Not All Chaebol Safe From Crisis
By Kim Tae-gyu
Staff Reporter
The global financial storm is feared to consume not merely small-sized companies here but also chaebol, which have been believed to be relatively immune from the economic downturn.
Chaebol are the country's sprawling conglomerates such as Samsung or Hyundai, in which founding families exercise almost unchecked control despite small direct shareholdings.
``Even chaebol can go under because of the global financial crisis. No outfit can say with certainty that it's 100 percent immune from the financial distress,'' SK Securities analyst Kim Young-jun said.
``Rumors have swirled over the past year that several chaebol are suffering liquidity difficulties. I am afraid that some of it may be true because the profitability of our companies has deteriorated very quickly as of late,'' he said.
Indeed, Korea's flagship corporations are expected to chalk up the worst bottom line for 2008 according to a local consultancy for the financial sector, Sunday.
FNGuide expected operating profits and net profits of the nation's top 128 companies over the Oct. - Dec. period to have shrunk by 27.6 percent and 50.5 percent quarter-on-quarter, respectively.
Even business bellwether Samsung Electronics, the world's top maker of flat-panel displays and memory chips, is projected to fall into a deficit for the first time in a decade.
``To be sure, bigger firms would easily raise funds in comparison to smaller ones thanks to their size and reputation,'' Prof. Jun Sung-in at Hongik University said.
``However, that does not mean that they are invulnerable to the financial distress. The foremost chaebol would not default, but I'm unsure about smaller ones,'' he said.
Too Big to Die
In 1999, the last thing Koreans expected was the failure of Daewoo Group, then the nation's runner-up conglomerate in terms of sales.
Back then, people believed chaebol would not fall because they were so closely connected to politicians and banks, who actually were wary of the side effects of chaebol's fall-down.
Observers have pointed out that politicians were linked to chaebol by various means, such as slush funds and marriage, while banks could not let chaebol fall since they'd lent them so much money.
After years of window dressing, however, Daewoo went bankrupt in 1999 to wrap up the country's time-honored cliche of being ``too big to die''
However, the cliche appears to be returning, to top groups such as Samsung, Hyundai Motor, SK, LG and POSCO.
``First of all, primary outfits such as Samsung and POSCO have built up huge war chests to grapple with any financial funk,'' Prof. Jun said.
``In addition, the government would not let them go bust since their prowess is even bigger than theirs was 10 years ago. Simply put, Korea Inc. cannot withstand their collapse,'' Jun said.
Economist Kim Se-jung of Shin Young Securities concurs on the return of the too-big-to-die myth, which classifies the nation's conglomerates to top-tier and second-string.
``Over the years, the leading conglomerates improved their financial health in the aftermath of the currency crisis in 1997 and 1998,'' Kim said.
``Some smaller chaebol may be destined. But top-tier ones would be certain to stay afloat regardless of how long the financial funk continues'' he said.