Korea’s top conglomerates expected to unleash cash holdings in H2

Samsung Electronics Co. headquarters in Seoul [Photo by Yonhap]

Samsung Group, SK Group, Hyundai Motor Group and LG Group have reportedly bolstered their cash reserves during the economic downturn, raising anticipation that they may use the funds for investment once the recovery becomes apparent in the latter half of this year.

According to data from regulatory filings on Wednesday, combined cash and cash-equivalent assets held by the four top conglomerates reached 57.82 trillion won ($44.8 billion) at the end of 2022, up by 46.5 percent year-on-year from 39.5 trillion won. The figure goes against the assumption that the economic downturn may have depleted their cash reserves.

Samsung increased its holdings by 1.64 trillion won to 11.2 trillion won and SK by 7.6 trillion won to 18 trillion won. Hyundai Motor increased its cash reserves by 5.71 trillion to 16.78 trillion won, and LG by 3.43 trillion won to 11.85 trillion won. SK saw the steepest growth in the holdings with 73 percent, followed by Hyundai Motor with 51.6 percent, LG with 40.8 percent and Samsung with 17.1 percent.

For Samsung Electronics Co., its cash holdings remained almost unchanged at 3.92 trillion compared with the previous year likely due to the slowdown in the semiconductor industry. In February, the company borrowed 20 trillion from affiliate Samsung Display Co. for investment purposes.

Cash holdings at another chipmaker SK hynix Inc. also remained similar, with little changes to 1.64 trillion won at end of 2022 from 1.61 trillion won in 2021. The group’s SK energy Co. saw its cash and cash-equivalent assets up more than fourfold to 2.7 trillion won from 446.9 billion won during the same period, thanks to the high oil prices last year. SK telecom Co. also experienced significant growth in its cash holdings, up to 1.22 trillion won from 158.8 billion won.

Hyundai Motor Group’s cash holdings saw a significant increase following a record performance last year. Hyundai Motor Co.’s cash holdings rose by about eight-fold to 4.9 trillion won in 2022 from 653.5 billion won in 2021. The increase was attributed to an increase in cash-equivalent assets due to facility investments taking place simultaneously at home and in the U.S. Hyundai Mobis Co., the group’s automotive part maker that also participates in the said investments, saw its holdings increase by 46.4 percent to 1.25 trillion won from 699.9 billion won during the same period.

LG Group headquarters in Seoul [Photo by Han Joo-hyung]

As for LG Group, the cash holdings grew significantly at LG Energy Solution Ltd., which is facing some large-scale investments, with its cash and cash-equivalent assets growing nearly nineteen-fold to 4.83 trillion won from 25.7 billion won over the same period. With the large cash holdings, the company is believed to have prepared for the large-scale expansion of its battery production capacity in the U.S. and elsewhere.

Chu Kwang-ho, head of the economic industry division at the Federation of Korean Industries, analyzed that those companies increased their cash holdings following the economic downturn in the latter half of last year, implying that companies waiting for the right time to investment have led to a boost in their cash holdings.

Some project that these companies may make their investment moves in the second half of this year when the economy improves. “If companies are hoarding cash rather than liquid assets, it’s likely because they have investment plans,” said an industry insider. “They are likely to pour funds to expand facilities at home and abroad from the second half of the year.“

SK on Co. is expected to announce an expansion of its Cheonan plant sometime soon, which will make batteries for Hyundai Motor Group and other automakers. Hyundai Motor Group also has announced plans to invest more than 1 trillion won in its Hwaseong electric vehicle factory. Samsung Electronics is likely to continue its cash spending as it is building a factory in Texas and LG Group is also spending large pile of cash mostly on its battery business.

While all four groups saw an increase in their cash and cash equivalents, SK Group was the only one whose debt ratio worsened. Samsung Group’s debt-to-equity ratio fell to 34.4 percent in 2022 from 36.5 percent in 2021, Hyundai Motor Group’s ratio fell to 65.7 percent from 67.1 percent and LG Group’s ratio improved to 94 percent from 102.8 percent. However, SK Group’s ratio rose to 86.2 percent from 76.6 percent. Over the same period, SK hynix’s debt-to-equity ratio increased to 52.6 percent from 44.7 percent.