Seoul, South Korea – A recent study has revealed that 52 of South Korea's largest conglomerates were unable to cover their interest expenses with operating profits in the third quarter of this year.
According to a report by CEO Score, a corporate data research firm, 271 non-financial companies among the top 500 in South Korea recorded a combined 27.2 trillion won in interest expenses during the first three quarters of 2024. This represents a 7.9% increase compared to the same period last year.
While the total operating profit of these companies surged by 77.9% to 135.3 trillion won, driven largely by significant gains from companies like SK Hynix, Samsung Electronics, and Korea Electric Power Corporation (KEPCO), the picture was less rosy for many others.
Excluding these three giants, the average interest coverage ratio for the remaining companies declined from 4.34 in the third quarter of 2023 to 3.98 in the same period this year. The interest coverage ratio measures a company's ability to meet its debt obligations based on its current earnings. A ratio below 1 indicates that a company's operating profits are insufficient to cover its interest expenses.
Of the 271 companies surveyed, 52 reported an interest coverage ratio below 1 in the third quarter, an increase of 8 companies compared to the previous year. Among these, 29 companies, including LG Display, SK On, Hanwha Solutions, Hotel Lotte, and Lotte Chemical, reported operating losses. Furthermore, 16 companies, such as LG Display, SK On, and Lotte Shopping, have consistently had an interest coverage ratio below 1 for the past three years.
The petrochemical industry was the only sector where all companies had an interest coverage ratio below 1. The industry's operating profit declined by 83.3% year-on-year in the third quarter, resulting in an interest coverage ratio of 0.42.
These findings highlight the financial challenges faced by many South Korean conglomerates, particularly in the petrochemical sector. While the overall performance of the top three companies boosted the average, the underlying trend suggests that a significant portion of the corporate sector is struggling to maintain financial health.
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