Loan guarantees among conglomerate units jump 21 pct this year

Industry

Published: 21 Dec. 2022, 09:27 Updated: 21 Dec. 2022, 11:00

Loan guarantees among conglomerate units jump 21 pct this year

The headquarters of SK in central Seoul [YONHAP]

Loan guarantees among affiliates of Korea's top 30 conglomerates surged nearly 21 percent in the first nine months of the year due to a credit crunch stemming from high interest rates, a corporate tracker said Wednesday.

The debt payment guarantees among 207 out of the groups' affiliates totaled 87.7 trillion won ($68.1 billion) as of end-September, up 20.7 percent from nine months earlier, according to CEO Score.

Compared with the end of 2020, the amount was up a whopping 52.3 percent, or 30.1 trillion won.

No. 3 conglomerate SK had the largest debt guarantees with 10.8 trillion won, followed by business leader Samsung with around 9 trillion won and NH Financial with 8.9 trillion won.

In contrast, Doosan posted the biggest drop of 724.2 billion won over the cited period, trailed by internet giant Naver with 257.7 billion won and Hyundai Heavy Industries with 198.6 billion won.

Among individual companies, Nonghyup Bank, NH Financial's flagship banking arm, had the biggest loan guarantee with 8.9 trillion won, followed by Posco Holdings with 6.7 trillion won and SK On, SK's battery-making unit, with 4.9 trillion won.

Ten corporations had loan guarantees exceeding their capital, with Hyosung Chemical posting the highest ratio of 312 percent.

Since August last year, the Bank of Korea has carried out six rate hikes with the country's benchmark interest rate reaching 3.25 percent, resulting in higher corporate borrowing costs.

Under Korea's fair trade law, affiliates of large conglomerates with assets exceeding 10 trillion won are restricted from making equity investments in their affiliated companies or offering loan guarantees to each other. But newly designated conglomerates and new affiliates are given a two-year grace period to eliminate loan guarantees.

Inter-affiliate loan guarantees have been banned in Korea since 1998, as they were regarded as one of the main causes of the 1997-98 Asian financial crisis.

Yonhap