Korean chaebol debt surpasses government’s

Chaebol debt surpasses government’s

Oct 02,2013

Chaebol Debt

The combined debt of Korea’s top 30 conglomerates is much larger than the debt predicted next year for the entire nation. According to Chaebul.com, the debt held by the top conglomerates including Samsung and Hyundai Motor as of end of 2012 amounted to 574.9 trillion won ($535.2 billion). The Web site specializing in analyzing the nation’s conglomerates stressed that the total debt increased 83.2 percent compared with 313.8 trillion won at the end of 2007, the year before the global financial crisis. The debt, however, does not include that of financial affiliates.

The national debt this year is estimated to reach 480.3 trillion won and 515.2 trillion won next year.
The total debt of Samsung expanded 94.3 percent compared with 2007 from 41.9 trillion won to 81.4 trillion won. Among the nation’s conglomerate, it has the largest debt. However, the leading conglomerate is not in critical condition and its debt-to-asset ratio is below 45 percent.
The nation’s largest automotive group, Hyundai-Kia, saw its debt nearly double from 35 trillion won to 68.9 trillion won.
Other conglomerates in the top five saw their debt size increase.
LG Group, the nation’s fourth-largest family-owned business, saw its debt increase 113.8 percent, while Lotte saw its debt more than double to 32.5 trillion won from 13.8 trillion won.
Although debt size has increased, most conglomerates’ debt-to-asset ratio improved even when compared with 2007. The average debt ratio last year was 88.7 percent; in 2007, it was 95.3 percent. A lower ratio means that the conglomerates’ financial situations improved.
However, Chaebul.com stressed that when excluding the two largest conglomerates – Samsung and Hyundai Motor – the debt ratio of the remaining 28 companies was 115.4 percent, a 1.7 percentage point increase from 113.7 percent in 2011. Chaebul.com said that troubled conglomerates such as Tongyang, STX, Kumho, Dongbu, Hanjin and Hyundai Group are at a critical level with debt ratios exceeding 200 percent.
Tongyang Group’s debt ratio surged from 146.9 percent in 2007 to more than 1,200 percent. Hanjin Group, whose flagship affiliate is Korean Air, saw its debt ratio nearly quadruple from 174.5 percent to 437.3 percent. Hyundai Group’s debt ratio went from 157.7 percent to more than 400 percent.
Debt ratios for Doosan Group, Hyosung Group and Donguk Steel Mill, the nation’s third-largest steelmaker, were nearing 200 percent levels. Doosan’s debt ratio climbed to 189.7 percent from 182.7 percent; Hyosung’s to 188.5 percent from 183.7 percent; and Dongkuk Steel Mill’s to 171.3 percent from 100 percent.
On the contrary, there were 10 conglomerates whose debt ratio is below 100 percent, including Samsung. In 2007, Samsung’s debt ratio was on the tipping point of 50 percent

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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