Capitally Impaired
One out of every three affiliates of Korea’s 30 biggest chaebol companies is suffering from full-scale capital impairment or high debt ratios. According to Chaebul.com on Oct. 11, 80 of 1050 affiliates of Korea’s 30 largest business groups were in the plight of full-scale capital impairment according to their 2014 audit reports.
Capital impairment means that a big loss impairs paid-in capital. In particular, when total assets become negative, the state is called full-scale capital impairment. Moreover, 264 companies saw their debt-to-equity ratios break through 200 percent. A debt-to-equity ratio points to the percentage of debts in assets. Normally, when it exceeds 200 percent, it is understood that the company has a poor financial structure.
Combining the two cases, the companies total 326, so about one third of the affiliates of Korea’s 30 largest companies are in financial trouble. The companies do not include government-run companies and financial companies. Compared to three years ago, their financial health has deteriorated. Based on the same criteria, financially troubled companies added up to 296 of 1,117 affiliates (26.5 percent). This means the proportion of financially effete companies has swollen to 4.5 percent over the past three years. By group, the percentage of financial weak affiliates of the Dongbu Group was the highest, with 61.0 percent.
Last year, 16 of 41 Dongbu affiliates saw their capital impaired, and nine saw their debt-to-equity ratios surpass 200 percent. About 40 to 50 percent of affiliates of Buyoung, Hanwha, KCC, Hyosung, OCI, Daewoo Shipbuilding & Marine Engineering, and GS were also found to be financially vulnerable.