Samsung SDI’s Giheung plant. Samsung SDI
Samsung SDI (006400.KS) has raised 200 billion won through the Korea Development Bank to cover an investment shortfall, bringing its bank borrowing this year to nearly 1 trillion won. With the battery market slowing, cutting investment risked widening the gap with rival nations two to three years down the road, prompting the company to fund its investments through external borrowing.
According to the industry Tuesday, Samsung SDI recently borrowed 200 billion won in operating funds through the Korea Development Bank. The loan has a one-year maturity and an interest rate in the mid-to-high 3 percent range, according to sources. This marks the first time Samsung SDI has borrowed operating funds through the Korea Development Bank.
With this borrowing, the funds Samsung SDI has raised through banks this year rose to 900 billion won. Early this year, Samsung SDI signed three-month comprehensive credit facility agreements worth 300 billion won and 100 billion won through the Export-Import Bank of Korea and KB Kookmin Bank, respectively. The arrangements amounted to opening short-term overdraft accounts that allow the company to draw funds freely within the agreed limits. In addition, Samsung SDI borrowed 300 billion won in working capital through a commercial bank.
Samsung SDI is sharply increasing bank borrowing to cover investment costs and other expenses planned for this year. The capital expenditure Samsung SDI announced for this year at the start of the year reaches 2.9 trillion won. However, its cash and cash equivalents, which indicate investment capacity, stood at just 1.7377 trillion won as of the first quarter. Even pouring out all its cash holdings would leave the company struggling to cover the investment.
With Samsung SDI expected to post an operating loss this year, there is little additional cash it can secure. Samsung SDI’s operating profit forecast stands at minus 42.4 billion won. The industry believes an early earnings rebound will be difficult, as the global slump in electric vehicle demand continues alongside an offensive from Chinese companies. Although Samsung SDI signed EV battery supply contracts worth trillions of won this year with demand customers including Mercedes-Benz, these are multi-year contracts under which funds do not flow in all at once, meaning the company cannot immediately obtain large amounts of cash.
The problem is that delaying planned investments due to funding pressure could widen the gap further with rival nations led by China. “If we don’t invest now, two to three years from now when battery demand recovers, we could find ourselves unable to handle orders even when they come in,” an industry official said. “If we delay investment just because the situation is difficult right now, we could lose to China not only on price but on technological competitiveness as well.”
Accordingly, Samsung SDI is analyzed to have established an investment fund management plan of increasing bank borrowing until it secures cash through the sale of its stake in Samsung Display. Samsung SDI holds a 15.2 percent stake in Samsung Display and is pursuing a plan to sell it. The market estimates the value of Samsung SDI’s holding at around 10 trillion won. However, since liquidating the stake all at once would require paying as much as trillions of won in corporate tax on the transfer gains, the money obtained from the stake sale is expected to fall short of that figure.
The market expects the stake sale could take place as early as the second half of the year, given that Samsung SDI set maturities as short as three months when taking out bank loans this year. The considerable interest expenses swollen by the borrowing also lend weight to such observations. Samsung SDI’s interest expenses in the first quarter were 55.9 billion won.