Companies Sustained by Debt, Total Borrowings of Listed Firms Surge by 20 Trillion Won in Q1

Total Borrowings of Listed Companies in Q1 Reach 386.7 Trillion Won, Up 20 Trillion Won from Year-End
Operating Cash Flow Turns Negative for COVID-19 Affected Industries, Surviving by Selling Assets and Increasing Debt

[Asia Economy Reporter Changhwan Lee] The total borrowings of domestic listed companies in the first quarter have significantly increased compared to last year. It is analyzed that many companies increased their debt and sold assets to overcome liquidity crises due to the impact of the novel coronavirus disease (COVID-19).

On the 22nd, the Korea Economic Research Institute announced that after analyzing the separate financial statements of 623 KOSPI-listed companies, their total borrowings reached 386.7 trillion won in the first quarter of this year, an increase of 20 trillion won compared to the end of last year. Last year, borrowings increased by about 5 trillion won per quarter, indicating a sharp rise in borrowings.

The borrowing dependency ratio rose from 21.6% to 22.5%. The composition of borrowings for listed companies is company bonds (39.9%) and borrowings from banks, etc. (33.5%), but in the first quarter of this year, borrowings from banks and others increased by 14.9 trillion won, surpassing fund-raising through company bonds (5.3 trillion won). The Korea Economic Research Institute explained that due to the cooling of the corporate bond market from February to April this year, companies raised funds mainly through bank loans.

The five industries severely affected by COVID-19?aviation, large-scale distribution, tourism & leisure, shipbuilding, and textile & apparel?all saw an increase in borrowing dependency in the first quarter of this year, with aviation showing the largest increase (+5.3 percentage points). The affected industries appear to have secured cash through expanded borrowings and asset sales as their operating cash flows deteriorated, barely enduring the crisis.

Operating cash flow worsened across all industries according to the cash flow statement. In four industries?aviation, large-scale distribution, tourism & leisure, and shipbuilding?net cash flow deteriorated from an inflow in the first quarter of last year to an outflow in the first quarter of this year. This means more cash went out than came in from operating activities. The only industry with positive operating cash flow this year was textile & apparel, but its scale was only one-tenth compared to the same period last year.

Financial cash flow increased in the first quarter of this year in the aviation, tourism & leisure, and shipbuilding industries due to expanded borrowings, resulting in a significant rise in their borrowing dependency ratios.

Compared to the fourth quarter of last year, the borrowing dependency ratio in the first quarter of this year increased by 5.3 percentage points (58.5%→63.8%) in aviation, 2.3 percentage points (17.7%→20.0%) in shipbuilding, 1.4 percentage points (19.5%→20.9%) in tourism & leisure, 1.1 percentage points (31.4%→32.5%) in large-scale distribution, and 0.8 percentage points (19.1%→19.9%) in textile & apparel.

Investment cash flow, which tends to be more negative with active investment, saw a reduction in the negative margin (reduction in investment scale) or turned positive (sale of investment assets) in all industries in the first quarter of this year compared to the same period last year.

In particular, cash flow related to ‘investment in equity, financial products, and other assets’ was positive in four industries except large-scale distribution. The Korea Economic Research Institute analyzed that companies compensated for cash outflows from operating activities by selling assets such as financial products and equity.

Operating cash inflow of KOSPI-listed companies (623 companies) increased by 20.1% (4.5 trillion won) in the first quarter of this year, and investment cash outflow increased by 24.6% (5.1 trillion won). However, excluding the large Samsung Electronics, the operating cash inflow of the remaining 622 listed companies decreased by 13.0% (2.5 trillion won) compared to the first quarter of last year, and investment cash outflow decreased by 26.4% (5.2 trillion won), indicating a contraction in investment.

Fundraising through financial activities such as borrowings and capital increases increased in both cases. The Korea Economic Research Institute explained that companies reduced investment expenditures and increased fundraising to secure cash liquidity amid growing economic uncertainty due to COVID-19. As a result, the cash ratio relative to total assets rose in the first quarter of this year despite the reduction in operating cash flow.

Choo Kwang-ho, Director of Economic Policy at the Korea Economic Research Institute, said, “Due to unexpected economic shocks such as COVID-19 and low oil prices, companies’ cash flows have generally weakened, and borrowing dependency has increased. Industries hit directly by the crisis, such as aviation, distribution, tourism & leisure, and shipbuilding, have seen operating cash flows turn negative, barely enduring the crisis through asset sales and expanded borrowings.”

Director Choo added, “Since the COVID-19 shock began in earnest from March, the second-quarter indicators will be worse. Although the tightening of the financial market has recently eased somewhat thanks to a series of financial market stabilization measures announced by the government, companies facing difficulties still struggle to secure liquidity. Until this crisis ends, the government needs to closely monitor whether there are any places where fund supply is blocked.”

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