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Korea stocks seen mixed on Nara, Daewoo

SEOUL: South Korean stocks are expected to be mixed this week as a Daewoo Group debt buyout agreement eases jitters arising from suspension of a merchant bank.

Analysts said the suspension on Friday of Nara Investment Banking 16390.KS, whose woes stem in part from its Daewoo exposure, have intensified concerns over the impact of troubles at the Daewoo Group.

"The settlement of Daewoo's debt problems with foreign creditors will be a big relief to the market, which otherwise could take a serious battering from Nara's collapse," said Kim Min-tae, an analyst at LG Economic Research Institute.

Leading foreign creditors, after several days of talks with Daewoo in Hong Kong, agreed early on Saturday morning to take cash from South Korean creditors amounting to an average 39-40 percent of the principal owed them by four Daewoo affiliates.

Brokers said a technical rebound should be anticipated given the 140-point loss since the start of the year, but the possibility of a fund run from investment trusts would unnerve investors.

The market has fretted over what will happen on February 8, when the government will allow investors to redeem up to 95 percent of their beneficiary certificates linked to Daewoo-issued unsecured bonds in funds managed by investment trust companies.

The concern is that the threat of a wave of redemptions will force the trusts, which are vital institutional investors, to unload stocks to raise capital.

"Daewoo's woes are hurting the investment trust industry. The suspension of an investment banking firm clearly proved that perception is reality," said Na Dong-ik, a strategist at Daishin Securities.

Analysts and fund managers expect the benchmark Korea Composite Stock Price Index .KS11 to range between 900 and 950.

It closed at 925.16 points on Friday, down 20.74 points or 2.19 percent on the day as futures-linked sales pulled down blue chips. It lost 2.41 percent last week.

OTHER TRUSTS IN FOCUS

The government said on Friday that it ordered Nara Investment Banking to suspend operation for three months as it faced financial trouble and was unable to meet deposit withdrawals from clients.

It said Nara was mired with Daewoo-issued bonds.

"Investors are going to worry what other investment trust companies are going to go down," said Park Jae-young, a market strategist at Samsung Securities.

Analysts said it will be difficult for the government to convince investors to feel otherwise.

The Daewoo Group is being dismantled by creditors who took control of the troubled conglomerate last August after injecting emergency funds.

But the pessimism would be watered down by the debt rescheduling agreement with foreign creditors, which is expected to speed up Daewoo companies restructuring, brokers said.

The debt agreement would apply to $4.84 billion in non-secured loans to four Daewoo companies of their total foreign loans of $6.7 billion.

Analysts said bond yields and climbing international oil prices will be watched closely by investors.

"With a short-term U.S. interest rate hike pending next month, investors will be sensitive to the movement of local bond yields," said Chang Woong, an analyst at Daewoo Securities. -Reuters