Interest Burden Even Large Corporations Struggle With... Paid 6 Trillion Won in Q3 Alone

CEO Score, Q3 Interest Expenses of Top 500 Korean Companies
KEPCO Records Highest Interest Expense at 722.3 Billion KRW
Hyundai Heavy Industries, Hanjin, Hanwha Systems, SKC Among Companies with Interest Coverage Ratio Below 1, Showing 'Decline'

[Asia Economy Reporter Yoo Hyun-seok] Interest expenses of major domestic corporations exceeded 6 trillion won in the third quarter of this year. This marks an increase of over 40% compared to last year, indicating a growing interest burden on companies. In particular, as operating profits declined, the interest coverage ratio, which measures a company's ability to pay interest, was halved, suggesting a worsening business environment for these companies.

According to CEO Score, a corporate data research institute, among the top 500 domestic companies by sales, 268 companies that submitted quarterly reports were analyzed for quarterly interest expenses and interest coverage ratios. Their total interest expenses in the third quarter amounted to 6.154 trillion won, a 42.1% increase from 4.3321 trillion won in the same period last year.

The company with the highest interest expenses was Korea Electric Power Corporation (KEPCO), which spent 722.3 billion won. Following were Korea Gas Corporation (239.9 billion won), Samsung Electronics (216.5 billion won), POSCO Holdings (171.6 billion won), Hyundai Motor Company (148.9 billion won), SK Hynix (148.7 billion won), Korea Hydro & Nuclear Power (143.5 billion won), and Hanwha (143.0 billion won). In total, 13 companies spent over 100 billion won on interest expenses.

Among the 268 companies surveyed, 236 companies (88.1%) experienced an increase in interest expenses. The largest increase was at Korea Electric Power Corporation, which rose by 231.2 billion won, a 47.1% increase compared to the same period last year. This was followed by POSCO Holdings with an increase of 83.1 billion won, SK Hynix 82.7 billion won, Korea Gas Corporation 81.3 billion won, Samsung Electronics 79.5 billion won, Hyundai Motor Company 70.8 billion won, and Hanwha 51.5 billion won.

Despite the rise in interest expenses, their operating profits decreased by 29.7% to 34.7336 trillion won from 49.4421 trillion won in the same period last year. As a result, the interest coverage ratio of the surveyed companies in the third quarter of this year was 5.6 times, about half of 11.4 times in the same period last year. Additionally, 166 out of 268 companies (61.9%) saw a decline in their interest coverage ratio compared to the previous year.

The interest coverage ratio is an indicator that assesses a company's ability to pay interest on its debt. A lower value means a greater burden from interest payments. If it falls below 1, it means the company cannot cover interest expenses with its earnings during that period.

In this survey, the number of companies with an interest coverage ratio below 1 increased from 35 in the third quarter of last year to 40 in the third quarter of this year. Notably, Hyundai Heavy Industries, Hanjin, Hanwha Systems, SKC, Daehan Electric Wire, Taeyoung Construction, Lotte Himart, Hyundai Livart, Korea Seven, Farmsco, and Hanshin Engineering fell below 1 in the third quarter of this year. Nexen Tire, Korea Gas Corporation, Kumho Tire, HJ Heavy Industries, KCC Construction, and Hanwha Energy also failed to exceed an interest coverage ratio of 1 in both the third quarter of last year and this year.

Meanwhile, 77 companies improved their interest coverage ratio as operating profits increased more significantly than interest expenses. LG Energy Solution saw its interest expenses rise by 9.7 billion won, but operating profits turned positive with 894.6 billion won, boosting its interest coverage ratio to 16.2 times. Other companies that improved include Samsung C&T from 6.8 to 13.8 times, Hyundai Oilbank from 5.7 to 8.8 times, and GS Caltex from 10.6 to 13.7 times.