One out of five publicly trading companies in South Korea did not earn enough to afford interest payments on their debts last year, with the number of marginal companies in zombie state for three straight years doubling over the last two years, data showed.

According to the Korea Economic Research Institute (KERI), 143 companies, or 20.9 percent of 685 Korean listed-companies had an interest coverage ratio of less than 100 percent in 2019, meaning they were marginal firms that could not make interest payments on outstanding debts with income from operations. The data was compiled based on regulatory filings of the companies.

The number of marginal firms hit an all-time high last year, after growing steadily from 94 in 2016. The tally for those unable to cover loan interests with operating income for the third year in a row last year reached 57, doubled from 2017.

KERI data showed the business profitability of the companies plunged as operating income plummeted while revenue remained stagnant, pushing more indebted companies toward financial ruin.

In 2019, the combined revenue of listed companies declined 3.2 percent to 1,152.8 trillion won ($949.7 billion) from a year earlier. Operating income halved to 55.5 trillion won. In turn, the operating margin stopped at 4.8 percent last year, halved from 9.4 percent recorded a year earlier.

Their cash flow sharply deteriorated. The cashable assets of the 685 companies totaled 131.7 trillion won last year, down 7.3 percent from a year earlier, with more than half or 355 companies reporting a contraction. It was the second year in a row for the overall cash hoard to decline. The fall was also steeper, accelerating from 3.2 percent in 2018.

The cash ratio, which measures the value of current assets that could quickly be turned into cash, slipped to 7.6 percent last year from 9.3 percent in 2016. Cash flow from operation plunged 25.5 percent on year to 102.6 trillion won, the lowest in five years. Total of 313 companies had operating cash flow drop last year and 133 of them incurred losses, making up 19.4 percent of all listed firms.

The cash shortage resulted in a further rise in debts, including external loans.

Net debt, or total liabilities minus cash and similar liquid assets, amounted to 236.9 trillion won last year, up 38.4 percent from a year earlier.

Inventory of the listed firms averaged 99.9 trillion won. Inventory turnover was 11.5 times, falling for the second straight year. It took an average of 31.7 days for inventory to turn into sales, stretched from 25.5 days in 2017.

By Kim Hyung-joo and Cho Jeehyun

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