To: sepku who wrote (27521 ) 12/11/1997 6:31:00 AM From: Glenn D. Rudolph Respond to
South Korean oil companies hit by demand for LCs
Reuters Story - December 11, 1997 04:25
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By Raj Rajendran
SINGAPORE, Dec 11 (Reuters) - Beleaguered South Korean oil
companies have been dealt another blow as suppliers demanded
letters of credit (LCs) for every sale, industry sources said
on Thursday.
The companies, previously given open credit terms by their
trading partners, including major oil companies, must now
produce LCs from reputable international banks, the sources
said.
One source at a major oil company said he had received
instructions to refer all deals back to the head office.
"The deals will be reviewed on a case-by-case basis and
there will be no open credit," he said.
"Before, only some Korean oil companies needed LCs, but now
everybody does, and not from Korean banks but only from first
class international banks," a trader with a European oil
company said.
The sources said all oil companies have taken some form of
action to check their exposure in South Korea in the wake of
the financial crisis.
The South Korean won has lost 51 percent of its value
against the dollar so far this year, the stock market has
plunged and despite having the world's 11th largest economy the
country has had to secure a $57 billion International Monetary
Fund rescue package.
Industry sources said the impact on the five oil refiners
under pressure to produce LCs would vary. Those belonging to
large conglomerates, or chaebols, were seen as more likely to
weather the storm with the least pain.
South Korea's five refiners were Yukong Ltd ,
Hanwha Energy , LG-Caltex Oil Corp, Hyundai Oil
Refinery Co,(an affiliate of the Hyundai Group [HYGR.CN]), and
Ssangyong Oil Refining Co .
The refiners have a capacity to refine 2.5 million barrels
a day of crude, the third largest amount among Asian countries.
Those with links to foreign multinationals may also have an
advantage.
Ssangyong Oil, for example, can look to its 35 percent
shareholder, Saudi Arabian state-owned Saudi Aramco for crude
supplies on more favourable terms, one trader said.
LG-Caltex also has strong overseas ties. The second largest
refiner is a joint venture between the LG Group and Caltex
Petroleum Corp, itself a joint venture between Texaco Inc
and Chevron Corp .
Texaco said on Monday that its share of dollar denominated
debt losses from its LG-Caltex venture will be $175 million for
this year.
South Korean oil companies had chalked up operating profit
growth of up to 40 percent but the bottomline should fall by
between 30 to 40 percent when foreign currency losses are
factored in, analyst Bill Hunsaker of ING-Barings Securities
said.
"The oil companies are not suffering right now. They are
only suffering from translation loss," he told Reuters earlier.
Traders said the need to produce LCs had already clipped
the South Korean companies' trading activities with most of
them no longer active participants in the Singapore
over-the-counter oil product swaps market.
"I've not seen them in the swaps market for sometime now,"
one broker said.
He said on a good day the South Korean companies' trading
volume on the swaps market reached tens of millions of dollars.
