Conglomerates hold back investment, log record-high retention rate

South Korea's conglomerates are holding back new investment with the level of unspent surplus money by affiliates of the country's 10 biggest conglomerates reaching the highest point in record, the bourse operator and the financial regulator said Sunday.
   
The 69 firms, affiliated with South Korea's 10 biggest conglomerate groups whose financial year ended in December, recorded a combined retention rate of 1,441.7 percent for 2012, according to data by the Korea Exchange (KRX) and the Financial Supervisory Service.
   
The retention rate refers to a firm's surplus fund divided by capital, an indication of how much earnings the firm decides to deposit, possibly for rainy days. A higher retention rate marks healthy corporate financial conditions, but it also means companies are sitting on big cash reserves without spending them on new investments.   

The latest retention rate figure means the 69 firms are retaining surplus money about 14 times their capital. The figure is up sharply from the 923.9 percent registered in 2008 and the highest level on record, according to the data.
   
The combined surplus money held by the aforementioned firms, including Samsung and Hyundai Group, stood at 405.25 trillion won as of 2012, up sharply from 235.56 trillion won in 2008 while their capital increased slightly from 2008's 25.5 trillion won to 28.11 trillion won, the data showed.
   
Retail giant Lotte Group recorded the highest retention rate of 14,208 percent, followed by telecommunication behemoth SK Group with 5,925 percent and steelmaker POSCO with 2,410 percent. Electronics giant Samsung posted 2,276 percent and auto giant Hyundai Group registered 2,084 percent.
   
Chemical giant Hanhwa Group and transportation-oriented Hanjin Group recorded the lowest levels, posting 568 percent and 589 percent, respectively.
   
The combined retention ratio of the total 656 bourse-listed firms stood at 892.6 percent as of 2012, compared with the 712.9 percent posted five years earlier, the KRX said.  
 
The high level of big firms' retention rate indicates languid corporate investment caused by uncertain economic conditions, analysts said.
   
"The current external and internal conditions are not favorable for firms' new investment," Kim Yun-ki, an analyst at Daishin Economic Research Institute, said. "If this continues, South Korea's mid-to-long-term growth competitiveness will lag behind (other countries)," he said, calling on the government to loosen regulations and take measures to boost investment. 
   
"The biggest problem is (companies) are unable to find new targets for investment," KDB Daewoo Security analyst Kim Hak-gyun said, adding they need to find new engines for economic growth. (Yonhap News)