Bloomberg News

Shinwon Falls as North Korea Closes Joint Complex: Seoul Mover

April 08, 2013

Shinwon Corp. (009270) led declines among companies that do business in North Korea after the communist nation said it will suspend operations at a jointly run industrial complex. South Korean defense shares rallied.

Shinwon, an apparel maker that operates a plant in the complex, slipped 2.7 percent to 1,250 won as of 9:45 a.m. in Seoul. Watchmaker Romanson Co. retreated 3.8 percent and Good People Co. (033340), an underwear maker, fell 1.9 percent. The nation’s Kospi index added 0.4 percent, snapping a six-day slide.

Workers are being recalled from the Gaeseong industrial park and operations will be suspended indefinitely, the official Korean Central News Agency said yesterday. North Korean employees at the complex have not come to work, Yonhap News reported today. Suspending work at the complex would eliminate a source of hard currency for Kim Jong Un’s impoverished regime as well as the last link of exchange between the two countries.

“Threats to suspend the Gaeseong project appears to be North Korea’s ultimatum before taking any action,” Heo Pil Seok, chief executive officer at Midas International Asset Management Ltd., which oversees about $5.4 billion, said by phone in Seoul. “But I don’t think this would have a big impact on South Korean companies operating factories there because many of them use the complex as a way of saving labor costs instead of a key manufacturing base.”

Atomic Weapon

North Korea is ready to conduct a fourth underground atomic weapon test at its Punggye-ri site, South Korean Defense Ministry spokesman Kim Min Seok said yesterday. National security chief Kim Jang Soo said the North may stage a provocation including a ballistic missile test around April 10.

About 120 South Korean companies employ more than 53,000 North Korean workers at Gaeseong, located about 10 miles (16 kilometers) north of the demilitarized zone. The North generates $100 million in profits annually from the joint project and South Korea makes quadruple that amount, according to Yang Moo Jin, a professor at the University of North Korean Studies in Seoul.

Victek Co. (065450), a maker of electronic warfare equipment, jumped 6.1 percent, pacing gains among South Korean defense stocks. Firstec Co. (010820), a maker of components for helicopters and armored vehicles, rose 5.5 percent, while Speco Co. added 8.5 percent.

To contact the reporter on this story: Saeromi Shin in Seoul at sshin15@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net


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