DECEMBER 22, 2000 VOL. 26 NO. 50 | SEARCH ASIAWEEK

Hunting Fool's Gold
Behind a speculative South Korean tale
By ROGER DEAN DU MARS Seoul

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Nobody bothered to wonder what a South Korean construction company was doing looking for gold in the first place. Seoul speculators were too busy scrambling to buy shares of Dong Ah Construction and Industrial Co., the country's fifth-biggest builder. The company had been bankrupt for a month when rumors swirled that Dong Ah had found a sunken treasure —gold ingots worth a staggering $124 billion — aboard a 95-year-old Russian warship called Dmitri Donskoi. Bankruptcy? Who cares! The share price, which had dropped 90% this year alone, suddenly soared 70% from 315 won (26 U.S. cents) a share to 540 won (45 cents) a week later.

The International Monetary Fund wouldn't approve. The Dong Ah trading frenzy, which fizzled when the rumors of a pot of gold didn't pan out, reflects South Korea's new mood: Who needs to reform? The $58-billion IMF package that rescued the economy three years ago was supposed to encourage sound financial governance. Have the lessons been learned? Not really. Nowhere enough South Korean companies are restructuring or trimming workforces, and that includes Dong Ah. The Dong Ah craze also highlights the speculative nature of South Korea's stock market. "Everyone is having a good laugh," says Hank Morris, a Seoul-based analyst for consultancy IRC Ltd. "The markets in South Korea are unsophisticated. A rumor can precipitate a rash spree of trading."

Following the sharp rise in Dong Ah's share price, the Korean stock exchange suspended trading in the company's shares and demanded an explanation. The suspicion: the rumors might have been planted by profiteers. The story cropped up in a small Seoul newspaper, which reported early this month that divers had discovered the gold on the Donskoi, a frigate that was scuttled by the Russians during the 1905 Russo-Japanese War.

Dong Ah declined to comment, though the company admits it has been searching for the treasure with the Korea Ocean Research Institute. The story is "totally unfounded," says head of research Yoo Hai Soo. "We think we have found one small piece of the ship. That is it." Dong Ah collapsed early this year after failing to pay interest on almost 470 billion won ($395 million) in loans. No wonder it's hunting for sunken treasure.

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