SOUTH KOREAN FIRMS FEAR LOAN CUTS MAY HURT EXPORTS
South Korean firms affected by a government
order to cut bank loan exposures fear the move may make their
exports less competitive, company officials said.
    Last month, the government ordered 82 companies to repay 10
pct of their bank borrowings by December 31. It told them to
replace the amount with new share issues or money raised
through convertible bonds offered on the local capital market.
    Company officials said they backed the move in principle
but were worried it would raise financing costs at a time when
the won was rising steadily against the dollar.
    "We plan to export 100,000 cars this year and 200,000 next
year and with our present production facilities we cannot
produce this amount," an official from Daewoo Motor Co Ltd, who
requested anonymity, told Reuters. "We must invest in production
facilities to meet our target, which means we need a lot of
money from banks or elsewhere."
    "But if we should pay back bank loans within this year, we
will face mounting financial difficulties and have less money
to invest on a new production line, which will eventually
discourage our exports," he added.
    The 82 companies each have bank loans exceeding 50 billion
won, representing a combined exposure of 10,052 billion won or
about 20 pct of all loans extended by South Korean banks,
finance ministry officials said.
    The companies must raise 1,005.2 billion won by the
December deadline, the officials said. Of this total, the 82
firms would raise some 646.5 billion won from selling part of
their existing Seoul stock market portfolios, they said.
    Another 74.1 billion would be raised by new share offerings
and 284.6 billion by convertible bond issues.
    Most of the firms affected by the repayment scheme are
affiliates of large conglomerates or "chaebols."
    Thirteen of the 82 are affiliates of Samsung Co Ltd, 10 are
Hyundai Corp associates, seven are part of the Lucky-Goldstar
Group, six are part of Daewoo Corp, four are Sunkyong Ltd
affiliates and four are part of Ssangyong Corp.
    Finance ministry officials said the order was part of
government efforts to absorb excessive money supply triggered
by the growing current account surplus and to increase the
supply of shares on the stock market.
    "We want to mop up the excess liquidity by making companies
issue new shares and bonds, and to give banks more funds to
lend to small-sized firms," one official said.
    The targeted 1,005.2 billion won represents three pct of
the M-2 money supply of 33,871 billion won at the end of 1986.
    The M-2 at end-April was up 18.2 pct from a year earlier,
compared with the government's 18 pct growth target for the
whole of this year, officials figures showed.
    The current account swung to a surplus of 2.5 billion dlrs
in the first four months of this year from a deficit of 294 mln
in the same period last year.
    "We expect the measure will help companies improve their
financial structure by lowering the ratio of liability," the
ministry official said.
    A Hyundai Motor Co official, who asked not to be
identified, said, "We basically see the measure as positive, for
we can raise money in the capital market by issuing new shares
or convertible bonds which will eventually improve our
financial structure."
    "But as far as the finance cost is concerned, issuing new
shares is more expensive than borrowing from banks and we have
to pay back the loans (soon)," he added.
    South Korean bank loans attract an average interest rate of
11.5 pct.
    "We are also concerned over the won's gradual appreciation
against the dollar which is emerging as a threatening factor to
export-oriented firms," another company official said.
    "We will come under mounting financial pressure if the won
continues to go up," he added.
    The won has risen more than 4.5 pct against the dollar this
year after gaining 3.34 pct in 1986.
    "Many firms prefer to borrow from banks rather than boost
capital by issuing shares so that they can evade new dividend
pressure," a bank official said. "A firm's owners hate to see
their holding ratio lowered by issuing shares."
    "But their dependency on the banks should be corrected
because their financial structure is already poor," he said.
    (See Monitor page ECRA for spotlight index)
 REUTER
