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“Capital Flow Has Stopped”

Posted October. 27, 2005 04:22,   


“There is no capital flow at all. When I visit banks to get loans and explain about the technology and visions of our company, the response I get is something like, ‘So what?’” said the CEO of a KOSDAQ-listed company.

“The capital raising market has long been a field of ‘money games.’ Attracting investment based on long-term vision is simply a dream. Increasing capital is difficult without a steep increase in stock prices that ride on ‘materials,’” said a CEO of another KOSDAQ-listed company.

Capital flow has stopped. Korea’s backbone companies are worrying about the difficulties in raising capital.

According to a survey by this newspaper on 78 CEOs and CFOs of KOSDAQ-listed companies, an overwhelming 55 respondents, or 70.5 percent, described getting bank loans as “not smooth,” while only 10 respondents, or 12.8 percent, answered “smooth.”

When asked of the equity financing situation, substantially more respondents answered “not smooth” (40 respondents, or 51.3 percent) than “smooth” (26 respondents, or 33.3 percent).

Most of the respondents (75) expected that the bipolarization of funds, in which capital flow concentrates to large companies, would continue (52.6 percent) or worsen (43.6 percent).

Despite the stock market boom and low interest rates, major companies are having difficulty raising capital. This means that Korea’s finance market is not functioning properly.

Even KOSDAQ-listed companies, whose strong financial health and industrial structures have been verified, are having difficulty.

One CEO of a KOSDAQ-listed company said, “They say the stock market is in a boom, but I have never thought that investments in companies are increasing.”

Another CEO said, “If the situation is this bad for major companies like us, I’m concerned what it would be like for smaller companies.”

There was deep distrust in the government’s policies to foster venture start-ups.

Thirty-five respondents (44.9 percent) said that the government policies aimed at fostering SMEs and venture start-ups were “not very effective,” and 23 (29.5 percent) said they were “not effective at all.” Only one person (1.3 percent) and 11 people (14.1 percent) said the policies were “very effective” and “effective,” respectively.

One CEO said, “The government says it would turn Korea into a financial hub of northeast Asia, but honestly that seems to be an empty rhetoric. How can Korea become a financial powerhouse when its major companies are becoming isolated from ‘mainstream finance?’”

Chang Young-soo, researcher at Dongbu Securities, said, “The government should come up with various measures that can turn the finance market boom into something that gives real help to corporate management.”

Wan-Bae Lee TK Sohn roryrery@donga.com sohn@donga.com