Surplus cash flow halves, corporate borrowing surges


Despite repeated assurances from government officials, fears of a global recession are hurting Korea Inc. on liquidity as many large firms face worsening cash flow, data showed Monday.

The annual excess cash flow forecast of 83 listed firms stood at 43 trillion won ($37 billion), financial data provider FnGuide said. The figure marks a 42 percent drop from the projection of 74.5 trillion won made at the end of July, underscoring fast-paced negative developments at home and abroad.

The sudden possibility of cash shortages at leading Korean companies is linked to the rapidly deteriorating export outlook due to slow demand from advanced countries. The eurozone is mired in the sovereign debt crisis, and the embattled U.S. economy has policymakers worried over a possible recession on the horizon.

To tackle a potential cash crunch, big businesses here are scrambling to issue more corporate bonds and secure short-term loans on the assumption that inaction at this critical juncture could backfire in unforeseen ways amid local economic indicators that show no signs of positive turns.

The FnGuide data show the excess cash flow, which excludes investment expenses from cash generated by sales, has two polarizing trends: cash generated from sales dropped 17.9 percent hurt by the global economic slowdown and investment expenses went up 18.3 percent.

The global economic slump is eroding companies’ sales income but their investment-related expenses are on the rise, perhaps in a bid to weather the global downturn’s impact. This combination is reflected in the latest reading of the excess cash flow, a yardstick for a company’s funding capacity.

High-profile Korean firms including LG Display Co., CJ E&M, Hanwha and Hyundai Merchant Marine Co. saw their excess cash flow slip back to negative territory since end-July,

Samsung Electronics Co., the country’s biggest technology firm, slashed its excess cash flow projection to 5.3 trillion won, down nearly 10 percent from July.

Shrinking cash reserves have resulted in ballooning borrowing. The Korea Securities Depository said the country’s corporate debt sales jumped about 18 percent on-year to 30.9 trillion won in the third quarter.

LG Group, one of the biggest conglomerates here, raised about 1 trillion won by selling corporate debts in the July-September period. LG Electronics Inc., whose debt ratings have been downgraded by Standard & Poor’s and Moody’s Investors Service, secured 380 billion won during the period.

Short-term borrowing by large companies also jumped, as demonstrated by a rise in the volume of commercial paper issued. According to the Korea Financial Investment Association, the total amount of CP outstanding climbed to 63.7 trillion won as of Oct. 13, sharply rising from 47.8 trillion won recorded in end-December last year. Weekly issuance of CP is now hovering at or above 2 trillion won, reflecting the rush of corporations in search of extra cash proactively.

A growing number of Korean firms have been belt-tightening in recent months. Some export-oriented companies are expected to benefit from the Korean won’s decline against the greenback, making their products cheaper in overseas markets, but many Korean firms also depend on imported raw materials, whose prices are galloping due to the weaker local currency. The Korean won lost more than 9 percent in its value during September as concerns of a global recession prompted foreign investors to seek the safe haven currency of the U.S. dollar.

By Yang Sung-jin (insight@heraldcorp.com)