Half of Listed Construction Companies Cannot Afford to Pay Interest with Operational Profits

It has been reported that nearly half of the listed domestic construction companies face difficulties in business operation to the point that they cannot afford to pay interest rates with their profits from the first half of this year.

On September 25, the Construction Association of Korea reported that after analyzing the operations of 118 listed construction companies from the first half of 2013, these companies have interest coverage rates of 162.6%, even after the interest rates dropped, due to overall decreased net profits.

This percentage is 86.1% lower than from the same time last year. This is the first time since the IMF economic crisis for interest coverage rates to fall below 200%. In fact, about 47.5% (56 companies) have fallen below 100%, which means that they cannot afford to pay their interest with their profits. 

Interest coverage rates have dropped because the production costs for both domestic and international construction have increased, causing drastic business losses. In fact, the ratio of operating profit to net sales dropped 2.0% from 4.4% last year to 2.4% this year. Earnings before interest and tax dropped from 2.0% to 0.9%.

Also, since domestic and international construction sales have slowed down, construction profits have increased 0.5% (300 billion won) to 63.8 trillion won (US$59.4 billion), compared to the same period from last year. The debt ratio (172.7%→170.4%) and current ratio (122.4%→120.5%) did not change much, thanks to the tie-up in the size of total debt amount due to the economic recession. The total borrowed to total assets ratio worsened to 27.1%, which increased 2.0% compared to the same period last year.