Investors may demand bigger payments next year for losses from eurozone debt crisis


Foreign investors are expected to reap more than 9 trillion won ($8 billion) in dividends on the South Korean bourse this year, data showed Sunday.

In contrast, Korean investors are likely to see their dividend income from foreign firms standing at less than 4 trillion won, illustrating the widening gap that raises the issue of lopsided dividend payout involving foreign investors.

According to the Bank of Korea, overseas investors took home a total of $6.73 billion in dividends in the January-October period, which is equivalent to 7.4 trillion won when the average currency rate over the cited period is applied. The figure marks the fourth-biggest level since 1995.

For the same period, local investors’ dividend income from foreign firms came in at $3.48 billion (3.8 trillion won).

As many firms pay dividends around the end of the year, the amount of dividends doled out to foreign investors would reach 9 trillion won this year amid worries over the imbalance in dividend payment practices and the outflow of sovereign wealth.

Foreign firms doing business in Korea are under fire for “excessive” dividend payments. SC First Bank, for instance, closed down 27 retail stores to cut costs and yet sent back dividend payments worth some 100 billion to its headquarters in Britain. Citibank Korea initially planned to pay out 260 billion won in interim dividend but recently halved the amount to 129.9 billion won in a reluctant compromise following a series of warnings by the local financial regulator.

It is no secret that foreign companies are quick to bring home their profits in the form of dividends they get from the local market, largely because their investments are concentrated on stocks. Mexico, whose foreign investment level is higher than Korea’s, does not suffer the same problem as many of the foreign capital are diversified into non-financial instruments.

With the global economy forecast to sputter next year and Korean firms’ earnings growth also slowing down from the third quarter of this year, a cut in dividend income is widely expected.

However, foreign investors will likely demand bigger dividend payments in the first quarter next year to compensate for the losses linked to the eurozone sovereign debt crisis.

By Yang Sung-jin (insight@heraldcorp.com)