The Weak Won is Getting Some Relief as Samsung and Hyundai Repatriate More Money

South Korea's top car and smartphone exporters are coming home with a larger portion of their earnings this year to take advantage of new tax benefits, and their reshoring has become a rare source of support for a sinking currency.

South Korean firms repatriated a record $33.13 billion in overseas revenues from January to July, 6.3 times the amount returned the previous year, according to central bank data on current account balances.

The inflows, the majority of which come from globe-trotting exporters such as Samsung Electronics (005930.KS), Hyundai Motor Co (005380.KS), and Kia Corp (000270.KS), are a welcome reprieve for the won, which has been battered by decreasing Korean exports and a wide US dollar surge.

"The coming home of earnings retained abroad has been a big help for the won," a government official in charge of the foreign exchange market said, declining to be identified due to internal protocol.

According to Bank of Korea (BOK) officials, the amount of offshore earnings repatriated thus far is over three times the $12 billion corporations repatriated in total in 2022.

This rush follows President Yoon Suk Yeol's introduction of a tax break this year to encourage reshoring of cash held outside of Korea, which permits up to 95% of business profits generated abroad to be repatriated tax-free. Previously, such repatriation was subject to corporate taxes of up to 25%.

The movements provide a significant buffer for Korea's balance of payments and the won, which has been falling over the past two years and is down 5% this year.

According to a BOK report issued by lawmaker Hong Sung-kook, the won was the second most volatile currency in the first half, after only the Japanese yen.

The $33 billion in repatriated funds more than compensates for the country's $26 billion trade deficit in the first six months of this year. The country's foreign exchange reserves fell to $418.30 billion in August, the lowest level in nine months, as authorities intervened to stabilize the won.

"Capital reshoring has been a relief to the won," Min Gyeong-won, a currency analyst at local Woori Bank, said, adding that the movements had helped offset weak exports by becoming a source of dollars.

When asked about the usage and amount of the returned retained earnings, Samsung Electronics declined to comment for this story.

Hyundai Motor has invested money thanks to the tax cut. On June 12, the automaker announced intentions to invest 7.8 trillion won ($5.82 billion) of retained revenues from international operations in domestic electric car factories this year.

"Our primary goal is to (channel those repatriated funds) to expand production capacity of electric cars in the country, although not all of it (will be used for it)," a representative for Hyundai Motor Group said.

"As for how much we will bring in next year, corporate savings from dividends for 2024 will be decided early next year."

The spike in repatriation also coincides with upcoming trade reforms in South Korea, which will extend onshore trading hours until 2 a.m. to improve access for overseas investors. The dollar-won pair is presently only trading till 3:30 p.m. (0630 GMT).

"I reckon it (reshoring by exporters) helped cushion the won's fall by about a fifth in the first half," said Paik Seok-hyun, a senior economist at Shinhan Bank. "The trend is likely to continue albeit to a lesser extent."


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