S. Korean conglomerates flush with cash, but reluctant to invest

By Park Bo-ram
SEOUL, May 21 (Yonhap) -- South Korea's major family-controlled conglomerates
have ample cash on hand but are reluctant to invest in new plants and equipment
amid a prolonged economic slump, data showed Thursday.

The reserve ratio for 65 affiliates of the nation's 10 biggest groups averaged
945.54 percent as of the end of March, up 60.8 percentage points from a year
earlier, according to the data by the Korean Exchange and the Financial
Supervisory Service.
The reserve ratio, or capital surpluses and retained earnings divided by paid-in
capital, measures how much cash a company has at a given time. The ratio for the
10-largest local business groups has been on the rise since hitting 600 percent
in 2004.
The first-quarter jump came as conglomerates scrambled to build up cash holdings
to weather the ongoing economic uncertainties. In contrast, they slashed facility
spending and other investments.
Local facility investments slumped 22.1 percent on-year to 17.7 trillion won
(US$14.2 billion) in the January-March period after registering a 2 percent drop
in 2008, the first yearly contraction since 2003.
Experts said better-financed conglomerates need to boost business investments in
order to help foster an economic turnaround and expand employment.
"Big companies shied away from aggressive investments in the first quarter as
they struggled to boost liquidity amid a threat of financial market jitters,"
said Bae Sang-keun, an official at the Federation of Korean Industries, South
Korea's big-business lobby.
The South Korean economy, Asia's fourth-largest, is stuck in a severe slump, hit
by plunging overseas demand for its goods. In the first quarter of this year, the
economy grew a mere 0.1 percent from three months earlier, barely avoiding a
recession, after shrinking 5.1 percent in the previous quarter.
pbr@yna.co.kr
(END)