(Herald DB)
The debt repayment capacity of South Korea’s largest companies deteriorated sharply in the first half of 2023 due to falling profits and rising interest costs, a company tracker said on Tuesday.
According to the Leaders Index, the average interest coverage ratio of 347 companies among the top 500 domestic companies by sales was 1.16 as of the end of June, down 74% from 4.42 in the same period last year.
This ratio is obtained by dividing a company’s operating income by its interest expense. If it is less than 1, it means that the company’s operating income does not cover the interest expense.
Companies with an interest coverage ratio of less than 1 for three consecutive years are often referred to as marginal or zombie companies.
The Leaders Index attributes the plunge in interest coverage ratios to lower profits and higher borrowing costs.
The combined operating profit of the two companies for the first half of the year was 83.3 trillion won, down about 42% from the previous year, and interest expenses increased about 122% to 75.1 trillion won.
As of the end of June, there were a total of 98 companies with an interest coverage ratio of less than 1, an increase from 47 companies in the same period last year.
The interest coverage ratios of the state-run Korea Electric Power Corporation and 36 other companies have been negative for the second consecutive year.
Korea Reinsurance Company recorded the highest interest coverage ratio of 1,810.2, followed by power plant solutions provider KEPCO KPS at 666.5 and Lotte Fine Chemical at 364.6.
According to the company tracker, out of 21 major industries, only the shipbuilding and machinery sector saw its ratio rise from 1.3 to 5.2 during the cited period, while the rest retreated. (Union)
