Returns of Heavily Foreign-Owned Companies 10 Times Larger than Domestically-Owned Companiesv

The returns of the companies whose shares are heavily held by foreign investors, including Samsung Electronics (more than 50 percent), were reported to be up to 10 times as much as those of the companies with shares owned predominantly by domestic investors.

According to the “management analysis of the companies owned by foreign investors,” reported by Bank of Korea (BOK) on October 13, these companies` average income to sales ratio was 14.3 percent compared to 1.5 percent for domestically-owned companies.

The income to sales ratio of 14.3 percent means that they earned 143 won for every sales of 1000 won worth.

But if the figure excludes Samsung Electronics, the ratio drops to 7.7 percent, which shows the significant weight of Samsung in those companies owned by foreigners.

Furthermore, these heavily foreign-owned companies have higher operating profits of 13.3 percent compared to 5.9 percent for the domestically-owned companies. Also, the interest coverage ratio (operating profits/ financial expenses) of the companies was 660.4 percent, which is four times greater than that of the domestically-owned companies, 164.3 percent.

These companies` debt ratio was 62.6 percent on average, considerably lower than that of the domestically-owned companies (224.1 percent). The borrowings and bonds payable ratio (debt/ total capital) was 15.2 percent, which is much lower than 40.6 percent of domestically-owned companies again.

The proportion of material costs and labor costs to sales of those companies were 47.7 percent and 5.7 percent respectively, lower than the 49.6 percent and 6.5 percent values respectively of the domestic companies. This indicates that heavily foreign-owned companies are superior to other companies in terms of a lower cost of manufacture.

Meanwhile, revenues of heavily foreign-owned companies in all manufacturing industries have been increasing gradually from 1 percent during 1992-1997 to 5.2 percent in 1998, 12.9 percent in 1999, 13.6 percent in 2000 and 19.6 percent in 2001.

Joong-Hyun Park sanjuck@donga.com