By Lee Hyo-sik
Staff Reporter
A growing number of large companies, including Kumho Asiana, Doosan and other large business groups that spent billions of dollars in mega merger and acquisition (M&A) deals, are facing a serious fund shortage on falling profits, slow sales and high material costs.
But businesses have been unable to raise funds in the stock and bond markets amid the ongoing financial market turmoil, with many having to pay higher interest on loans from banks.
Analysts warn that although the international financial market is fast stabilizing, following the U.S. government's bailout of it's two mortgage giants on Sunday, companies should continue to remain vigilant and secure enough liquidity for unfavorable business conditions at home and abroad.
In its August business survey of 2,163 manufacturers nationwide, the Bank of Korea (BOK) found Tuesday that the business survey index (BSI) measuring the financial conditions of businesses employing over 300 workers fell to 85 from 89 a month earlier. It was the lowest level since January 2003 when the central bank began compiling the data. A BSI reading of 100 or lower indicates that pessimists outnumber optimists.
``The BSI for conglomerates' financial status has been deteriorating this year on sluggish domestic sales and high oil prices. Additionally, global economic downturn is slowing the nation's exports, the sole engine for the world's 13th largest economy, which will likely further dampen private spending here,'' a BOK official said.
It has become more difficult for companies to either borrow money from banks or raise funds through stock and bond markets as a result of rising interest rates and the financial market turmoil, he said.
LG Economic Research Institute (LGERI) also said in a recent report that worsening profitability is the main culprit behind conglomerates' declining liquidity. It said the combined operating cash flow of 601 manufacturers listed on the stock market, divided by total revenues, came to 1.1 percent in the first half, down from 4 percent a year earlier.
This indicates firms earned less cash from various operating activities this year than last year. Also, about 41 percent of the companies spent more cash than earned, meaning they had to borrow money from financial firms or raise money by issuing stocks or bonds to make up for the cash shortage.
``In the past, small businesses were ones that worried constantly about capital. But now an increasing number of large companies are grappling with the fund shortage as a result of soaring raw material prices, sluggish domestic sales, slowing outbound shipments and the global financial market turmoil,'' an LGERI economist Park Sang-su said.
Park suggested that businesses should secure more cash and other liquid assets as market conditions could worsen further down the road on the global economic slowdown and financial market instability.