Large firms hesitate to invest

Lotte shows highest cash reserve ratio

The average cash reserve ratio of conglomerates soared to a record high last year, data showed Sunday, triggering concerns that their sluggish reinvestment may hinder job creation and economic recovery.

According to FN Guide, an online financial information provider, the average reserve ratio of 70 listed affiliates of Korea’s top 10 conglomerates was 1,578.5 percent of their capital as of the end of 2013. It was the highest ever and up from 1,414.2 percent the previous year.

Lotte Group had the highest reserve ratio. Its six affiliates had 5,767 percent, meaning their combined surplus, 27 trillion won, was about 58-times their capital value of 500 billion won.

The group was followed by POSCO, which had 3,937 percent; Samsung, 3,321 percent; Hyundai Heavy Industries, 3,092 percent; Hyundai Motor, 1,661 percent; SK, 984 percent; GS, 894 percent; LG, 570 percent; Hanwha, 479 percent; and Hanjin, 189 percent.

The firms promised to increase investment and create more jobs to revive the economy after President Park Geun-hye took office, but data suggests that they are reluctant to reinvest their earnings.

The cash reserve ratio is calculated by dividing a company’s surplus by its paid-in capital. It shows how much cash a company is accumulating. If a company has a high reserve ratio, the firm is financially strong but it also means the money is not spent productively, such as for investment or employment.

The 70 firms’ combined surplus was 444.2 trillion won, up 11.3 percent from a year before. But their capital was 28.1 trillion won, a slight drop from 28.2 trillion won.

Lotte also had the largest increase in the reserve ratio during the period, with the ratio rising 425.2 percentage points, followed by Samsung’s 369.8 percentage points and Hyundai Motor’s 298 percentage points.

Of the top 10 conglomerates, LG and Hanjin’s reserve ratios decreased 1 percentage point and 3 percentage points, respectively.

Those companies say they are saving money in preparation for potential risks and they have not found good business opportunities to invest amid the prolonged economic slump.

However, economic experts point out that the conglomerates did not expand investment much even when domestic and global economic situations were good.

Hana Daetoo Securities researcher Soh Jae-yong said a company’s value is decided by three factors of stability, profitability and growth.

“It is not negative that companies accumulate cash and strengthen financial stability. But it is a problem if they neglect the growth factor and lose the balance of the three,” he said.

While the nation’s top four conglomerates revealed massive investment plans along with Park’s inauguration in 2013, Samsung and Hyundai Motor kept their pledges to spend 49 trillion won and 14 trillion won, respectively. SK and LG’s actual investments were smaller than their original plans by 18 percent and 5 percent, respectively.

The top 10 conglomerates also said they would invest 120 trillion won this year, but it is to be seen whether they will keep their promises. By Kim Rahn The korea times

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