Ever since the global financial crisis, the country’s chaebol have been bent on hoarding their retained earnings instead of investing them.
As a result, the combined retained earnings of listed firms under Korea’s 10 largest conglomerates has amounted to over 14 times their paid-in capital.
The retained earnings-to-capital ratio of 69 companies that balanced their books in December reached a highest-ever 1,441.7 percent last year, up from 923.9 percent in late 2008, data from the Korea Exchange and the Financial Supervisory Service showed.
The higher the retained earnings-to-capital ratio, the more solid a company’s financial fundamentals are perceived to be.
But it also means that the funds piled up aren’t being used for other productive purposes.
The combined paid-in capital of listed firms under the nation’s 10 largest conglomerates last year gained only 10.3 percent in 2008 to 28.11 trillion won ($25.3 billion) late last year. Their retained earnings, however, jumped 72 percent to 405.25 trillion won in the same period.
“Companies invest when they are sure the economy will pick up,” said Kim Yoon-ki, chief macroeconomist at Daishin Economic Research Institute.
“But with lingering uncertainties such as the European fiscal crisis, the companies are just watching the new administration’s policies.”
Ever since the Asian foreign exchange crisis in 1997 put an end to the chaebol’s “too big to fail” myth, they have become more sensitive to economic uncertainties, according to Kim.
“They don’t invest unless they are positive (about the returns),” he said.
“If this goes on, the Korean economy will lose its momentum for growth in the long term. The government should do something to spur investment through deregulation.”
Kim Hak-kyoon, chief of investment strategy at KDB Daewoo Securities, said there was “nowhere to invest.”
“The companies will continue to stockpile money,” he said.
“Because they have no cause for doing so, the market could raise demands for more dividends and calls for higher corporate tax rates could gain leverage.”
Lotte showed the highest retained earnings-to-capital ratio of 14,208 percent, followed by SK’s 5,925 percent, POSCO’s 2,410 percent, Samsung’s 2,276 percent, Hyundai Heavy Industries’ 2,178 percent and Hyundai Motor’s 2,084 percent.
Hanwha (568 percent) and Hanjin (589 percent) showed the lowest rates.
The retained earnings-to-capital ratio of all the 656 listed firms that closed their books in December amounted to nearly 900 percent, up from 712.9 percent four years ago.
One in 5 of them had retained earnings that reached over 20 times their paid-in capital. Ten of them showed retained earnings of over 100 times their capital.
Hankook Tire Worldwide showed the highest ratio of 45,370 percent, meaning it hoarded retained earnings of over 45 times its paid-in capital. Taekwang Industrial and SK Telecom stood in the 30,000-percent range; Lotte Chilsung Beverage and Lotte Confectionery in the 20,000-percent range.
By Kim So-hyun (
sophie@heraldcorp.com)
