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South Korean Corporate Accounting Scandal Rocks Investor Confidence

An accounting scandal in one of South Korea's biggest corporations rocks investor confidence, and around Asia, rents for office space in major cities have fallen. Katherine Maria takes a look at major business developments around Asia this week.

South Korea's third biggest conglomerate, SK Corporation, saw its share price plummet more than 20 percent last week after it was revealed the group had issued a false earnings report. Accounts of the group's trading arm, SK Global, were allegedly inflated by $1.2 billion in 2001. South Korean authorities have charged the group's owner and nine top executives with fraud and other business irregularities.

Since taking office last month, South Korea's new president Roh Moo-Hyun has pushed forward with reforms and investigations into illegal trading within the country's "chaebols", family-controlled conglomerates. Some analysts say that government measures to improve transparency among South Korea's biggest conglomerates are overdue.

But senior analyst Robert Subbaraman at investment bank Lehman Brothers said the timing of corporate reforms is unfortunate, given the fragile global economy and the tension over North Korea's nuclear programs. "It's good to push through reforms but it is important to recognize that they do have short-term negative feedback affects on the economy," he said. "The government might have to slow down some of these reforms in the near term and start to focus more on ways to try to boost the economy."

Just days after the accounting scandal came to light the Central Bank of Korea announced a stimulus package aimed at stabilizing the country's debt markets. Investors have been selling off bonds, worried by SK Corporation's ability to pay its debts and by continued tensions over North Korea and a possible war in Iraq.

The bank injected $1.6 billion into the short-term debt market by buying repurchase agreements. The bank also said it would buy state bonds if necessary, but stopped short of cutting interest rates.

With many companies nervous about slow growth, office rents in Asia's prime business districts declined in the last quarter of 2002.

Property consultant Jones Lang LaSalle reports that Bombay saw the greatest decline, a 29 percent reduction in office rents in the quarter ending in December. Hong Kong was close behind with prices falling by 28 percent.

The report says rents in Hong Kong and Singapore have fallen for six consecutive quarters. It says the continued decline is due in part to lower demand from large international corporations.