Goldman Sachs Group, a United States-based investment banking giant, has revised down earnings forecast of South Korea’s major retailers for next year by more than 10 percent, citing possible adverse effects from the country’s adoption of the anti-corruption law banning public officials from accepting gifts that cost 50,000 won ($44.7) or more.

According to multiple sources from the financial investment industry on Monday, Goldman Sachs released a nine-page report on the potential impact of the new anti-graft law on four major retailers - Korea Tobacco & Ginseng Corp. (KT&G), Shinsegae Inc., Hyundai Department Store Co., and E-Mart Inc. The investment firm in its report revised down next year’s net profit forecast of the retailers by an average of 11 percent from its previous estimates.

By retailer, Goldman Sachs lowered its 2017 net income forecast for E-Mart by 16 percent from the previous estimate of 374.2 billion won to 314.3 billion won. It also forecast Shinsegae’s net profit to fall by 15 percent from the earlier estimate of 228.1 billion won to 193.9 billion won, while that of Hyundai Department Store by 8 percent from 368.1 billion won to 338.7 billion won. The net profit outlook for KT&G for 2017 was also revised down by 5 percent from the investment firm’s July estimate of 1.26 trillion won to 1.20 trillion won.

Christine Cho of Goldman Sachs’ Seoul office said in her report that the new anti-corruption law is expected to bring positive impact on the overall economy for the long term as it will raise transparency in the society. However, as the law is applied to the broad range of public officials, it is likely to deal a heavy blow to the country’s overall consumption and retail industry in the short term, she said.

In particular, the Goldman Sachs report predicted that department stores will be the most negatively affected by the new law among retailers. Many businesses have purchased gift vouchers, luxury products, and holiday presents worth 50,000 won or more for their clients and customers on special occasions and such expensive gifts have accounted for 20 percent or more of department stores’ total sales.

The share of expensive gifts is relatively lower at large discount stores, taking up 11 percent of total sales based on E-Mart figures, according to the report. The new anti-graft law will also likely take a heavy toll to KT&G that manufactures and sells red ginseng and related gift sets, the most popular gift sets on special occasions in the country. Goldman Sachs, on the other hand, noted that the impact of the law to convenience stores that don’t sell lavish gift sets will be limited.

Following the earnings outlook revision, Goldman Sachs has also lowered its 12 month target stock price for the Korean retailers by up to 9 percent - Shinsegae from 220,000 won to 200,000 won; Hyundai Department Store from 150,000 won to 138,000 won; E-Mart from 170,000 won to 160,000 won; and KT&G from 140,000 won to 136,000 won. The investment firm rated all four stocks as “neutral” in its valuation.

The Improper Solicitation and Graft Act named after Kim Young-ran, former head of the Anti-Corruption & Civil Rights Commission, aims to end wide-spread business practices of soliciting public officials by giving expensive meals and gifts. The law will take effect in Korea on September 28.

By Choi Jae-won

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