South Korean exporters face KIKO nightmare
19/9/2008 16:46
Small and medium-sized companies in South Korea are suffering from a huge
amount of losses from investing in knock-in, knock out (KIKO) options as the
local currency moved opposite direction from their expectation, Korea Herald
reported today.
The South Korean Financial Supervisory Service said that 519
publicly-traded companies in the country that were involved in KIKO trading as
of end of June are estimated to have lost 1.5 trillion won (US$1.25 billion) for
holding the option.
"It is estimated that a 10-won drop in the won's value
results in a combined loss of about 100 billion won (US$83 million) for KIKO
holders," an FSS official said.
Given the higher exchange rate from the end
of June, South Korea's financial experts say the loss could be now around 4
trillion won (US$3.3 billion).
The South Korean won shed 19 percent this year
against the dollar, closing at 1,153.3 won yesterday.
However, many South
Korean companies signed KIKO contracts predicting that the exchange rate would
move within the range of low- or mid-900 won.
Since, KIKO holders are forced
to sell dollars at a fixed exchange rate if the won moves outside the
predetermined range, companies are selling dollars below the current market
value.
Taesan LCD Inc., a Kosdaq-listed manufacturer of TFT-LCD products,
posted a net profit of 11.4 billion won (US$9.5 million) in the first six months
of this year.
However, due to the sharp depreciation of the won it incurred
80.6 billion won (US$67.2 billion) in KIKO-related losses during the same period
which is equivalent to 129.1 percent of the firm's paid-in capital.
Unable to
make up for KIKO-related losses, the firm sought a corporate workout program
Wednesday, the FSS said.
The FSS said it fears that more companies could
follow the case of Taesan and fall into the KIKO trap.
Xinhua
|
