Looming corporate liquidity woes in Korea

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.

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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