PetroChina, Asia Companies Face Cash Shortfall, Macquarie Says

By Katrina Nicholas

April 1 (Bloomberg) -- PetroChina Co Ltd. and China Telecom Corp. lead Asian companies that may be forced to cut spending and dividends by a cash shortfall of as much as $300 billion, according to Macquarie Group Ltd.

Companies won’t be able to earn or borrow enough this year to meet their capital expenditure and shareholder payment goals, Daniel McCormack, a Hong Kong-based analyst with Macquarie, said in a phone interview today.

“Western banks number one are under pressure to keep lending at home and number two to lend to eastern Europe to bail it out, so Asia really becomes the third priority,” McCormack said. “Asian banks are in good shape and will be able to step up, but only to some extent.”

Financial companies worldwide are tightening lending standards and hoarding cash after $1.29 trillion in losses and writedowns since the start of the credit crisis in 2007, according to data compiled by Bloomberg. Companies in China, Japan, South Korea and Taiwan face higher refinancing risks than peers in the rest of Asia-Pacific because they’re “over- reliant” on bank loans, Fitch Ratings said in a March 18 report.

Forty-five percent of the $730 billion in rated Asia- Pacific corporate debt due by the end of 2012 is funded by bank loans, compared with 38 percent in Europe and Africa, Fitch said.

The extra capital Asian companies need this year will dwarf the $131 billion they borrowed in 2008 and the $31 billion they raised from share sales, according to a March 26 report McCormack wrote with Hong Kong-based colleague Tim Rocks.

Funding Gap

Chinese companies’ capital shortfall will almost double to $95 billion this year, more than twice South Korean companies’ $42 billion funding gap, McCormack and Rocks said. In Hong Kong, the gap is expected to narrow to $21 billion from $25 billion.

“There isn’t a particularly developed or liquid corporate bond market in Asia, so traditionally companies have relied on bank financing as their main source of debt,” McCormack said. “In Korea, where the loan to deposit ratio is well in excess of 100 percent, domestic banks have no room whatsoever to step up and fill the hole.”

Companies at risk of cash shortfalls in South Korea include Samsung Electronics Co., the world’s biggest computer-memory maker, and LG Corp, the nation’s fourth-biggest industrial group, according to Macquarie.

PetroChina’s Hong Kong-based spokewoman H.N. Kong couldn’t be reached for comment and China Telecom’s William Li hasn’t responded to an e-mail. No-one could be reached for comment at Samsung’s main office in Gyeonggi today, and there was no reply to an e-mail sent to LG’s media office in Seoul.

To contact the reporter on this story: Katrina Nicholas in Singapore at knicholas2@bloomberg.net