Internal Transactions Account for 40% in Top 5 conglomerates

The internal transactions of the nation’s top five groups, including Samsung, LG, Korea Electric Power Corporation (KEPCO), Hyundai Motor, and SK, have reached 191 trillion won, accounting for 40 percent of their total sales.

Accordingly, it turned out that large conglomerates are heavily dependent on internal transactions.

The Financial Supervisory Service (FSS) analyzed both consolidated and combined financial statements of 18 companies with more than 5 trillion won in assets in 2002. As a result, internal transactions were estimated to account for 38.1 percent of the total sales of the top five conglomerates, according to the FSS report of July 27.

This figure increased 37.4 percent from 165 trillion won in 2001. Conversely, internal transactions for every other Korean company accounted for only 9.7 percent of their total sales.

Among the 18 groups, the five largest conglomerates were responsible for 69.0 percent of total sales (450 trillion won) and 76.5 percent in total operating profits, up 3-5 percentage points from a year ago, suggesting the widening gap in economic influence.

By group, Samsung ranked first in assets, capitals, sales, and operating profits, except its 11.27 percent of ROS (return on sale), which lagged behind KEPCO and POSCO.

“The average debt ratio among the largest business groups in the manufacturing industry was recorded at 168.1 percent, well below 200 percent, the target set during the restructuring process after the 1997-1998 financial crisis,” commented Hwang In-tae, an FSS official. “This means that profitability is increasing.”

The average interest coverage ratio of the 18 groups rose to 5.10 from 3.05 a year ago. The ratio is a measurement of the number of times a company can make its interest payments with its earnings.

Nationwide there were only two groups, Hanjin and Hyundai, in which interest coverage ratio was below 1, down from five in 2001.

Dong-Won Kim daviskim@donga.com