Samsung to borrow $16 billion to fund its semiconductor investments

Samsung Electronics is planning to borrow nearly $16 billion to fund its semiconductor investments. Another Samsung company — Samsung Display — will lend it the money. This comes after the Korean conglomerate suffered a massive decline in profit in the year-ending quarter of 2022.

According to a regulatory filing seen by the Korean media, Samsung Electronics will borrow KRW 20 trillion (roughly $16 billion) from Samsung Display at an interest rate of 4.6 percent. Since the former holds an 85 percent stake in the latter, it was likely an easy negotiation. The display manufacturing unit reportedly has about KRW 20 trillion of cash reserve, and Samsung Electronics is taking almost all of that money. It appears to be a 30-month loan maturing on August 17, 2025.

Samsung Electronics also reportedly has a cash reserve of about KRW 100 trillion. However, since it is a global company with affiliates all over the world, that fund is likely widely distributed. It seemingly found it better to borrow funds from its sister firm. “When it is said the company has 100 trillion won in reserve, it could consist of all different types of cashable assets,” an industry official told The Korea Herald. “The funds may not be in Korea or may be allocated to different business units. So the company would likely have calculated all the costs before making the decision.”

Samsung borrows money from sister firm after suffering a profit decline

The ongoing economic downturn has hit the tech industry hard and Samsung was no exception. The Korean behemoth saw its profits plunge a staggering 70 percent in the year-ending quarter of 2022 to reach an eight-year low. Its semiconductor business barely broke even during the period. But despite these economic difficulties, Samsung continues to invest big in semiconductors. It plans to invest $115 billion in advanced logic chip development by 2030.

In 2022, Samsung Electronics reportedly invested more than KRW 53 trillion (roughly $40 billion) in infrastructure development. About 90 percent of that amount went into the semiconductor business. It wants to maintain the same level of investment this year. The company expects its new chip factory in Taylor, Texas in the US to be ready this year. The factory will cost Samsung a whopping $17 billion. It also plans to start making 3nm processors for smartphones this year.

All of this will require a huge cash reserve. To ensure that it doesn’t run into a fund shortage, Samsung Electronics decided to borrow money from its sister firm. It remains to be seen when the market rebounds. The Korean behemoth isn’t expecting any better financial results this year. But it likely sees a healthy return on this investment in the long run.