Mounting Liabilities
The total debts of the 30 largest business groups swelled by 13.9 trillion won (US$11.7 billion) in 2014. Sixteen groups saw the percentages of their debts grow from the previous year. Their debts grew to a collective total of 137.5 trillion won (US$115.5 billion), which accounted for the bulk of the increase. So, there are concerns that corporate debts hidden behind household and public debts may trigger a crisis in the Korean economy.
As of the end of 2014, the total debts of Korea’s 30 largest companies stood at 1.739892 quadrillion won (US$1.461491 trillion), up 8 percent from 1.392840 quadrillion won (US$1.170417 trillion) a year earlier, according to a report about the debts of the 30 largest companies over the past five years that Rep. Shim Jae-cheol received from the Fair Trade Commission.
They outran public debts (47 trillion won, US$39 billion, 4.3 percent) and household debts (66 trillion won, US$55 billion, 6.5 percent) during the same span. Major affiliates of groups with high debt ratios the Dongbu, Hyundai, Hanjin, and Kumho Asiana Groups joined workout programs to improve their financial structures last year.
But as plans to consolidate under-performing companies and the establishment of a corporate restructuring company were scrapped, marginal firms are on a steady rise. According to Chaebul.com, 519 companies recorded less than 1 as their interest coverage ratios last year. The figure is an increase of 94 companies from 2010.
Companies that cannot pay interest with their operating income include the GS, Hyundai, Daelim, Dongbu, and Hyundai Groups. NH Nonghyup inked the biggest debt increase. NH Nonghyup saw its debt grow 23.7 percent to 55.867 trillion won (US$46.944 billion) last year. In particular, NH Nonghyup placed first in both debt increases and growth rates.
Samsung’s debts climbed by 45.188 trillion won (US$37.972 billion), up 14.4 percent from 2013. Samsung was followed by Hanwha, which debt increased by 12.609 trillion won (US$10.594 billion), the Korea Electric Power Corp. (5.837 trillion won or US$4.905 billion), and the Hyundai Automitive Motor Group (5.288 trillion won or US$4.443 billion).
In contrast, the Korea Land & Housing Corporation reduced its debts by 4.402 billion won (US$3.6981 million) last year. Debts dropped at Hanji by 1.311 trillion won (US$1.101 billion), Dongbu by 1.091 billion won (US$916,925), and the Korea Water Resources Corporation by 544 billion won (US$457 million). In the debt standings last year, Samsung held first place with 360.028 trillion won (US$302.460 billion). NH Nonghyup followed Samsung with 291.401 trillion won (US$244.806 billion).
The next in rank were the Korea Land & Housing Corporation (138.093 trillion won or US$115.954 billion), Hanwha (114.878 trillion won or US$96.460 billion), Hyundai Motor Company (113.438 trillion won or US$95.299 billion), and the Korea Electric Power Corporation (111.670 trillion won or US$93.751 billion).
If insolvent companies are on a steady rise at the same time as negative global factors such as the expansion of the Chinese economy’s uncertainties and a possibility that the U.S. may raise its interest rates occur, the Korean economy may fall victim to a vicious cycle of a drop in investment and employment, lowered productivity in the overall economy, and the deepening of the economic crisis.