Samsung SDI (006400.KS) has raised 200 billion won through the Korea Development Bank to cover an investment funding shortfall, lifting its bank borrowing this year to nearly 1 trillion won. The company turned to external borrowing to fund its investments, judging that cutting spending despite the battery market slowdown could widen the gap with rival nations two to three years from now.
Samsung SDI recently took out a 200 billion won operating-capital loan through the Korea Development Bank, according to industry sources Tuesday. The loan carries a one-year maturity and an interest rate in the mid-to-high 3 percent range, sources said. It is the first time Samsung SDI has borrowed operating capital through the Korea Development Bank.
With this borrowing, the funds Samsung SDI has raised through banks this year rose to 900 billion won. Earlier this year, the company signed comprehensive credit-line agreements with a three-month maturity through the Export-Import Bank of Korea and KB Kookmin Bank, worth 300 billion won and 100 billion won respectively. These opened short-term overdraft accounts allowing 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 its bank borrowing to cover planned investment costs. This year, the company plans to invest 2.9 trillion won in converting overseas plants to ESS (energy storage system) battery facilities and building next-generation battery facilities. However, its cash and cash equivalents, which indicate its investment capacity, stood at just 1.7377 trillion won as of the first quarter. Even pouring out all its cash and cash equivalents, the company would find it difficult to cover the investment funds.
With Samsung SDI expected to post an operating loss this year, there is little additional cash it can secure. The company's operating profit forecast stands at minus 42.4 billion won. The industry believes an early earnings rebound will be difficult, given the slump in global electric vehicle demand and the continuing offensive by Chinese firms. Although Samsung SDI signed multi-trillion-won EV battery supply contracts this year with customers including Mercedes-Benz, these are multi-year deals in which funds do not flow in at once, so it cannot get its hands on large-scale cash immediately.
The problem is that delaying planned investments due to funding pressure could further widen the gap with rival nations led by China. "If we don't invest now, when battery demand recovers in two to three years and orders come in, we could end up unable to handle the volume," an industry official said. "If we delay investment just because conditions are difficult now, we could hand over not only price but also technological competitiveness to China."
Accordingly, Samsung SDI is analyzed to have drawn up an investment funding plan that increases bank borrowing until it secures cash through the sale of its Samsung Display stake. 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 the stake held by Samsung SDI at around 10 trillion won. However, if the entire stake is liquidated at once, the company would have to pay corporate tax on the transfer gains of as much as several trillion won, so the money obtained from the stake sale is expected to fall short of that.
The market expects the stake sale to 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 sizable interest costs swollen by the borrowing also support this view. Samsung SDI's interest costs in the first quarter were 55.9 billion won.
