One-fifth of conglomerates' affiliates exposed to default risks

By 정주원
  • Published : Jun 29, 2014 - 17:08
  • Updated : Jun 29, 2014 - 17:08
Nearly one-fifth of affiliates belonging to South Korea's large conglomerates are struggling with impaired capital and excessive debt, placing them under financial strain, a report showed Sunday.

According to CEO Score, which examined the financial statements of 1,418 companies belonging to 47 conglomerates in 2013, one out of five affiliates had debt ratios exceeding 400 percent or were in a state of capital erosion. This translates into 279 companies having a hard time staying afloat.

It also said the total number of companies in trouble last year represented a gain of 15 from 2012.

Of the companies cited, CEO Score said 24 belonged to Dongbu Group. The numbers represent 47.1 percent of 51 non-financial affiliates of the family-run conglomerate.

In particular, Dongbu Corp., the group's construction arm, and Dongbu HiTek, a specialty wafer foundry, had debt ratios of 533 percent and 430 percent, respectively.

Reflecting this, there has been speculation that key Dongbu companies may be placed under debt restructuring programs or be subject to court receivership if they are unable to pay debts that are due in the coming weeks. The group as a whole has debts of 5.7 trillion won (US$5.62 billion).

Dongbu was followed by GS Group, which had 19 of its 78 affiliates struggling with debt or capital impairment, with CJ, Lotte, Hyosung, Kolon, Taeyoung, SK, Hanwha and Daesung having more than 10 companies within their fold suffering problems.

The large number of affiliates in trouble spells bad news for conglomerate because most are tied up in cross shareholding arrangements. Such ownership structures mean that sickly affiliates can endanger the entire group and force healthy affiliates to bail out sister companies.

CEO Score, however, cautioned that of the companies that were classified as being exposed to risks, some had overextended themselves through borrowing to make critical investments.

"In such cases, it cannot be said that these companies are in serious trouble," the research firm said.

In terms of indebtedness of business groups, Hyundai, which controls Hyundai Elevator Co. and Hyundai Merchant Marines, had a debt ratio of 540.5 percent, with Hanjin coming in second at 452.4 percent.

Both companies are engaged in logistics operations that require large sums of money to buy or lease ships and planes, requiring them to take out large debts.

On the other hand, conglomerates such as steelmaker POSCO, SK, Hyundai Motor Group, LG and Shinsegae all had dept ratios below 100 percent. (Yonhap)