On April 19th, according to KT&G, the company has increased its short-term borrowing limit from 400 billion Korean Won to 800 billion Korean Won for its existing financial institution, opening up the possibility of formal borrowing. This decision is noteworthy as KT&G has been known for operating debt-free. The company has rarely borrowed money, but now appears to have a willingness to do so.
KT&G's total current assets amount to KRW 40 trillion with a debt ratio of 26.1%.
Despite having a limit of 400 billion Korean won for short-term loans from financial institutions, as of the end of last year, the company only had 100 million Korean won in short-term loans. The company's total liabilities reached 2.1033 trillion Korean won, but the majority of this was accounts payable generated in the course of transactions. KT&G's debt ratio at the end of last year was 26.1%.
KT&G's ability to operate without debt is due to its ample liquidity. The company's current assets amount to KRW 40 trillion, including approximately KRW 939.6 billion in cash and cash equivalents. This means that even without borrowing from financial institutions, the company has sufficient cash reserves.
KT&G's mid- to long-term vision requires an investment of approximately 39 trillion Korean won.
However, KT&G has decided to increase its short-term borrowing limit and prepare for borrowing, which is related to the medium- to long-term outlook announced earlier this year.
KT&G has announced plans to increase its annual sales revenue to KRW 10.2 trillion by 2027 and has revealed a total investment plan of KRW 3.9 trillion. The plan involves investing KRW 1.2 trillion into cigarette-type electronic cigarettes, KRW 600 billion into health functional foods and KRW 900 billion into its global cigarette business.
It is expected that the company will expand its shareholder return policy, buy back company stock, and introduce a semi-annual dividend system, all of which will require a significant amount of funds. KT&G plans to announce additional long-term shareholder return policies by the end of the year.
In general, industry analysts believe that relying solely on existing liquid assets in this kind of mid-to-long-term strategy has limitations. KT&G also announced at the time that it would sell high-value real estate and financial assets to raise funds. Long-term investment prospects could potentially signal the end of KT&G's debt-free operations.
A spokesperson from KT&G stated that they have increased their short-term borrowing limit as a precaution to secure future cash flow, but there are no concrete plans yet. It is expected that this increased limit will be used as a 39 trillion Korean won investment fund within the next five years.
Further reading:
The heating but non-burning business has driven an increase in sales for KT&G, with projected sales of $4.65 billion in 2022.
KT&G has restructured its control over the tobacco business in Indonesia.
Korean supplier Elentec, owned by KT&G, has doubled its profits due to its involvement in the heated non-burning tobacco industry.
Home Court Loss: KT&G's Heat-Not-Burn Product Sales in Korea Fall Short of IQOS
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KT&G has raised its short-term borrowing limit from 400 billion won to 800 billion won in order to break away from a debt-free strategy.
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