Oil Money Sets Eyes on Korean Market
By Kim Jae-kyoung
Oil money is expected to rush to the Korean market after a group of Arab investors showed a keen interest in making investments here.
Some Islamic countries have sent large-scale delegations to scour the country for potentially lucrative opportunities.
Last week, 26 Arab investors led by the Abu Dhabi Investment Authorities (ADIA), the world’s largest sovereign wealth fund with assets of $875 billion, visited Seoul to meet with major Korean financial services firms.
Woori Financial Group, the nation’s second-largest financial holding company, held an investors relation (IR) session for the group last Friday. ``ADIA asked us about whether they can invest in our group,’’ a Woori official said.
At its IR session Thursday, the Korea Development Bank (KDB) asked the Islamic fund to invest in major Korean companies up for sale, including Hynix Semiconductor and Daewoo Shipbuilding & Marine Engineering. It also explained about an envisioned private equity fund (PEF) to buy corporate assets from struggling conglomerate units.
ADIA signed a memorandum of understanding (MOU) with the KDB and KOTRA over information sharing and joint investments in Korean companies. ADIA is primarily investing in real estate, infrastructure projects and investment banks.
KOTRA said that Arab investors believe that there are great opportunities in Korea due to the local economy’s potential and underestimated real estate. ``The visit by a group of Arab investors will be a stepping stone for Korea to attract more oil dollars from the Middle East,’’ KOTRA CEO Cho Hwan-ik said.
On Friday, a consortium formed by Kuwait Finance House (KFH) and KTB Investment and Securities was picked by the Ministry of Knowledge and Economy as a manager to run the country’s new growth engine fund. KFH is one of the biggest investment banks in the Islamic world.
Qatar has also shown an interest in investing in Korea. At a meeting with President Lee Myung-bak in Seoul on May 25, Qatari Crown Prince Sheikh Tamim bin Hamad Al Thani said that his country is ready for a commitment here and will soon dispatch a delegation to seek investment opportunities.
``Since the global cash shortage is likely to continue for a while, oil money can be a good alternative for Korea to secure a long-term fund, which we believe will help the economy overcome the ongoing crisis,’’ said an official at the Ministry of Strategy and Finance.
To encourage Arab investors to bring more dollars, the government launched a task force in March to revise related laws by the end of this year to meet conditions in Sharia (Islamic) law.
Since Sharia bans levying interest, ``sukuk,’’ an Islamic bond, was developed to pay dividends or commission instead of interest. It is usually invested in tangible transactions such as real estate or facilities.
Islamic money cannot be invested in businesses considered contrary to Islamic value, such as those operating in the pork, liquor and pornography and gambling sectors. As Islamic finance bans excessive risk and uncertainty, speculative products are theoretically banned.
According to McKinsey, Islamic financial assets are expected to surpass $1 trillion in 2010, which compares with $750 billion estimated for 2006. The issuance of ``sukuk’’ grew five-fold over the past four years to reach $120 billion in 2008.