Credible Cash, Urgent Need of Liquidity

The representative Korean firms, which predicted the uncertainty of the economic environment in the second half of this year, set for the security of the companies` liquidity, that is, the immediately available capital to prepare for the potential crisis and to concentrate their ability on profitable business.

The large business companies are planning to reduce their sales and profit goals again in addition to the first downward adjustment at the first quarter of this year. Under the influence of the stagnated international economy, the anticipation of the domestic economy is in a maze.

According to the industrial sectors, the largest Korean firms, such as Samsung Electronics, Hyundai Motors, LG Chemistry, POSCO Corporation, SK Co. Ltd., are setting up a new managing strategy to secure their liquidity and to reduce the expenditures in the second half of this year. They also try hard to increase their credit grade to induce capital with better condition.

Debenture issue increased 3 times: The average amount of the loan issue per month has increased from 1 trillion won early this year to 3.4-3.8 trillion won in this month, which evidences the race of the companies for cash. According to the Bank of Korea, the domestic firms have supplied 18 trillion 445 billion won but utilized only 7.16 trillion won. Such savings of money for emergency has remarkably increased.

The large enterprises plan to invest the savings in the `moneymaking business` or `new business.`

More squeezed investment and expenditure: As the major affiliates including Samsung Electronics are known as recording less profits than expected, the Samsung group set for a belt-tightening management by reducing the investment and the expenditures in the second half of the year. Samsung Electronics decided to reduce the facility investment from previously planned 6.1 trillion won to 5.1 trillion won, which is followed by Samsung SDI and Samsung Electricity.

LG Electronics will reduce its running expenses by 20 percent and liquidate its shares of Shinsegi Telecom by up to 2.6 million stocks. The SK group planned to invest 4.6 trillion won in total but recently reduced the amount down by 10 percent.

Such groups as Hanjin, Hansol, Hanhwa, Keumho, Dongbu also plan to secure the cash by selling real estates and issuing the securities including ABSs.

Increase the credit grade: A researcher of the Hyundai Research Institute explained that ``with an increased credit, the companies could save their energy to supply capital. That`s the reason why the companies are trying hard to increase their credit.``

The matured bill of Hyundai Motors will amount up to 960 billion won by the second half of the year. However, thanks to the increased credit of the company, Hyundai Motors will be able to convert the debentures. A related official of Hyundai Motors said, ``the financial situation of the company is not bad at present. However, the company is to set for the security of the liquidity.

daviskim@donga.com