe, or to comment on when it would announce annual personnel moves.

"There's a lot of anxiety," said an employee at Samsung Electronics' chip division, who said employees were huddling over lunch to discuss rumors of changes that would normally have been completed by now.

"I am curious to know whether my current boss will stay, or I will be moving to another team or not."

A Lotte Group spokesman said its annual reshuffle, which usually takes place in late December, was likely to be delayed to next year because of "various situations".

"Our group companies are having more difficulty in setting up business plans than usual," the spokesman said.

"HOLD TIGHT, LOOK BUSY"

Friday's impeachment vote means the country's Constitutional Court has up to 180 days to uphold or overturn it, setting the stage for Park to be the country's first democratically elected leader to be ejected from office.

Ratings agency Moody's said on Monday that the impeachment increased the likelihood that no new policy changes would be implemented until a permanent replacement was in office, which would weigh on the economy as hiring and investment decisions are put off.

"The biggest fallout we can expect from this issue, economy-wise, is companies hesitating to invest," a Bank of Korea official told Reuters, declining to be named.

Samsung, which usually announces its annual investment plan around late January, told Reuters in a statement that it was "currently in the process of making comprehensive plans for next year."

In 2016, it earmarked a record 27 trillion won ($23 billion) of capital spending.

South Korea' finance ministry said last week it was concerned that "domestic issues" may put more pressure on an economy that is grappling with record household debt and weak exports, as well as global uncertainties.

The Federation of Korean Industries, which represents big conglomerates, typically announces annual investment plans by the 30 biggest business groups in March, but an official there said it was not clear whether it would be able to keep to that schedule.

"The current crisis is similar to or worse than that of the 2008 subprime mortgage crisis," he said, also declining to be identified. "We are at a standstill."

That has left employees "holding tight and trying to keep busy" said an official at another Samsung Electronics affiliate.

"Many executives eligible for promotion or other reshuffle prefer to stay low profile ... you don't want to get unnecessary attention," he said.

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Economic gods may be smiling again at Mongolia www.asia.nikkei.com

TOKYO -- The international financial community's confidence in the Mongolian government's capability in delivering reforms and debt services seems to be ameliorating after a long slump. That was an impression left by an investment-promotion conference held in Tokyo last week, attended by representatives of foreign lenders and investors as well as officials at the country's central bank and legislature.

The timing of the conference, hosted by Frontier Securities, a Japanese-run Ulaanbaatar-based investment bank, seemed to be as bad as it could be.

The country's sovereign debt rating had been downgraded from "B3" to "Caa1" by Moody's in mid-November, with less than four months before the mid-March maturity of a $580 million bond issued by state-run Development Bank of Mongolia. There is no hope that the bank itself will manage to secure funds to repay the bond, given its poor management. The former chief executive of the bank was arrested in October for arbitrary use of funds raised from the bond issuance.

The country's fiscal deficit has exploded to reach 20% of gross domestic product this year. The 2016 GDP is projected to show no growth at around $12 billion, if not a contraction. Mongolia's total external debt is estimated at as much as $23.5 billion, of which the government debt accounts for about $8.4 billion. Analysts say the government needs to repay $1.7 billion-$1.8 billion over the next two years.

In such a situation, to meet the March deadline for the Development Bank's $580 million bond, many believe that the government will need to agree the IMF's loan terms by early February at the latest.

Graeme Knowd, a managing director at Moody's Japan, was straightforward on that issue at the conference. "There seems to be a large gap in the growth forecasts between the Mongolian government's and the IMF's, and we think it will take some time for them to agree on a consensus somewhere in the middle."

On the other hand, Knowd also made a remark that seemed to contradict his own institution's decision to downgrade the country's debt, which led to worries about a default. "What we are seeing is not an insolvency issue but a liquidity issue. We are quite confident that repayment will be made. We are just not certain that it will be made on time in March," he said.

Following Knowd's comment, Neil Saker, IMF's resident representative in Ulaanbaatar, even sounded optimistic. "Regarding the liquidity issue, I am hopeful. We don't really see any big difference [between IMF and the Mongolian government] on the policy framework," Saker said, which many saw as implication that the IMF's talks with the Mongolian government are advancing smoothly. He revealed that the IMF is encouraging other international institutions and countries to join in the rescue initiative as well.

High coupons

Some conference participants said they expected holders of the Development Bank's $580 million would be willing to roll over the debt because the coupon rate will be in double digits. Such a rate would be attractive enough considering that fundamentals internally and externally, including resource commodity prices, mining project progress and macro-economic policies, are starting to ameliorate. "Not many countries have very high interest rates and a bright future at the same time like Mongolia," one of those participants said.

On the sidelines of the conference, an official of the country's central bank, the Bank of Mongolia, was reassuring to both the IMF and Moody's representatives, repeating the line that "the government will repay on schedule for sure."

The central banker also told the Nikkei Asian Review that the bank is determined to maintain the current level of tight monetary policy to maintain the value of the Mongolian currency, the tugrik, for at least a couple of years despite political pressures against it. Saker had told the conference a sustained tight monetary policy is a prerequisite for a new IMF loan.

In recent years, a sharp decline in resource commodity prices led to a sharp drop in government revenues from the mining sector and to a deterioration of the balance of payments. In the June 29 general election, the then-ruling Democratic Party was removed from power and an overwhelming majority voted in the Mongolian People's Party. The new parliament named Erdenebat Jargaltulga, former finance minister, as the new prime minister.

The new government started drafting a policy package involving a fiscal restructure and structural reforms immediately after the inauguration in early July and started talks with the IMF. It proceeded in late September to officially request for an IMF bailout.

Almost all the speakers pointed to a rapid rebound in the prices of coals and copper, both crucial exports for Mongolia. "The economic gods are starting to smile for Mongolia," Nicholas Edwards, a veteran American investor, said. He pointed out that, thanks to the recent price increase, Mongolian coal mines are starting to make money He also noted that copper has been the best performing metal for the past six weeks in the international market.

Of course, every participant agreed that continuous fiscal reforms and economic restructuring are absolute "musts" for the Mongolian government in order to attract a substantial amount of foreign direct investments again.

IMF's Saker warned that the government and politicians should refrain from expanding government expenditure even if the commodity market recovers substantially. "Rather than increasing expenditure when commodity prices go up, which was the story over the last 10 years, [Mongolians] should save those windfalls into sovereign wealth funds and other effective instruments," he said.

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