Surging dividend outflows to hit Korea's current account balance, won

Dividend payments of foreign companies operating in South Korea have nearly doubled and the repatriation of profit to their headquarters is expected to hurt the country’s current account balance and already battered won currency.

The payments of the 10 largest foreign companies by dividend payouts for the 2021 fiscal year totaled 1.2 trillion won ($950 million), up 85.3% from 632.1 billion won a year earlier, according to filings with the Financial Supervisory Service.

“A jump in 2021 on-year profit given the base effect due to the COVID-19 resulted in the higher dividend payments,” said a foreign company source.

Of the 10 companies, BASF SE’s subsidiary in South Korea paid the largest amount of dividends at 291.1 billion won, followed by Credit Suisse and JPMorgan with 165 billion won and 159.5 billion won, respectively.

Those 10 global companies, unlisted firms wholly owned by foreign investors, earned a total of 1.3 trillion won in net profit last year, suggesting they are set to repatriate 88.8% of that profit rather than invest it in Korea. They paid a combined 453.9 billion in corporate taxes last year.

Some of them paid more dividends than their net profit,  with Credit Suisse’s dividend payout ratio at 134.6%. Volvo Group’s unit spent 122.4% of its net profit on dividends, while subsidiaries of Porsche and Mercedes Benz each paid 104.9% of their profits as dividends.

CURRENT ACCOUNT, WON

Such higher dividend payments are expected to hurt South Korea’s current account balance, especially in April when foreign companies often repatriate their profits. The account reported a deficit in the month of 2019 and 2020 due to the repatriation, although a strong trade surplus helped the account post a surplus in April 2021.

But the current account balance is likely to turn to the red again this month as the country already reported a trade deficit of $3.5 billion in the first 10 days of April.

That could hurt South Korea’s credit ratings and weigh on foreign investor sentiment as the current account is a key indicator of Asia’s fourth-largest economy's fundamentals. The South Korean won is likely to weaken further, eventually, analysts said.

“The dollar’s strength (against the won) may intensify on the greenback’s demand for dividend repatriation of those foreign companies in addition to the Fed’s tighter monetary policy,” said Kim Seung-hyuk, an analyst at NH Futures, referring to the US Federal Reserve.

The won has lost about 3.7% against the dollar so far this year, becoming the second-worst performing currency among emerging Asian units, according to Reuters.

Write to Ik-Hwan Kim at lovepen@hankyung.com
Jongwoo Cheon edited this article.