Looming corporate liquidity woes in Korea
October 5, 2013 Leave a comment
2013-10-04 17:19
Looming liquidity woes
Alarmed by the sudden court receivership applications by the main affiliates of Tongyang Group earlier this week, creditor banks are reportedly pressuring some of the nation’s major conglomerates to improve their balance sheets. These moves are intended to prevent the financially troubled chaebol from following in the footsteps of Tongyang, the 38th-largest conglomerate, by forcing them to dispose of assets, restructure businesses and hurriedly secure liquidity.On Thursday, Yonhap News Agency listed Dongbu, Doosan, Hanjin, Hyundai and Kolon as those currently beset by liquidity woes as a consequence of either bloated debts or earnings deterioration in recent years, especially because of business slumps in construction and shipping.
The cited conglomerates immediately dismissed this speculation as untrue. But it is encouraging that banks have taken preemptive actions, given that Tongyang Group filed for bankruptcy protection after failing to meet maturing bills worth only 110 billion won. What’s fearsome is that overblown market jitters may drive even viable companies into a corner.
True, the current situation doesn’t warrant optimism. According to data compiled by Chaebul.com that tracks conglomerates, the total debt of the nation’s 30 largest business groups amounted to about 575 trillion won at the end of last year, up 83 percent from 261 trillion won in 2007. Worse yet, some of the flagship units affiliated with financially weak groups grapple with high debt ratios ― often exceeding 1,000 percent.
This is no time for complacency. Market analysts, in particular, is warily looking at the construction sector which has been suffering from the aftershock of the global financial crisis in 2008. In fact, corporate bonds worth 4.8 trillion won issued by the country’s top 27 construction companies will mature next year, and commercial papers issued by the 10 largest builders will also expire soon. Against this background, there is no denying the possibility that even the large builders may go belly up anytime soon if the money market condition worsens.
The financial authorities are reportedly on alert over the possible spread of corporate liquidity woes and urge creditor banks to step up monitoring of conglomerates’ debt levels, but these may not be enough to calm looming market woes.
What’s needed is for the banks to strongly ask the troubled business groups to present more concrete and realistic restructuring plans. The government, for its part, must hurry to remove uncertainties in the market in such a way as to swiftly weed out nonviable companies.
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