Korea’s Conglomerates
It has been reported that the top 30 conglomerates in the nation have a total of 600 trillion won (US$558 billion) in liabilities.
More than half of these top 30 groups have shown increases in their liabilities and decreases in their abilities to make debt repayments compared to five years ago. If they do not improve their financial stability, they may face more liquidity crises in the future.
On October 1, chaebul.com announced last year’s total amount of liabilities of the top 30 conglomerates (in assets) has come to 574.9 trillion won (US$535.1 billion), which is 83.2% (261.1 trillion won, US$243.0 billion) higher than 2007’s 313.8 trillion won (US$292.1 billion).
These liabilities of the 30 groups are comparably higher than the national liability. Last year, the national liability came to 443.1 trillion won (US$412.4 billion), and are expected to be around 480.3 trillion won (US$447.0 billion) this year, and 515.2 trillion won (US$479.5 billion) next year.
The debt ratio of the total liabilities of the top 30 conglomerates has dropped from 95.3% in 2007 to 88.7% towards the end of last year.
This ratio shows the soundness of an enterprise, meaning the higher the ratio the more unstable its financial structure.
Although the ratio has dropped, most groups, excluding the giant ones, showed worsened financial stabilities.
Other than the top two Samsung and Hyundai Motor groups, 28 other groups have actually shown an increase in the debt ratio, from 113.7% to 115.4%.
Fourteen of them have increased their debt ratio since five years ago, and showed worsened financial stabilities.
In fact, six of them including Dongyang (1,231.7%), Hanjin (437.3%), Hyundai (404.1%), Kumho Asiasna (265.0%), Dongbu (259.4%), and STX (256.9%) showed ratios over 200%, where the liabilities are twice as large as their assets.
Dongyang Group, which recently filed for court receivership for its major affiliates, showed the highest ratio, which increased the most in the past five years.
Dongyang’s debt ratio skyrocketed from 146.9% in 2007 to 1,231.7% towards the end of last year.
Interest coverage rates showing the companies’ abilities to repay debt have dropped for most companies, except Samsung and Hyundai Motor.
The overall interest coverage rate for the top 30 groups has risen from 5.48 in 2007 to 9.20 towards the end of last year.
This rate is calculated by dividing the sales profit with the interest amount and the higher this number, the better the company’s ability to make repayments.
However, excluding Samsung and Hyundai Motor companies, the rest 28 groups have shown a huge decrease from 4.45 to 3.87 over the same time period.
Thirteen of them showed drastic reductions in their interest coverage rates over the past five years.
If the rate drops below 1, the company can no longer afford to make debt repayments from its sales profits.
CEO Jung Sun-sub of chaebul.com said, “The economy has worsened since the 2008 global economic crisis, yet companies tried to expand business anyway and ended up with considerate amounts of huge liabilities,” and added, “Many groups need to be warned and realize that unless taken care of financially, they will cause big impacts in the economy itself.”