Coherent State Support Key to Overseas Resources Development
South Korea should make more efforts to secure oil and other raw materials overseas to achieve sustainable growth in the future, the head of a local natural resources-focused asset manager said.
In an interview with The Korea Times, RG Energy Resources Asset Management CEO Park Yong-soo also encouraged institutional and retail investors to put money into oil and other energy development projects to diversify their investment portfolios and realize handsome returns, shifting from stocks and other traditional asset classes.
``The nation does not produce a single drop of crude oil and other key industrial minerals. To power economic growth and support people's livelihoods, we cannot emphasize too much that securing natural resources in foreign countries is a must for our future survival. Energy development projects are usually long term, high cost and large scale, which require active government support,'' Park said, stressing the government should actively and consistently aid resource development companies.
The CEO then said he faced no difficulties in launching his company in July 2008 when oil and other commodity prices soared to an all-time high on surging demand from China and other developing economies amid short supplies.
``The timing was right for us. At the time of the company foundation, the government, companies and individuals were all interested in energy security amid skyrocketing prices. We received full support from the Ministry of Knowledge Economy and obtained an asset management license from the Financial Supervisory Service soon after,'' he said.
Park urged the government to invest part of taxpayers' money in securing and developing natural resources overseas to better cushion the nation from outside shocks, adding the Middle East would be the most appropriate place for investment. ``Middle Eastern countries boast huge oil reserves but Korea does not. From a risk management perspective, we should increase economic ties with the region by acquiring greater stakes in oil fields and constructing various infrastructure.''
The U.S.-educated resources and industrial engineer founded RG Energy Resources Asset Management last summer to help foster natural resources development as one of the nation's core industrial sectors, like information technology (IT).
``The energy & resources sector plays a pivotal role in economic growth but lags far behind those in advanced countries. Our energy self-sufficiency rate stands at only 4 percent, sharply lower than Japan's 20 percent. Japan started exploring resources overseas in 1960s by mobilizing trading companies across the globe. We should be able to supply at least 20 percent of our demand on our own. Until then, the resources development industry will continue to grow and account for a greater portion of economic activities here,'' the CEO noted.
Firms Urged to Enter Resources Sector
Park said more local businesses should consider exploring and developing energy resources in foreign countries to help the nation grow at a sustainable pace and generate greater profits. ``International brokers, who are usually ethnic Koreans and foreign resources engineers, are bringing us potential development deals. If they are found to be a wise investment, we will set up a project and attract potential investors. Or we can bridge between brokers and companies that are interested in resources development.''
In particular, manufacturers, who have successfully been operating in resource-rich countries like Indonesia and Kazakhstan for many years, should advance into the sector because they are familiar with political and economic conditions in host nations, which can minimize risks and boost returns. I really hope many firms respond to our offer and do business with us,'' he noted.
The CEO said his company was studying four development deals before the collapse of Lehman Brothers in October last year and the following worldwide financial market crash. ``With the sharp depreciation of the Korean won against the dollar and an increasingly uncertain economic outlook, nobody wanted to put money into natural resources projects. At the same time, stakeholders of oil fields and mines were reluctant to slash prices of their holdings drastically, despite the economic slump. Considering all these factors, we dropped all the deals.''
Park then said the local currency has strengthened against the greenback since April on the easing of the global credit crunch and rising current account surplus, adding prices of oil and other raw materials have jumped on growing expectations for an economic recovery.
``With rebounding natural resources prices, energy-rich countries have begun resuming stalled development projects. Currently, we are studying more than 10 schemes. By the end of this year, we will introduce at least three funds investing in metal mines in Asia and an oil field in Texas,'' the engineer-turned CEO said.
Chances for Risk Averse, Tolerant Investors
Park also said natural resources development offers alternative investment opportunities for both risk-averse and risk-tolerant investors.
``At an early project stage, the investment is high risk and high return, which suits the appetite of aggressive and high profit-seeking investors, such as securities firms and savings banks. But when the development phase comes to an end and the production starts, risks drop dramatically. Then, we sell the stakes to individuals and pension funds that are seeking a stable cash flow at low risks,'' he said, adding the asset manager does not plan to sell its funds to retail and other risk averse investors for the time being.
Accordingly, the resources development funds will provide good investment opportunities for all individuals and institutions seeking to diversify their portfolios, generating long-term and stable returns, the CEO said.
``At the same time, we will consider establishing a company that manages a fund and lists its shares here at home or abroad to more readily raise necessary capital. There are three major exchanges for resources firms in Canada, Britain and Australia. In the Kosdaq market, there are 26 listed firms that call themselves energy development companies. But many of them are not in terms of international standards,'' Park stressed.
He said RG Energy Resources Asset Management will take over a Kosdaq-listed firm in the near future and grow it into a competitive medium-sized enterprise with skills and expertise in natural resources development.
``Additionally, we would like to purchase a private jet as soon as possible because as a resource development firm, we travel a lot and in many cases, we need to go to isolated areas of the world under which most resources are buried. It takes long time and is inefficient to use commercial jets to travel to remote regions,'' Park noted.
Oil Prices to Range from $55-$90
He projected international crude prices will hover at around $55 to $90 a barrel for the next several years, adding prices below or above the range will be temporary.
``Along with prices of oil and other commodities, the won-dollar rate is very important for us. Our foreign exchange policy is to minimize the currency exposure but our business is exposed to foreign exchange risks because we invest in dollars and receive returns in dollars. To hedge 100 percent against currency risks, we are currently talking with Export Import Bank of Korea and other financial firms about a possible scheme under which we borrow dollar-denominated loans and later pay them back in dollars,'' Park said.
The CEO forecast that the greenback will likely remain strong against the won and other currencies, discounting a widely held belief that the value of the dollar will continue to decline because of snowballing trade and fiscal deficits, on top of the U.S. government's loose monetary policies aimed at overcoming the current financial market turmoil.
``I think the current debacle results from the massive defaults of financially engineered derivatives products. It created a hole in the financial system and the U.S. is pumping dollars into the sector to plug up that hole. I think until it is completely closed, the dollar will not likely crash,'' he said.
Touching on Korea's economic outlook, Park said the nation has become a more export-dependent economy since the onset of the global economic slump, adding the pace of a recovery in major overseas markets will determine the fate of Asia's fourth largest economy.
``With continued sluggish corporate investment and private consumption here, an economic rebound will largely be determined by major overseas markets. Currently, China is posting strong growth on the back of its government's massive stimulus measures, while the U.S. and Europe continue to head downward. In particular, the U.S. is at the center of the ongoing economic crisis and unless it starts growing again, it will be difficult for the global economy to post a genuine recovery,'' he said.