But analysts say supply may exceed demand in auction market


Research analysts predict some large local enterprises will be put on the market for mergers or acquisitions in the coming months.

They cite worsening financial situations for some companies, hit by the eurozone debt crisis and global uncertainties, for a possible vitalization of the nation’s M&A market.

According to brokerage industry data, three sectors ― construction, shipping and shipbuilding ― have been hit severely by rapidly declining orders from overseas amid worsening global economic conditions.

In particular, 24 of the 100 major construction firms are under creditors’ management or court receivership.

Shipbuilding firms’ exports to the European Union are equivalent to 19.7 percent of their total production, according to a report of the Hyundai Research Institute.

Exports account for about 85 percent of the total sales for the shipbuilding sector.

Hyundai Heavy Industries, the world’s largest shipbuilder, saw its shipbuilding orders remain unchanged at $1.5 billion (1.7 trillion won) between January and April, having plunged by 70 percent over the same period last year.

Further, major shipbuilders including Hyundai Heavy Industries are suffering from declining profitability as they strive to win production orders at lower bidding prices.

U.S.-based Moody’s Investors Service recently issued a negative projection on the global shipbuilding industry.

Hyundai Research said the IT sector is also somewhat dependent upon exports to European countries. Its exports to the EU account for 4.9 percent of its combined output.

The equivalent figure for automakers such as Hyundai Motor and Kia Motors was 4.8 percent. The machinery manufacturers had a rate of 3.3 percent.

In an economic assessment gathering hosted by the Federation of Korean Industries, experts predicted that persistent fiscal woes in the eurozone are exerting a negative influence on the country.

They added that slower-than-expected growth in China and the United States is weighing down growth that was originally expected to pick up pace in the second half.

“Under the situation, there is a high feasibility that more and more local firms will be auctioned off after going through a debt restructuring or management normalization process,” a research analyst said.

But he forecast an “imbalance between supply and demand” under the possible vitalization of the M&A market, stressing that potential investors don’t have sufficient capacity to focus on M&A targets amid prevailing cash flow problems.

“Companies with financial soundness are also grappling to secure cash amid ongoing uncertainties rather than push for business expansion via takeovers,” he said. “As a result, the supply is expected to surpass the demand in the M&A market.”

The firms currently placed under the M&A market include Daewoo Shipbuilding & Marine Engineering, Korea Aerospace Industries and Woori Financial Group.

But creditors of the firms are having difficulty attracting powerful investors. The government-led project to sell Woori Financial recently failed again.

In an economic assessment gathering hosted by the Federation of Korean Industries, experts predicted the persistent eurozone fiscal woes are exerting a negative influence on the country.

They added that slower-than-expected growth in China and the United States is weighing down growth that was originally expected to pick up pace in the second half.

The nation’s corporate finance index fell for the third quarter, reflecting concerns that persistent global economic woes will adversely affect cash flows for businesses, a poll showed.

The business survey index on corporate finance for the July-September period dropped to 89, 3 points below the estimate, according to the Korea Chamber of Commerce and Industry.

The FBSI prediction for the second quarter reached 92, up from 79 predicted for the first quarter of 2012.

The survey checked 500 businesses across the country. A reading below 100 means pessimists outnumber optimists, with a higher number indicating the opposite.

“Ongoing fiscal problems in some eurozone countries that may spread into the banking sector and the slowdown in China’s economic growth are raising cash-flow concerns in the business community as a whole,” it said.

The global economic sluggishness that is hurting the country’s exports and domestic consumption are heightening funding concerns by companies, it added.

The KCCI predicted that small and mid-sized enterprises would be hit the hardest.

By Kim Yon-se (kys@heraldcorp.com)