By Yoon Ja-young
Staff Reporter
Rumors of a liquidity crisis are battering conglomerates on the stock market.
Just like the foreign exchange market riding on a roller coaster on the September crisis scenario, a number of conglomerates have seen their shares plunge, dragged by the specter of liquidity concern. Analysts, however, point out that the worries are exaggerated. The financial regulator has also said it would regulate against malicious and groundless rumors.
Kumho Asiana was the first to be battered. Kumho successfully increased its bulk through mergers and acquisitions (M&A) during the last few years, acquiring the country's top builder Daewoo Engineering & Construction and Korea Express.
However, the M&A premium has turned into a curse recently. Share prices of Kumho subsidiaries nose-dived over the past few months on rumors the group was suffering a liquidity crisis due to put back options Kumho gave investors in acquiring Daewoo.
The group executives, including Chairman Park Sam-koo, held an investor relations (IR) meeting around the end of July, announcing a plan to secure 4.6 trillion won. ``When considering the whole group, it has more than enough cash assets to deal with the put back options,'' a spokesman of the group said. Kumho has 35 trillion won in assets and its debt ratio is only around 150 percent. But stock investors weren't moved, and the group shed some trillions of won in market capitalization.
Doosan Group, another leader in the M&A market during the last few years, also lost some trillions of won in market cap as soon as it announced $1 billion capital increase plan for Doosan Infracore International and Doosan Holdings Europe.
The capital increase isn't likely to be a blow for Doosan Group, which is expecting 2.4 trillion won in operating profits, but investors were concerned.
Dongbu Group followed on the exaggerated liquidity concerns list. Dongbu shares plummeted this week on rumors that Dongbu subsidiaries would participate in the capital increase of Dongbu Life Insurance. The life insurer has seen its solvency margin ratio fall to 128 percent this year from 180 percent in 2007, due to falling equity asset prices. The life insurer is to increase its capital to pull up the ratio.
However, the stock plunge of Dongbu subsidiaries was an overreaction when considering that a 60 billion won capital increase is not much of a burden for a conglomerate like Dongbu, with nearly 9 trillion won in assets. The life insurer has recorded a surplus for nine years in a row, and saw 20.8 billion won in net profit last year. ``The capital increase at the life insurer isn't a burden at all for Dongbu Insurance,'' Lee Chul-ho, an analyst at Korea Investment and Securities said regarding the group's non-life insurance arm. He said the share price fall was excessive.
Kolon Group stocks fell to their daily limits, on news that Kolon Construction, which has only 4.1 billion won in cash, could face a liquidity problem due to the contraction in the construction industry. SK Group, with 72 trillion won in assets, also plunged when SK Energy revealed it was considering a 100 billion won investment in a POSCO consortium to acquire Daewoo Shipbuilding & Marine Engineering.
However, its shares rebounded on reports that the market was overreacting.