Large Corporations Running Out of Funds, Government Only Watching

[Asia Economy Reporters Kim Hyunjung and Park Soyeon] "Although the 'total amount of money' circulating in the market has increased due to the Bank of Korea's base interest rate cut, corporate coffers are actually drying up. We hold cash flow-related strategy meetings several times a day, but there is no effective solution. The biggest question is how long we can hold on."

Executive A of a leading domestic chemical company attends emergency strategy meetings almost daily these days. The main agenda of the meetings is 'cash flow.' A said, "The first quarter is not even over yet, but the business plan set at the end of last year has been completely scrapped," adding, "There was talk about making sure cash flow does not get blocked, which gave me goosebumps."

As COVID-19 rapidly spreads mainly in Europe and the United States, not only self-employed and small and medium-sized enterprises but also major domestic flagship companies have entered an emergency system to prevent liquidity crises. The aviation industry, hit directly by COVID-19, has gone into a full shutdown starting with Eastar Jet, and the chemical and refining industries, struck by the plunge in oil prices, are trembling with fears of massive deficits.

However, government COVID-19 support measures are limited to the self-employed, SMEs, and low-income groups, leading to growing calls for support measures for flagship companies driving the Korean economy. Related article on page 3

According to the business community on the 23rd, major companies are operating emergency management systems to respond to the complex crisis as global workplaces are shutting down one after another amid the COVID-19 pandemic, and concerns about credit tightening in the commercial paper (CP) market are emerging.

The biggest concern for companies is liquidity tightening due to short-term funding interest rates. Recently, a large conglomerate affiliate with an AA- credit rating failed to meet its corporate bond issuance target in a demand forecast conducted for institutional investors. There are also fears of a chain reaction of 'money clots.' As the payment of aviation fuel bills, already facing liquidity crises in the aviation industry, is delayed, the cash flow in the refining industry has also begun to slow down accordingly.

More companies are selling assets to secure cash. Hanjin Group has put up idle assets such as the Songhyeon-dong site in Incheon and non-core businesses for sale to improve its financial structure, and LG Group sold its stake in the Beijing Twin Towers in China last month.

Even large corporations are waging an all-out battle to secure cash because cash assets that could serve as a buffer against the economic shock caused by COVID-19 have significantly decreased. As of the first half of 2019, the cash assets of the top 10 KOSPI companies stood at 49.7 trillion won (individual basis), a sharp 23% drop from 64.7 trillion won at the end of 2018. Concerns over poor performance of major companies are growing. By industry, operating profit forecasts have been sharply revised downward over two months for chemicals (-65.67%), steel and metals (-30.57%), transportation and warehousing (-30.40%), and manufacturing (-19.95%). The performance outlook has also significantly lowered for electricity and electronics (-8.41%) and pharmaceuticals (-6.90%).

Despite this situation, the government has not yet presented support measures for large corporations. A Ministry of Economy and Finance official said, "No separate support measures for large corporations are being discussed," adding, "Currently, considering the urgency, the priority is to focus support on small business owners and SMEs." In the recently passed supplementary budget by the National Assembly, the government allocated 11.7 trillion won mainly for ▲ recovery of damages to small business owners and self-employed ▲ stabilization of vulnerable groups' livelihoods ▲ support for special disaster areas (Daegu and Gyeongbuk).

This content was produced with the assistance of AI translation services.