Loan Dependency
It has been reported that the top 500 domestic enterprises are at a dangerous level of loan dependency. About half of the investigated companies are financially unstable with over 30% dependency, which is considered borderline. About 17 of the top 30 companies also showed over 30% loan dependency.
On August 21, business management evaluation website CEO Score (CEO Park Joo-geun) reported findings from a survey about loan dependency given to 297 companies that submitted Q1 business reports and have comparable data from the previous year. The survey respondents have a total of 578 trillion won (US$514 billion) in loans and 1,959 trillion won (US$1,744 billion) in assets, which means their loan dependency is 29.51%. This is very close to the borderline of 30%, and 0.4% worse than the 29.11% from Q1 last year.
Loan dependency level is a financial index that shows the percentage of total assets that loans take up (debts and capital combined). This index is used to evaluate the soundness and profitability of the financial structure of a business. The lower the index, the better the profitability and asset structure. Below 30% is considered safe. The amount of loans consist of short and long term debt, other debt, private loans, and any other loans that require regular payment of interest.
This trend of increased levels of loan dependency shown by the top 500 companies can be interpreted as the result of a worsened cash flow through reduced profits due to the economic recession.
Of the 297 businesses surveyed, 137 of them (46%) showed a loan dependency higher than 30%. The number of companies with a dependency that rose in the past year has also increased to 160, which is more than half of the total.
By industry, the freight industry showed the highest loan dependency of 48.9% due to the global economic recession. This industry showed a 1% increase in just a year. There are nine other industries showing financial hardships with over 30% dependency: public enterprises with 38.7%, shipbuilding, machinery and equipment with 35.3%, trading with 35.1%, steel with 34.9%, energy with 32.5%, communications with 32.0%, and petrochemicals with 30.1%.
On the other hand, eight industries have successfully maintained a stable financial flow and have low dependency. These are pharmaceuticals with 9.6%, IT and electronics with 14.7%, services with 19.7%, food with 24.8%, construction and distribution with 25.3%, automobiles and parts with 27.7%, and daily supplies with 28.6%.
Out of the top 30 companies, 28 - excluding GM Korea and Booyoung - showed a dependency of 27.84%, which is 0.07% higher than last year’s 27.77%.
Fully 18 of the 28 showed an increased level of dependency compared to last year, and 9 showed a decrease. Also 17 of them, or sixty percent, showed a dependency higher than 30%.
In the top 30 companies, the one with the highest level of dependency turned out to be Hyundai Group (CEO Hyun Jung-eun) with 64.5%. This means 65% of the company’s assets are actually loans with immediate interest to be paid. Others are Hyosung (CEO Cho Seok-rae) with 57.4%, Dong Kuk Steel Mill (CEO Chang Se-ju) with 51.8%, and Hanjin (CEO Cho Yang-ho) with 51.2%.
There are 4 groups with a dependency of over 40%, which are KumhoAsiana (CEO Park Sang-gu) with 48.1%, Dongbu (CEO Kim Jun-ki) with 46.3%, LS (CEO Ku Ja-yeol) with 44.1%, and Doosan (CEO Park Yong-man) with 44.1%.
Groups with a dependency below 10% are S-Oil (CEO Nasser Al-Mahasher) with 9% and Hyundai Department Store (CEO Jung Ji-sun) with 9.9%.
There are only two groups at the level of 10%, which are Samsung (CEO Lee Gun-hee) with 10.3% and Youngpoong (CEO Chang Hyung-jin) with 11.8%.
By industry, the top three spots were taken by marine companies. SK Marine Transport had the highest level of dependency with 86%, Hanjin Marine Transport with 77.8%, and Hyundai Merchant Marine with 70.8%. These are followed by Daesung Industry with 70.4%, KT Rental with 69.6%, Taihan Electric Wire with 68.2%, Moorim Paper with 61.6%, POSCO Plantec with 61.5%, Korea Gas Corporation with 61.4%, and Samsun Logics with 60.0%.
On the other hand, 14 companies have been operating without any loans. These are Hyundai Home Shopping, GS Home Shopping, S1, Namyang Dairy, NC Soft, Sinsegye Foods, Kangwon Land, Korea Plant Service & Engineering Company, Yuhan Corporation, I Market Korea, Sindorico, Dae Duck Electronics Company, Duckyang Industry, and Korea Nitto Optical.