[News Space=Reporter seungwon lee] Since the pandemic, the number of companies with an interest coverage ratio of 1 or less, which cannot even pay interest with their operating profit, has more than doubled as large corporations' interest expenses have increased 2.4 times due to decreased operating profit and rising interest rates until last year. In particular, the number of "zombie companies" that have recorded an interest coverage ratio of 1 or less for three consecutive years has reached 20.

On the 29th, the Corporate Analysis Research Institute Leaders Index (CEO Park Joo-geun) analyzed the sales, operating profit, and interest expenses of 302 companies that submitted business reports among the top 500 companies in terms of sales and were comparable for three years from 2021 to 2024, and found that the total sales of these companies last year amounted to KRW 2,964.697 trillion, a 25.5% increase from 2021 (KRW 2,362.8248 trillion).

On the other hand, operating profit decreased by 1.2% from KRW 200.3075 trillion to KRW 197.942 trillion, and interest payment expenses (hereinafter referred to as interest expenses) during this period increased by 136.3% from KRW 22.982 trillion to KRW 54.2961 trillion. Accordingly, the interest coverage ratio decreased by 58.2% from 8.72 to 3.65. In this analysis, the performance and interest expenses of banks, financial holding companies, securities companies, and card companies were excluded.

214 companies, or 70.9% of the surveyed companies, have seen their interest coverage ratios decline over the past three years, while only 88 companies have improved. In particular, the number of companies with an interest coverage ratio of 1 or less, which cannot cover interest expenses with operating profits, has more than doubled. The number of companies with worsening financial conditions is increasing every year, from 34 (11.3%) in 2021 to 44 (14.6%) in 2022, 59 (19.5%) in 2023, and 73 (24.2%) last year.

Of these, 20 companies were found to have recorded an interest coverage ratio of 1 or less for three consecutive years, effectively qualifying them as zombie companies. These included five Lotte Group companies, including Lotte Shopping, Lotte Chemical, Hotel Lotte, Lotte Hi-Mart, and Korea Seven; three SK affiliates, including SK On, SK Ecoplant, and SK Networks; and two Shinsegae Group companies, including E-Mart and Shinsegae Construction.

By industry, interest coverage ratios declined in most industries except shipbuilding, public enterprises, and insurance. In particular, petrochemicals and distribution saw their average interest coverage ratios fall below 1 to 0.64 and 0.99, respectively, due to deterioration in their industries last year.

The industry with the worst interest coverage ratio over the past three years was petrochemicals. The interest coverage ratio of 37 companies plummeted from 12.34 in 2021 to 0.64 last year. During this period, petrochemical industry sales increased 20.3% from 405.8003 trillion won to 488.3527 trillion won, but operating profit plummeted 82.7% from 27.7309 trillion won to 4.7920 trillion won. On the other hand, interest expenses more than tripled from 2.2468 trillion won to 7.5215 trillion won.

Within the industry, six companies, including Lotte Chemical, Hyosung Chemical, Isu Chemical, Daehan Yuhwa, Taekwang Industrial, and Yeocheon NCC, were classified as zombie companies, recording an interest coverage ratio of 1 or lower for three consecutive years.

The steel industry was also not in good shape. While sales of 13 steel companies have stagnated since 2021, operating profit has decreased by 72% from KRW 14.2577 trillion to KRW 3.9922 trillion. During the same period, interest expenses nearly doubled from KRW 906.6 billion to KRW 1.7271 trillion, and the interest coverage ratio also plummeted from 15.73 to 2.31.

Hyundai Steel, which recently announced an investment in a steel mill in Louisiana, USA, is in a particularly bad financial situation. Last year, operating profit plunged 93.5% to KRW 159.5 billion compared to 2021 (KRW 2.4475 trillion), but interest expenses increased 42.2% from KRW 306.2 billion to KRW 435.4 billion, causing the interest coverage ratio to drop significantly from 7.99 to 0.37, below 1.

The construction and building materials industry is also in bad shape. The operating profit of 30 companies has halved from KRW 8.3705 trillion in 2021 to KRW 4.6487 trillion in three years, and interest expenses have more than doubled from KRW 1.0301 trillion to KRW 2.8364 trillion. Accordingly, the interest coverage ratio has also fallen from 8.13 to 1.64. Of the 30 companies in the industry, only three, including Samsung C&T, Seohee Construction, and Hanil Cement, have improved their interest coverage ratios, while the remaining 27 have decreased, and 14 have an interest coverage ratio of 1 or less.

Hyundai Motor Company had the largest amount in terms of interest expenses. Hyundai Motor Company’s interest expenses last year surged 211.3% to KRW 5.9324 trillion compared to KRW 1.9059 trillion in 2021. Hyundai Motor Company’s cash assets were KRW 19.149 trillion as of last year.

The next company with the highest interest expenses was Korea Electric Power Corporation, which increased by 143.6% from KRW 1.9282 trillion to KRW 4.6974 trillion. It was followed by SK Corporation with KRW 3.8918 trillion (↑169.8%), Korea Gas Corporation with KRW 1.5145 trillion (↑133.2%), SK Innovation with KRW 1.4670 trillion (↑250.6%), and SK Hynix (KRW 1.2766 trillion, ↑429.8%).