Liquidity Shortages
The Financial Supervisory Service (FSS) will keep a close eye on two major cash-strapped Korean conglomerates to avert sudden crashes owing to their possible liquidity shortages.
The FSS plans to drive creditor banks of Hanjin Group and Dongbu Group to each clinch a new financial agreement with the two groups, which will oblige the two conglomerates to improve their financial status and keep the cash flow under control.
Hanjin is the ninth-largest conglomerate in Korea, flagship affiliates of which include Korean Air Lines and logistics unit Hanjin Shipping.
Dongbu has grown into the 17th-largest group, starting off as a builder and now covering industries such as electronics, logistics, and finance.
Both large business groups have no serious liquidity risks at this stage, since they have been undergoing a process to revamp their financial status in existing financial agreements signed with their respective creditor banks.
But the uncertain economic outlook for the next few years has led the FSS to decide to strengthen corporate oversight to prevent a series of possible bankruptcies.
The FSS is considering pushing forward with their management restructuring or posing higher interest rates if they don’t comply with the financial accord.
Such considerations came as some leading conglomerates went under suffering from liquidity shortages, including the giant shipbuilder STX Group in April, and another conglomerate Tong Yang Group in September.
Hanjin and Dongbu have been exerting their utmost to secure ample capital against the liquidity crisis by selling assets and seeking help from their affiliates. Hanjin Shipping recently got financial support worth 150 billion won (US$140.6 million) from its sister company Korean Air Lines, and is also trying to secure more money by selling perpetual bonds.
In addition, Kim Young-min, president and CEO of Hanjin Shipping, resigned over his failure to improve the company’s financial health. Kim unveiled his decision in a meeting with key officials earlier on November 11. The shipping company posted an operating loss of 55.7 billion won (US$52 million) in Q2 this year, with a debt ratio reaching 835 percent.
In the meantime, recent corporate direct financing in the local market have been in a rough patch, as investors have avoided buying corporate bonds after a series of corporate falling-downs.
Large companies secured a total of 58.9 trillion won (US$54.9 billion) through corporate bond sales by the end of October this year, down 9.8 percent from a year earlier. Over the same period, large businesses saw their bond issuances fall down 28.1 percent to 31.7 trillion won (US$29.6 billion), with those of smaller companies plunging 62.2 percent to 20 billion won (US$18 million).