Some Chaebol Under Mounting Debts
Korean Air, Dongbu, Taihan Electric Wire Are Among Those Not in Shape
By Kim Jae-kyoung
Staff Reporter
Korean conglomerates, known as chaebol, are suffering from mounting financial burdens, with a surge in short-term debt-load coinciding with continuing increases in market interest rates.
In its latest survey of the top 100 listed firms in terms of sales, chaebul.com, an online information provider on conglomerates, found that their current liabilities amounted to 199.18 trillion won in June, up 32.3 percent from a year ago.
Current liabilities are considered liabilities that should be paid off within one fiscal year. They consist of short-term debts and accounts payable for goods among others.
Snowballing short-term debts jacked up their total debts to 320.69 trillion won in June, up 27.6 percent from a year before.
As a result, the average debt ratio for the 100 firms jumped to 101 percent in the first half of this year from 89 percent at the end of last year. Debt ratio indicates what proportion of debt a company has relative to its assets.
Given that the top 100 firms are considered the healthiest players, it is worrisome that their average debt ratio exceeded 100 percent. A debt ratio of greater than 100 percent indicates that a company has more debt than assets.
``The debt ratio for local firms increased this year as many of them engaged in aggressive M&A to enlarge their size,'' said an economist at the Bank of Korea said.
``For M&As, they borrowed more from banks and shouldered debts of an entity that they took over, which hiked their debt ratios,'' he added.
By company, STX Shipbuilding saw its debt ratio skyrocket to 1,478 percent in June from 326 percent a year ago, as its long-term debts soared in tandem with rising current liabilities. The sharp increase was due to a large amount of advances received on contracts. ``Much of our assets classified as debts are advances we received from those who made orders so no interest payments are made,'' an STX official said. ``Accounting rules have them appear as debts but actually they are not.''
The comparable ratio for Asiana Airlines, SK Networks, Dongbu Corporation, Korean Air and STX Engine rose above 300 percent between January and June.
Taihan Electric Wire, which pursued an aggressive M&A, witnessed its debt ratio soar to 257 percent in June, three times the figure a year ago, with its current liabilities jumping by 176 percent to 1.49 trillion won.
The current liabilities for Hanwha Chemical Corp. also surged to 1.24 trillion won in June from 452.3 billion won a year ago. Korea Line Corp. and Hyundai Corp. saw their current liabilities double during the same period.
Adding insult to injury is an upward trend in market interest rates, which are throwing additional financial burden on these conglomerates.
``Many firms have seen seeing their debt ratio soar over the past few years due to aggressive M&As. Chances are that some of them will experience a cash shortage problem due to rising interest rates,'' a market analyst said.
On the other hand, Korea's key global players, such as Samsung Electronics, Hyundai Motor Company and POSCO, have maintained their debts at a safe level, with their debt ratios ranging between 20 and 70 percent.
The debt ratio for Samsung Electronics inched down to 26.4 percent in June from a year earlier thanks to an increase in equity capital.