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Politics : Formerly About Applied Materials

AMAT 226.05

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Nov 14 9:30 AM EST

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To: Gottfried who wrote (26987)	12/16/1998 9:50:00 AM
From: Katherine Derbyshire	Read Replies (2) of 70976

>>Is it better to issue more shares [thereby spreading the debt and causing the D/E ratio to drop]. Or would it be better to keep the number of shares the same, with a higher D/E?<< It depends. Debtors have a nasty habit of wanting their money back. Shareholders want earnings to grow so that they can sell their piece of the company for more money. The chaebols are in this mess because their debtors suddenly decided to ask for their money back. If you can't give debtors their money (which the Korean chaebols can't), and you owe them 5-10 times what the company is worth (which the chaebols do), you really have no choice but to try to turn them into shareholders with a stake in future growth. Maintaining a high D/E ratio under those circumstances isn't an option. But, once you've recapitalized yourself, the next step is to deliver the growth you promised, and to do it without employing the kind of huge leverage that got you in trouble in the first place. Once the chaebols get out from under their huge debt loads, they'll still have to completely rethink their measures of growth, focusing on earnings rather than market share or unit sales. Assuming they limit their borrowings to more reasonable levels, their ability to finance things like capital spending will be severely limited. Debt restructuring is a step in the right direction, but not a complete solution. Katherine

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