SEOUL, Sept. 15 (Korea Bizwire) — Large South Korean companies’ ability to service their debts improved sharply in the first half of the year amid the coronavirus pandemic, a corporate tracker said Wednesday.
The interest coverage ratio for 259 out of the country’s top 500 firms averaged 10.3 as of end-June, compared with 4.3 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.
CEO Score attributed the sharp increase in their interest coverage ratio to better earnings, efforts to better manage debt and super-low interest rates.
Their combined operating profit came to 85.5 trillion won (US$73 billion) in the January-June period, up nearly 105 percent from a year earlier.
In contrast, their total interest expenses decreased 14.7 percent on-year to slightly over 8.3 trillion won.
A total of 23 companies had an interest coverage ratio of less than 1 as of end-June, down a whopping 38 from a year earlier.
State power firm Korea Electric Power Corp. (KEPCO), No. 2 air carrier Asiana Airlines Inc. and seven other firms were zombies in the first half.
Thirteen companies registered an interest coverage ratio of 1 or higher in the first half after posting below-par figures for two years running, according to CEO Score.