More than 200 listed companies in South Korea are unable to service their debt with earnings in what is widely seen as a time bomb for Asia's fourth-largest economy, a report showed Thursday.
South Korea had 3,278 marginal companies as of 2015, of which 232 were listed corporations, according to the report from the office of Rep. Kim Jong-min of the ruling Democratic Party of Korea.
(Yonhap)
The report was based on data from the Financial Supervisory Service. A company failing to earn enough operating income to cover its interest expenses for three consecutive years is defined as marginal by local financial authorities.
The combined sales of the listed marginal companies totaled 71.4 trillion won ($63.6 billion), accounting for 4.6 percent of South Korea's gross domestic product of 1,565 trillion won. Their total workforce amounted to more than 96,000, with 90,200 being full-time workers.
Of the highly indebted companies, major shipyard Daewoo Shipbuilding & Marine Engineering Co. was the biggest, with sales of 13.4 trillion won and a workforce of 13,199.
Creditors have been forced to provide a huge bailout for the ailing shipbuilder that has been suffering from severe liquidity problems over heavy losses in its offshore projects.
A total of 13 companies had sales of 1 trillion won or more, with 15 firms having a workforce of 1,000 or more.
The report showed the marginal companies' debt rising at a fast clip. Their combined debt stood at 53.5 trillion won as of 2015, 1.4 times the amount in 2012.
The number of marginal companies took up 7 percent of total firms in South Korea, but their debt accounted for as much as 45 percent of total corporate credit extended to local companies.
Rep. Kim called on the government to come up with measures to manage their debt in order to prevent their bankruptcies from weighing on the local economy.
"It is very important to manage not only the quantity of corporate debt but also its quality," he said. "The government should thoroughly control corporate debt to keep it from becoming an economic powder keg." (Yonhap)
