October 30, 2024

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Large South Korean companies’ ability to service their debts worsened sharply in the first nine months of this year due to plunging profits, a corporate tracker said Nov. 27.

The interest coverage ratio for 241 out of the country’s top 500 firms averaged 5.08 as of end-September, compared with 10.01 a year ago, according to CEO Score, which tracks financial details of conglomerates.

The ratio is obtained by dividing a company’s operating profit by its interest expenses. A reading below 1 means the firm’s operating profit cannot cover its interest expenses.

Those with an interest coverage ratio of less than 1 for three consecutive years are often referred to as marginal or zombie firms.

Tumbling operating profit was attributed to the worsened figure. Their combined operating profit nose-dived 40.5 percent on-year to 76.4 trillion won ($65 billion) for the first three quarters of this year.

In contrast, their total interest expenses increased 17.3 percent on-year to slightly over 15 trillion won.

LG Display, Asiana Airlines, Samsung Heavy Industries, Hyundai Merchant Marine and 30 other firms had an interest coverage ratio of less than 1 as of the end of September, four more than a year earlier.

Thirteen companies, including Korean Air and Asiana Airlines, saw their interest coverage ratio fall below the benchmark 1 this year.

A total of 12 companies, including Hanjin Heavy Industries & Construction, Kumho Tire and Hyundai Merchant Marine, were zombies.

Information technology, electrical and electronics firms had the best average ratio of 18.66. Comparable figures were 11.9 for the pharmaceuticals industry and 10.32 for the household goods sector.

By Ram Garikipati and newswires (ram@heraldcorp.com)