Friday, March 31, 2006

Concerns Over Foreign Investment in Korea Surface

My watch of Korea big business this week is centered on the Lone Star investment issue in Korea...

This has been a week of raids and probes into Korean businesses-Hyundai-Kia, Hyundai Development (not connected to the motor company), and Lone Star...

Some feel South Korean prosecutors' raid on Seoul office of Dallas-based Lone Star Funds could dampen foreign investment and weaken international confidence in the Korean economy.

Why are their concerns...
Korea hopes to be a East Asian fiscal hub.

Korean media notes...
Government prosecutors raided the Korean office of U.S. private equity fund, Lone Star, to seize documents and computer files in its probe into the investor's alleged tax evasion, and illegal transfer of funds abroad and other irregularities.

An executive of the Korean subsidiary of a U.S. information technology (IT) firm said that the recent development may appear as the Korean government is putting foreign investors under fire just for reaping big profits in Korea.

He warned that foreign investors may miss the whole picture that the government is probing the speculative funds and just look at a snapshot of the latest development that the public resentment, which may be pictured as an intense nationalistic sentiment, against foreign PEFs is rising, thereby dampen foreign investors' interest in Korea.

First and foremost, any company that infringed on the local rules must be subject to the punishment but the Lone Star case seems to have more aspects,'' said the executive who declined to be named.

Some economists are also expressed concern over the negative impact on the overall economy.

One {Korean ?] economist , who used to work in the Wall Street, said what Lone Star and Carl Icahn have been doing in Korea are typical practices exercised by U.S. leveraged buyout funds, buying up faltering firms at fire-sale price and reaping handsome profit by selling the company after normalizing its operations through restructuring work.

He said the United States hardly launch either tax probe, prosecutor investigation or trace corporate accounts, unless regulators secure solid evidences that the private equity funds (PEFs) committed irregularities such as fraud.

For its part, the American Chamber of Commerce in Korea (AmCham) also did not express any discontent involving recent investigations into Lone Star by the prosecutors, the National Tax Service (NTS) and the Board of Audit and Inspection (BAI).

We are confident that the authorities will fully comply with the regulations and standards of treaties governing cross border investment activities in Korea and the investigations will be conducted in a professional manner befitting the 10th largest economy in the world, said AmCham president Tami Overby.

It is a sovereign right of all countries to investigate earned income to ensure legitimate taxes are paid and that the process involved follows all relevant laws and obligations, she said.

AmCham and our companies will continue to abide by the Korean regulations and cooperate on the government's efforts to maintain transparent and legitimate business operations, Overby said.

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