Nearly four in 10 South Korean construction companies were unable to meet interest payments with operating profit last year as a sluggish domestic market hurt their earnings, a report showed Tuesday.

According to the report by the Construction Association of Korea, 36 percent of local builders could not cover interest payments with their operating profit in 2011. The report was based on an analysis of financial statements of 10,275 construction companies in the country.

Of the companies checked, 17.2 percent posted net losses, while 36.4 percent or 3,740 builders had an interest coverage ratio (ICR) of less than 100 percent.

The ratio is a barometer of how easily a company can pay interest on outstanding debt. A reading below 100 percent means the company cannot pay interest with its operating profits.

The CAK said the ICR figure for 2011 represents 12.3 percentage point increase from 24.1 percent tallied for the previous year.

“This is a clear sign of the difficulties faced by the country’s construction sector,” the association said in a statement.

The report also showed the ratio of operating profit to net sales fell for the fourth straight year, mainly because of rising construction material costs and other management-related expenses.

In 2011, the operating profit ratio fell to 4.1 percent from 5.0 percent in the year before.

Reflecting such hard times, there were a total of 11,545 construction companies registered in the country as of late last year, down 411 from the year before.

(Yonhap News)