Samsung said in a report the downgrade was based on possible difficulties in generating cash flow for the next three years and limited margin expansion during an expected cyclical climb of share prices in the sector.

The report said the company, a shipping unit of Hyundai Group, could experience some burden from the parent group's project to develop North Korea's Kumkang Mountains for tourism.

``Affiliate support (for the Kumkang project) should continue in 1999-2002 given expected difficulties in attracting foreign capital,'' the report said.

Hyundai Merchant will be the largest shareholder with a 40 per cent stake in the group's Asan Corp, which is to be set up to develop the project.

``We project Hyundai Merchant's investment in Asan to range around 100 billion in 2001-2002; the burden could exceed our estimates,'' the report said.

Hyundai Merchant's shares closed at 16,100 wonon Tuesday, down 550 won.