Korea Inc. debt-servicing ability weakens this year amid tumbling profits

2019.11.27 16:05:41

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Even big Korean companies are struggling to meet their interest payments this year due to a sharp fall in profits, data showed.

The interest coverage ratio for 241 out of the country’s top 500 companies averaged 5.08 in the first nine months of the year, halved from 10.01 a year ago, according to corporate tracker CEO Score on Wednesday.

The interest coverage ratio, used to determine a company’s ability to service its debt, is measured by dividing a company’s operating profit by its interest charges. A reading of below 1 means the firm’s earnings are not enough to cover its interest expenses.

The sharp drop in corporate profits was largely to blame. Company earnings in the first three quarters totaled 76.4 trillion won ($64.9 billion), down 40.5 percent from the same period a year earlier. Meanwhile interest expenses rose 17.3 percent to 12.8 trillion won during the same period.

Twelve companies logged operating losses in the January-September period, including LG Display, Asiana Airlines, Samsung Heavy Industries, Hyundai Merchant Marine and Ssangyong Motor.

Twenty-two firms had a ratio reading of below 1, including Korea Shipbuilding & Offshore Engineering, SK Incheon Petrochem, Huvis and Posco Energy.

Twelve companies, including Hanjin Heavy Industries & Construction, Kumho Tire and Doosan Engineering & Construction, were zombies sustained on debt relief, with a ratio of below 1 for three consecutive years.

Hyundai Merchant Marine, Ssangyong Motor and Duckyang Ind. have been in the red for the past three years.

Thirteen companies, including the country’s flagship carriers Korean Air Lines and Asiana Airlines and the budget carrier Jeju Air, saw their interest coverage ratio slip below 1 this year. Also on the list were petrochemical firms SK Incheon Petrochem, OCI and Huvis and state-run companies Korea Western Power and Korea Midland Power.

Korea Electric Power Corp.이미지 확대

Korea Electric Power Corp.

The company with the highest interest coverage ratio was GS Home Shopping with 1,571.55, followed by the casino and resort company Kangwon Land with 1,200.89. Firearms and auto parts maker S&T Motiv (758.89), Korea Zinc (614.27) and Posco ICT (192.10), the IT and engineering arm of the steel giant Posco, were also debt-free.

By sector, IT and electronics scored the highest with a ratio of 18.66, followed by pharmaceuticals (11.19) and personal care products (10.32). Transportation was the only sector to fare below 1, with a reading of 0.46.

The company with the heaviest interest burden was Korea Electric Power Corp., with cumulative interests as of the third quarter totaling 1.53 trillion won. Korea Gas Corp. came second with 598 billion won, followed by Posco (571 billion won), Samsung Electronics (527 billion won) and Korean Air (476.8 billion won).

By Pulse

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