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Business

Kia labor defeat bodes ill for South Korean corporations

Geopolitical risks for companies intensifying, warns central bank chief

  © Reuters

SEOUL -- A district court ruling that Kia Motors must pay $375 million of unpaid wages to employees is sending chills across the country's corporations facing similar complaints from labor unions.

The Seoul Central District Court ordered Thursday that Kia pays 422.3 billion won ($374.8 million) to 27,000 workers because the company had excluded bonuses from their regular salaries between 2008 and 2011. But Kia said that it would set aside 1 trillion won as provision, assuming that the ruling could eventually be applied to all its employees and the period was expanded beyond 2011.

The court action is another blow to the nation's second-largest automaker whose sales in China had already tumbled 54.2% to 150,000 in January-July from the same period a year ago, hit hard by worsening consumer sentiment against South Korean companies over the deployment of a U.S. missile defense system in Seongju.

Kia said it was hard to understand the ruling and would appeal to a higher court. Analysts said the company would likely post a loss in the third quarter as a result of the ruling. "Kia's one-time loss may reach about 1 trillion won, making it post a net loss in the third quarter. We will adjust its earnings and target price after reflecting this," said Kim Pyung-mo, an analyst at Dongbu Securities.

The verdict could also affect the 115 companies that are in legal disputes with their employees over the same issue. They include many Nikkei A300 companies, such as Hyundai Mobis, Hyundai Steel, Doosan Heavy Industries & Construction, Hyundai Motor, Korea Aerospace Industries, Hankook Tire and affiliates of Korea Electric Power.

President Moon Jae-in's government has been pushing an agenda of labor-friendly policies, by raising the minimum wage and cracking down on conglomerates' illegal and unfair practices against contractors. Moon had defended labor unions as a lawyer before joining politics.

South Korean corporations are also facing rising geopolitical risks which can affect their business seriously, the nation's chief central banker said. Bank of Korea Governor Lee Ju-yeol said North Korea was an intensifying risk that will weigh on Asia's fourth-largest economy in the long term.

"A big North Korean downside risk is intensifying. I hope that this is resolved soon, but it is expected to become prolonged, weighing on our economy," said Lee in a press conference, after the bank's seven-member monetary policy board unanimously kept the key interest rate unchanged at 1.25% Thursday. "It is a very important factor, but it is very hard to reflect its influence at this moment because this is a very sensitive and complex problem."

But he said that the country's real economy had continued to grow, boosted by increasing exports and recovering private consumption. Exports jumped 19.5% to $48.8 billion in July from a year ago, leading to a $10.6 billion trade surplus, according to data from the trade ministry.

The BOK said rising exports in the semiconductor and shipbuilding sectors helped. The central bank said retail sales also increased 0.2% in July from a month ago on the back of demand for smartphones and computers.

Kia Motors shares fell 3.54% to 35,450 won, erasing all of its 2.8% gain the previous day. Shares in its bigger affiliate Hyundai Motors dropped 1.75% to 140,500 won, falling 2.77% over the last three days. The benchmark KOSPI edged down 0.38% to 2,363.19.

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