By Park Hyong-ki
The state-run Export-Import Bank of Korea (Eximbank) is facing a series of setbacks with Korea Aerospace Industries (KAI) after Korea Development Bank (KDB) handed over KAI shares to the export financing bank last June.
Eximbank lost more than 660 billion won ($586 million) in KAI amid a corruption scandal involving the defense maker's Surion utility helicopter. The export bank has a 26 percent stake in KAI.
The KUH-1 chopper for the Army has been found to have defects, including ones regarding its lightning protection and engine systems, with KAI allegedly having marked up the prices of its parts in the procurement sales.
The listed defense manufacturer is also facing allegations that it had cooked its books by overvaluing the sales of KAI's FA-50 fighters to Iraq. The FA-50 light attacker is a derivative of KAI's T-50 supersonic trainer developed with Lockheed Martin.
This potential accounting fraud, which is currently being probed by the financial regulators, will not only further worsen KAI's credibility, but also its other overseas deals in emerging markets of Southeast Asia and South America, observers say.
The KUH-1 helicopter accounts for about 20 percent of KAI's turnover.
"The outlook for the helicopter's export deals looks uncertain amid the investigation," said Lee Sang-woo, an analyst at Eugene Investment & Securities.
Having already lost more than a trillion won in stock value over the last couple of weeks, KAI could be delisted if the regulators find that it indeed committed an accounting fraud.
And its former largest shareholder KDB will once again likely be questioned and held responsible for its lack of oversight over the defense maker.
KDB had been KAI's largest shareholder over the last decade before it gave KAI to Eximbank.
The development policy bank handed over KAI to Eximbank to boost the export financing bank's capital following Eximbank's growing bad debt stemming from liquidity-strapped Daewoo Shipbuilding & Marine Engineering (DSME) and other shipbuilders.
The shipbuilder has been delisted, and is waiting for the banks' second liquidity injection worth about 3 trillion won.
With KAI and DSME in the doldrums, it looks like Eximbank has been unlucky, being at the wrong place at the wrong time.
KAI's falling share price, which is trading below 50,000 won down from 100,000 won a year ago, is not going to improve Eximbank's capital position.
The export policy bank's capital adequacy ratio stood at around 12 percent at the end of March this year, the lowest in the banking industry. It is even lower than KDB's 15.37 percent. The state-owned Industrial Bank of Korea's ratio was 13.34 percent.
Eximbank posted a net loss of 1.5 trillion won last year. This was its first loss since its inception in 1976 to help small- and medium-sized enterprises export their goods.
The state-run Export-Import Bank of Korea (Eximbank) is facing a series of setbacks with Korea Aerospace Industries (KAI) after Korea Development Bank (KDB) handed over KAI shares to the export financing bank last June.
Eximbank lost more than 660 billion won ($586 million) in KAI amid a corruption scandal involving the defense maker's Surion utility helicopter. The export bank has a 26 percent stake in KAI.
The KUH-1 chopper for the Army has been found to have defects, including ones regarding its lightning protection and engine systems, with KAI allegedly having marked up the prices of its parts in the procurement sales.
The listed defense manufacturer is also facing allegations that it had cooked its books by overvaluing the sales of KAI's FA-50 fighters to Iraq. The FA-50 light attacker is a derivative of KAI's T-50 supersonic trainer developed with Lockheed Martin.
This potential accounting fraud, which is currently being probed by the financial regulators, will not only further worsen KAI's credibility, but also its other overseas deals in emerging markets of Southeast Asia and South America, observers say.
The KUH-1 helicopter accounts for about 20 percent of KAI's turnover.
"The outlook for the helicopter's export deals looks uncertain amid the investigation," said Lee Sang-woo, an analyst at Eugene Investment & Securities.
Having already lost more than a trillion won in stock value over the last couple of weeks, KAI could be delisted if the regulators find that it indeed committed an accounting fraud.
And its former largest shareholder KDB will once again likely be questioned and held responsible for its lack of oversight over the defense maker.
KDB had been KAI's largest shareholder over the last decade before it gave KAI to Eximbank.
The development policy bank handed over KAI to Eximbank to boost the export financing bank's capital following Eximbank's growing bad debt stemming from liquidity-strapped Daewoo Shipbuilding & Marine Engineering (DSME) and other shipbuilders.
The shipbuilder has been delisted, and is waiting for the banks' second liquidity injection worth about 3 trillion won.
With KAI and DSME in the doldrums, it looks like Eximbank has been unlucky, being at the wrong place at the wrong time.
KAI's falling share price, which is trading below 50,000 won down from 100,000 won a year ago, is not going to improve Eximbank's capital position.
The export policy bank's capital adequacy ratio stood at around 12 percent at the end of March this year, the lowest in the banking industry. It is even lower than KDB's 15.37 percent. The state-owned Industrial Bank of Korea's ratio was 13.34 percent.
Eximbank posted a net loss of 1.5 trillion won last year. This was its first loss since its inception in 1976 to help small- and medium-sized enterprises export their goods.
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