Korea’s conglomerates are scrambling to secure capital at a pace that suggests a credit crunch might be in the offing amid growing concerns over the global economy.
The country’s large companies have raised about 60 trillion won ($54.6 billion) this year by issuing corporate bonds, drawing loans from banks and raising paid-in capital, data compiled by the Bank of Korea and the Financial Supervisory Service showed on Thursday.
The raised capital of 60 trillion won is already nearing last year’s total of 64 trillion won. The data also showed that outstanding loans extended to large firms stood at 106 trillion won as of the end of August, up 18 trillion won from the end of last year.
Although analysts and policymakers are brushing off concerns that Korea might face a liquidity problem due to the Europe’s financial debacle, the fact remains that about 50 percent of foreign loans extended to Korean banks originate in Europe.
With concerns over Greece defaulting and two French banks swallowing a credit downgrade, Korean banks could see a sudden outflow of European funds, which would send a direct shock to the domestic capital market through which local firms draw fresh funds.
The move by large Korean companies is drawing attention as they appear to sniff an imminent crisis faster than other players on the market. Back in late 2007, the same major companies in Korea rushed to raise new capital on concerns that they might confront a possibly liquidity crunch. In the January-August period in 2008, the large firms secured a record 21 trillion won in fresh capital, raising the total amount of loans to 71 trillion won.
The latest round in which local firms raise extra cash is eerily reminiscent of the 2008 global financial rout, underscoring that the current economic troubles at home and abroad might be more serious than previously thought.
Korean on-year export growth in August was revised down from a provisional 27.1 percent to 25.9 percent, according to the data released by the Korea Customs Service on Thursday. The trade surplus was also adjusted lower from $82 million to $50 million.
A sense of angst gripping local enterprises is not groundless. Although the Bank of Korea froze the benchmark rates this month faced with the troubling developments from Europe and elsewhere, borrowing costs for companies are likely to go up toward the end of this year.
Interest on loans extended to large firms already jumped to 5.98 percent as of end-July, versus 5.52 percent in December last year. The yield on three-year corporate bonds rated “AA-” climbed to 4.48 percent from 4.17 percent during the period.
By Yang Sung-jin (
insight@heraldcorp.com)
