Korean companies’ cash reserves swell to record high

Cash holdings at South Korean companies have soared to a record-high level, data showed on Monday. Companies are stepping up efforts to raise cash through asset sales, bond issuances and rights offerings, while tightening their belts to brace for a further slowdown in Asia’s No. 4 economy.

With some leading Korean business groups suffering liquidity shortages, domestic companies are seeking to enlarge their cash reserves, taking advantage of abundant market liquidity.

Cash reserves at the country’s non-financial companies swelled by 30 trillion won over the past year to a record 1,125,4 trillion won ($801 billion) in terms of M2 money supply as of the end of September, according to the Bank of Korea and the Korea Financial Investment Association (KOFIA).

M2 is a measure of money supply, including cash, demand deposits and savings deposits, that are readily convertible to cash.

The country’s top 10 non-financial companies, including Samsung Electronics Co., Hyundai Motor Co., SK Hynix Inc. and LG Energy Solution Ltd. have hoarded a combined 170.9 trillion won in cash as of the end of September, a 7.5 trillion won increase over the end of 2023.

Samsung held the lion’s share, sitting on 103.8 trillion won in cash and cash equivalents, a 12.0 trillion won increase over the same period a year earlier.

BOND SALES

Domestic companies’ bond sales rose to a net 18.3 trillion won after redemptions this year, an 81.3% surge from the year prior, as of Dec. 2, according to KOFIA.

Their net bond issuances in November shot up to a record 3.6 trillion won — the largest-ever amount for the month of November in the country.

The increasing amount of net bond sales is deemed unusual around year’s end when companies close their books.

But falling interest rates after the Bank of Korea’s two straight months of interest rate cuts in November bode well for corporate debt sales. Bond investors are keen to lock in current yields before interest rates slide further next year.

Analysts expect the domestic bond market to remain buoyant through the end of this year.

"Interest rate cuts lowered the burden of bond sales, providing a good opportunity for companies to replenish their ammunition,” said Choi Sung-jong, an analyst at NH Investment & Securities.

Refiner S-Oil Corp. and KT Corp. recently sold more bonds than planned after their new debts were six-times oversubscribed. The companies raised 300 billion won and 200 billion won in bond sales, respectively.

SK Telecom Co. and Hanwha Life Insurance Co. joined them in selling bonds. Internet network provider SK Broadband Co. has brought forward its new bond issues to the fourth quarter of this year instead of early next year.

The yield on Korea's three-year corporate bonds with an AA- rating has fallen to 3.1%, its lowest level since hitting 3.163% at the market's close on March 25, 2022.

ASSET SALES

Companies are also putting properties and illiquid assets up for sale as a buffer against heavy swings in the foreign exchange market.  

The Korean won currency has softened past the psychologically important barrier of 1,400 won against the dollar amid uncertainties surrounding Donald Trump’s return to the White House next month.

A total of 39 companies, including Korean Air Lines Co., Taeyoung Engineering & Construction Co., Korea Line Corp., KG Dongbu Steel Co. and Hanil Cement Co., have disclosed plans to the regulatory Financial Supervisory Service (FSS) to sell assets such as land, factories, aircraft and golf courses this year. 

In comparison, 25 domestic companies released similar plans to the FSS last year.

IPOs

Large business groups are also tapping the IPO market to take some of their units public. IT company LG CNS Co., cutting tool maker DN Solutions Co. and Lotte Global Logistics Co. have filed prospectuses with the Korea Exchange for preliminary reviews of IPOs. They all aim to go public next year.

Write to Ik-Hwan Kim and Hyun-Ju Jang at lovepen@hankyung.com
 

Yeonhee Kim edited this article.