Foreign Exchange Control Committee Exports Diversification High Quality Strategy

As Won-Dollar exchange rate has sharply decreased to KRW 1,100 from KRW 1,300 this year, major large companies have been under the emergency duty orders for exchange control.

Export/Import companies of electron, motorcar, steel, and ship painting are the most affected by KRW/USD rate, and have prepared against decreasing rate. Also, they not only have performed the diversification of risks (Hedge) through short-term exchange transaction, but also constructed a regular system by introducing the enterprise exchange control program.

▽Emergency of management performance of the second half of the year for large companies 〓Samsung Electronics which has the average 700~800 foreign exchange transactions a day forecasts that its sales will decrease by KRW 2 trillion when the KRW/USD rate decreases by KRW 100 per annum. LG Chem said, “If the exchange rate decreases by KRW 80, its annual operating income will decrease by KRW 24 billion which is 5% of total operating income. It is because the amount decreases as much as the decrease of exchange rate when earned US dollars are changed into Korean Won..

Accordingly, Samsung Electronics has increased a weight on EUR settlement to 20% of the total which is twice compared the last year for a bearish trend of US dollar. Foreign corporations have maintained the rate of US dollar and local currency half and half.

Last year, LG Chem increased the foreign borrowings by issuing the FRM of USD 120 million to prepare against exchange fluctuation for 2~3 years.

Kia Motors separated the international Finance team of 10 staffs from the money and finance team and installed an electric bulletin board which shows the real time exchange rate in the office. Hyundai Motor has operated ‘Risk Management Committee’ composed of the international finance tem, import/export team and the leader of the money and finance team.

▽Introduction of enterprise exchange control program 〓 Steel and shipbuilding companies also have been aggressive in exchange control. Daewoo Shipbuilding made the shipping contract for sudden fluctuation of exchange rate, and then hedged the total construction costs with forward exchange. Also, it specified the regulation of exchange control in the company regulations, and has reported the results to the management each month, organizing ‘Foreign exchange control task force’ composed of member of 5 major departments including the foreign business team, treasury team and sales planning team.

Dong Kuk Steel Mill organized ‘Exchange risk control committee’ composed of major executives and has introduced the exchange control program which grasps the exchange-related index at real time.

Gim, Dong-Gak, the director of finance, Daewoo Shipbuilding and Marine Engineering said “As the exchange rate has considerably been fluctuated in the recent years, companies have keenly realized the necessity of foreign exchange control. To have the enterprise management system, there must be a awareness and determination of the management”.

▽Strengthening of corporate structure 〓Companies have tried to strengthen the corporate structure to increase the competitiveness when a bullish tendency of Korean Won is continued (Decrease of KRW/USD rate). Hyundai Motor has carried the extension of China factory cooperating with Dung Pung Motor in China, and plans to diversify the export improving the distribution network and strengthening the Europe market from the second half of the year. Also, it has increased the weight of EUR settlement and exports of high price and high profits vehicles because it is not easy to increase the export cost by the fluctuation of foreign exchange.