Samsung and Hyundai Plow Their Cash back into High-yield Financial Instruments

Samsung is prepared to put its money into yuan-tied structured products whose returns are higher than those of time deposit.(image: Kobizmedia/Korea Bizwire)

SEOUL, July 20 (Korea Bizwire) – Korea’s largest conglomerates such as Samsung Group and Hyundai Motor Group are holding huge amounts of retained earnings in the form of cash and are showing willingness to invest in financial instruments instead of plowing it back into capital spending.

For example, Samsung is prepared to put its money into yuan-tied structured products whose returns are higher than those of time deposit. Hyundai Motor, meanwhile, has begun investing in stocks for the first time in its history, away from the previous practice of purchasing low-yield, high-stability bonds.

According to financial service industry sources on July 17, Samsung Electronics is currently reviewing an idea of investing in commercial paper instead of putting money in the bank’s time deposit or corporate bonds. As of the first quarter of this year, the company holds 59 trillion won in cash.

A securities firm official said that Samsung Electronics recently contacted his firm and said that it is willing to invest in asset-backed commercial paper with yuan-denominated deposits as underlying assets. Securities firm officials found it highly unusual given Samsung Electronics has been famous for managing its cash in a strictly conservative manner.

The main reason for Samsung to consider investing in yuan-based structured products has to do with the fact that these derivatives pay higher returns. The asset-backed commercial paper Samsung is interested in is presently issued by securities firms based on deposits with Seoul branch offices of China’s top-five banks, including Industrial and Commercial Bank of China, Bank of China, China Construction Bank, Bank of Communications, and Agricultural Bank of China.

With 23 trillion won of cashable assets on hand, Hyundai Motor Group has been under the same kind of quandary and recently began investing in stocks, which is a sea change for the company. According to securities industry sources, the initial amount was in the range of only 10 billion won. Nonetheless, it is considered a big break away from the past practice. Hyundai’s about-face was also due to the low-interest regime for years.

Until recently, Hyundai Motor has relied on bank deposits and money market trust with securities firms. For example, it has had a money market trust balance of more than 1.7 trillion won with HMC Investment & Securities, a Hyundai Group affiliate. Including the funds delegated to other securities houses, the balance of money market trust that Hyundai Motor holds is estimated at more than several trillion won.

By M.H. Lee (mhlee@koreabizwire.com)