9% of South Korea’s top 500 businesses are “zombie companies”

Posted on : 2016-04-21 16:20 KST Modified on : 2019-10-19 20:29 KST
Term “zombie companies” refers businesses that can’t even cover interest payments with their earnings
The South Korean economy is near the brink
The South Korean economy is near the brink

An analysis shows 9% of South Korea’s top 500 businesses are so-called “zombie companies” that have been unable to afford even interest payments with their operating profits over the past two to three years.

The finding comes amid government efforts to pave the way for restructuring at many businesses.

The business assessment site CEO Score published findings on Apr. 20 from an analysis of business and consolidated audit reports for South Korea’s top 500 companies. The results showed 33 of the 380 companies with verifiable data had interest coverage ratios below one for the past three years.

The interest coverage ratio represents a company’s operating profits for a given year divided by financial (interest) costs that go toward debt repayment, which provides a means of gauging the business’s ability to pay back its debts. A value of less than one indicates that the company is not earning enough to even repay its interest. The financial world has often used the term “zombie company” to describe a business that maintains an interest coverage ratio below one for three straight years - indicating low odds of recovery.

The 33 businesses in question had average operating losses of 15.5 billion won (US$13.7 million) for 2015, for a combined total of 5.1146 trillion won (US$4.5 billion). The largest number were in the construction and construction materials sector, including SK E&C, Hanwha E&C, Doosan Engineering and Construction, Halla, and Ssangyong Engineering and Construction.

Six others were in the petrochemicals sector, including Hyundai Cosmo, Lotte Fine Chemical, and OCI, while six more were in shipbuilding, machinery, and facilities, including Daewoo Shipbuilding and Marine Engineering, Hyundai Samho Heavy Industries, and Hanjin Heavy Industries and Construction.

Also on the list were transportation companies Hanjin Shipping, Hyundai Merchant Marine, and Asiana Airlanes; IT and electronics companies Taihan Electric Wire and LG Siltron; and steel companies Dongbu Steel and Daechang.

By Kim Sung-hwan, staff reporter

Please direct questions or comments to [english@hani.co.kr]

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