Plummeting ruble to hit Korean firms
Korean companies engaged in business with Russia are expressing concerns over the plummeting value of the Russian ruble, as foreign currency risks are being amplified by escalating geopolitical volatility triggered by Russia’s invasion of Ukraine, according to industry watchers and economists, Tuesday.
The shared concern came on the heels of Korea being included on the Russian government’s list of “unfriendly countries.” Forty-eight countries whose businesses are owed more than10 million rubles (95.8 million won) by their Russian counterparts or individuals can - and almost certainly will — be paid in Russia’s currency, which has rapidly been depreciating both against the U.S. dollar and Korean won. On the list were countries that approved strong sanctions against Russia for its Ukraine invasion.
Korean firms in Russia are expected to bear the full brunt of the impact, since they receive rubles in return for their products and services.
Subject to even greater uncertainties are those who were paid in the U.S. dollar, the global reserve currency against which the ruble has lost about 50 percent in value in just about a week and a half. Their profitability will subsequently be hit, if Russian firms insist on paying in rubles, a grim scenario that is certain to deepen further since the military conflict is unlikely to die down any time soon. Rapid loss “Receiving ruble that has lost about half of its value means their balance sheet tanking by half,” Seoul National University economist Lee In-ho said.
Only those with ample cash reserves will be able to withstand the sudden, extreme liquidity crunch, since most firms need the money received to buy raw materials for manufacturing, in a healthy business cycle.
“Half of what you expected in hand means businesses coming under the threat of rapid deterioration in their financials or even default. Few of the small- and medium-sized exporters will be able to survive,” he added.
The shipbuilding industry with exposure to Russia is closely monitoring the developments, according to a Korea Shipbuilding &Offshore Engineering official.
“We do not see an immediate disruption in payment for our orders, but we are keeping a close eye on the conflict with continued efforts to diversify our markets to reduce the risks associated with the ongoing conflict,” the official said.
Hyundai Genuine, Hyundai Heavy Industries Group’s intermediate holding company, said the firm is mapping out plans to minimize the sales disruptions from the fallout of the Ukrainian war.
“We are closely monitoring the situation,” a Hyundai Genuine official said.
The Ministry of Trade, Industry and Energy convened an emergency meeting, earlier in the day, to discuss ways to navigate the unexpected turn of events.
The meeting was attended by trade, foreign affairs authorities and associations of manufacturers of automobiles and electronic devices as well as construction, equipment and shipbuilding industries. Their shared anguish mostly concerned steep, short-term corporate losses due to ruble-mediated payments.
“The government will come up with measures to limit the difficulties experienced by businesses, a result of Korea joining the international sanctions against Russia as a responsible member of the international community,” said Yeo Han-koo, the country’s top trade negotiator at Korea Chamber of Commerce and Industry building in Seoul.
Foreign exchange market data showed 1 ruble traded at 9.58 won, Tuesday, up 8 percent from the previous session. The U.S. dollar traded at 155 rubles, up from around 80 rubles as of end of February.