The Korean Wave
For much of 2009 cross-border activity in Korea mirrored the downward trend seen across the globe. Thomson Reuters figures indicate that cross-border volumes for the first nine months of 2009 dropped 46% to US$6.5bn, compared to the same period in the preceding year. The figures accounted for only 25% of the market.
Somewhat surprisingly, inbound activity took a 14% market share, up from 11% in the first nine months of 2008, reaching US$3.8bn – nearly 1.5 times more than outbound volumes. “The financial crisis of course had an impact on deal flow, especially for outbound deals which suffered due to a number of global issues plus the weakness of the won,” said Lee Jai Wook, a foreign lawyer with Kim & Chang. “However, we have seen a number of positive developments on the outbound side over the last few months and we like everyone else in Korea are hopeful that these deals will start to flow freely again,” he said.
The positive developments to which Lee refers were spirited Q3 and Q4 performances in which, courtesy of mid-market M&A, outbound investments outpaced inbound volumes by almost 300%. He is quick to point out that this doesn’t mean a return to the heady days of mid-to-late 2007. “It will be a long road to get back to that point,” he concludes. This is a sentiment shared by other lawyers ALB spoke to.
Sometimes overlooked in such analyses is the fact that outbound investment needn’t only be of the M&A variety. In many respects, outward FDI – transfer of capital, technology, know-how and experience overseas – has been just as important for Korea, if not more so.
Aided by government-backed economic stimulus in certain parts of the world, this type of outbound activity has remained relatively stable, much to the excitement of lawyers in the country.
“Outbound investments by Korean companies, especially in South-East Asian countries, have been a noticeable trend of the last few years,” says Kim Jae Hoon, a senior partner at Lee & Ko. “In places like Vietnam, Cambodia, Laos, Thailand and many others we see some of our largest companies helping build infrastructure, roads and energy facilities. Recently, we have also seen many of them set up bases in these countries to lower the costs of doing business there,” he says.
Of course, it’s not merely South-East Asia or infrastructure development that is on the radar. Just like the pervasive cultural phenomenon of hallyu which preceded them, Korean corporations have their sights set on so many sectors in so many markets that it is becoming increasingly difficult to single out only a few. “Russia and the CIS continue to be areas of great interest,” says Raymond Kang, a foreign lawyer at Yulchon. “Lots of Korean clients, especially in the automobile indutsry, are looking at establishing plants in Russia and CIS countries to invest in facilities. They are looking at the feasibility of consumer markets for Korean cars and as has been the trend before, when an automaker sets up manufacturing facilities in a new region, suppliers and contractors naturally follow,” he says. “India, China, the Middle East, and South America and of course the US and Europe are all of interest as well. Here, Korean companies are competing against and winning bids against larger US and European companies for very lucrative work.”
This was demonstrated most recently by a KEPCO-led consortium’s successful bid to design, construct and operate four units of 1400MW reactors for the UAE. In winning the project, which is worth US$40bn, the Korean consortium beat strong competition from France, the US and Japan. And sources close to ALB suggest that the Korean government is in advanced talks with other governments in the region to complete similar projects.Shin Hee-Gang, a partner with Bae Kim & Lee, sums up the mood of many Korean companies vis-à-vis outbound investment when he says “everything is possible and every corner of the globe is on their list.”
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