One quarter of listed Korean firms unable to meet interest outgo from earnings

2021.04.06 09:40:21

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One out of four non-financial listed companies in South Korea could not even meet their interest payments from earnings last year, data showed on Monday.

According to the data from Korea Economic Research Institute (KERI), 255 out of 1,017 non-financial Kospi- and Kosdaq-listed companies as of the fiscal year of 2020 showed an interest coverage ratio below 1, meaning 25.1 percent of them couldn’t pay interest from their earnings.

A considerable number of these companies are vulnerable in their ability to repay debt and may develop a high risk of insolvency, KERI warned.

The interest coverage ratio calculated by dividing a company`s earnings by the company`s interest expense, and the figure below 1 indicates that the company is not generating sufficient income to cover interest expenses.

In contrast, the combined operating profit of those 1,017 companies showed a 24.9 percent increase on year to 67.3 trillion won ($59.6 billion), driven by semiconductor and IT companies thanks to sharp demand growth for electronics amid the pandemic. Their combined sales amounted to 1,076.1 trillion won last year, down 1.5 percent from 1,093 trillion won a year ago.

There was a widened gap between top and bottom 20 companies in sales and earnings, and the market was polarized between those benefited from the pandemic and those who haven`t.

KERI said many companies are stilling struggling to recover from the coronavirus pandemic fallout and the government’s aggressive policy support is required to keep the industry going.

By Pulse

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