Danger of Dishonor
It has been warned that around 150 companies listed on the Korean stock market are in danger of going bankrupt within one year, and another 400 of them are in danger of insolvency.
Global consulting firm AlixPartners announced on August 13 that it analyzed 1,500 listed Korean companies with its Corporate Distress Index, and put 27% of them on Alert and 10% of them at High Risk. This means that these firms are likely to face bankruptcy, corporate workout, court receivership or the like before the end of the third quarter. By industry, the percentage was as high as 75% in shipbuilding and shipping, followed by financial (35%), culture and leisure (17%), business service (15%), and construction and real estate (10%).
“The percentage was 33% in the shipbuilding and shipping industries in late 2011, but it soared to 75% late last year,” said Jung Young-hwan, head of the Korean office of AlixPartners, adding, “We also need to take notice of the fact that 35% of financial companies in Korea are on the verge of becoming insolvent enterprises.” He continued, “In particular, most of the securities firms seem to be having hard time with the recent decrease in trading value and fees, which is evidenced by their internal restructuring that is underway these days.”
According to AlixPartners, those marginal firms like Woongjin Holdings, STX Pan Ocean and STX Shipbuilding had been in the investment grade even before the court receivership and workout. “This is why an early warning model such as our Corporate Distress Index is necessary,” he explained, adding, “Corporate distress can be properly dealt with if tackled in the early stage but the survival rate plummets after the elapse of some time.”
The Corporate Distress Index of AlixPartners was developed in the early 2000s for the purpose of corporate risk analysis. The consulting firm has looked into companies and industries around the world with the index and this is the first time that it was applied to Korean firms.