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SK Group tumbles on scandal
SEOUL, South Korea (Reuters) -- Shares in SK Group, South Korea's fourth-largest conglomerate, took a beating for the second day in row on Wednesday, despite efforts by group companies to calm investor nerves rattled by a $1.2 billion accounting scandal. SK Global Co Ltd, the group's trading arm at the centre of the accounting fraud, said it had more than one trillion won ($819 million) in cash and was able to pay back maturing debt. Prosecutors charged 10 group executives on Tuesday for their alleged involvement in the accounting irregularities at SK Global, amounting to 1.56 trillion won, and other illegal stock dealings. The company has confirmed that its books were false. The indictment came as the administration of new President Roh Moo-hyun threatens to clamp down on the family-run business empires, know as chaebol, that dominate Asia's fourth-largest economy. But the scandal has ignited fears over a possibility of a wider financial crisis given that the economy was already slowing, ruffled by tensions over North Korea's suspected nuclear program and soaring oil prices. South Korea confirmed on Wednesday it had sent high-level government officials to the United States in a bid to head of a potential sovereign rating downgrade due to worries over the North Korean nuclear crisis. "This is no longer seen as a just SK Group problem," said Jeon Sang-pil, analyst at Samsung Securities. "Investors are fearing a ripple effect on the broader financial markets including their creditors." In the debt market, investors have actively sold SK Global's bonds and funds amid fears of possible downgrading of the company's credit ratings.
Market sources say debt investors have sold off more than 1.7 trillion won worth of SK Global bonds since Tuesday. "The SK Global fraud hit the market hard and weak sentiment is not likely to end soon," said a fixed income trader at a local brokerage. Shares in SK Global and SK Corp, South Korea's largest oil refiner and the largest shareholder of SK Global with a 38.7 percent stake, plunged 15 percent to their daily limit lows in early trade. SK Telecom, the country's top mobile carrier, was down 1.4 percent. Banking shares also lost ground due to concerns about their exposure to SK Group. Shares in Hana Bank, the main creditor of SK Global, fell by their daily limit low of 15 percent to 11,050 won. SK Group officials tried to ease investor concerns over the future of SK Global and plummeting share prices. Share buybackAn SK Global official told Reuters it had over one trillion won in cash and could pay back more than 500 billion won in maturing debt. It has a total of 2.4 trillion won worth of overseas bonds. Market heavyweight SK Telecom said it would consider buying back its shares held by SK Global to support its share price if the company wanted to sell. SK Global currently owns a 4.77 percent stake in SK Telecom, 2.72 percent in outstanding shares and the rest in bonds that can be exchanged into shares. Morgan Stanley downgraded SK Telecom to "equal-weight" from "overweight" based on a potential share overhang and other corporate governance concerns related to SK Group affiliates. "Until we have better visibility on the degree of impact of SK Group concerns on SK Telecom directly -- and on the length of time needed to resolve such issues -- we consider it prudent to step back on the stock," Morgan Stanley said. Copyright 2003 Reuters. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
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