Cross-affiliate lending increases among Korean listed companies

[Photo by Kim Ho-young]

Korean listed companies are increasingly lending funds to their affiliates and subsidiaries to help them secure working capital or enhance business capabilities as high interest rates and weakening exports are posing challenges.

According to the Financial Supervisory Service’s electronic disclosure system on Thursday, Shinsegae Co. decided to invest 40 billion won ($30.7 million) to participate in the rights offering by subsidiary Shinsegae Casa Co. to enhance the latter’s financial stability and working capital. The subsidiary is suffering from continued slump in the housing market and weak consumption.

Already 24 Korean companies trading on the Kospi or Kosdaq have disclosed investment in their “special relationship” companies this year, with the investment reaching 987.4 billion won. On Feb. 10, AK Holdings Inc. announced that it would inject 79 billion into AK S&D Inc., which operates AK Plaza department stores. The affiliate has suffered from deteriorating financial structure since the pandemic.

There is also a trend of fund injection into subsidiaries to nurture future growth engines. LS Group, which is developing electric vehicle business, is investing 25 billion won in the rights offering by LS E-Link, a subsidiary that operates EV charging infrastructure. It was jointly established by LS and another subsidiary E1 Corp. E1 also plans to invest 25 billion won into the venture.

Korean Air Lines Co. is leveraging cash from its record earnings driven by strong air cargo demand last year, to extend support to its subsidiaries. The airline recently invested 89.1 billion won in K-Aviation Co. to support aircraft and helicopter business, while participating in WLD Co.’s rights offering worth 40.6 billion won.

Krafton Inc., a game company, said it will invest 6 billion won and 9 billion won in its subsidiaries, Bluehole Studio Inc. and RisingWings Inc., respectively.

Hyundai Mobis Co., an auto parts company under Hyundai Motor Group, poured more money into its subsidiaries than any other companies this year. It committed a combined 393 billion won investment in three subsidiaries, H Green Power, Unitus and Motras, at the end of last month. Unitus and Motras are subsidiaries established by Hyundai Mobis by merging existing production companies last year.