38 % of Manufacturing Companies Hard to Cover the Interest

38.2 percent of the manufacturing companies could not even pay the interest with their operation profits. Hence, the worsened profitability of these companies would be a huge burden for the future corporate restructuring.

The Bank of Korea (BOK) released yesterday the `report of the business performance in the first quarter` which had analyzed 1033 manufacturing companies including the listed companies, the registered companies in the Korea Securities Dealers Association, and the registered companies in the Financial Supervisory Commission.

According to the report, the manufacturing sector`s interest coverage ratio (operation profit divided by financial cost) recorded 186.8 percent in the first quarter, increased by 10.3 percent from the same period of last year (176.5 percent). But the companies whose interest coverage ratio was under 100 percent reached 38.2 percent, up 7.9 percent from the first quarter of last year (30.3 percent). 21.1 percent the manufacturing companies recorded the operation losses, rose from a year earlier (14.2 percent).

The ratio of ordinary incomes to sales dropped to 3.3 percent, down 3.4 percent points

from 6.7 percent of the first quarter of last year, signaling the massively worsened profitability.

The BOK explained that the profitability of the manufacturing companies has been aggravated due to the decline of the profit ration to sales (0.9 percent down), and the fall of the non-operating balance (2.5 percent down) derived from the rise in the won-dollar exchange rate and the unrealized capital losses.

The manufacturing sector`s debt-to-equity ratio increased to 208.9 percent, up 2.5 percent points from the same period of last year (206.4 percent). The rise of the debt ratio derived from the relatively higher increase of the borrowed money than the increase in their equity capital due to the sluggish stock issue in the inactive stock market, the large-scale reduction of the capital by some companies and the worsened profitability.

The increase rate of the sales increased only by 4 percent year-to-year, well below the increase rate of last year (15.2 percent).

Lee Heon-Jin mungchii@donga.com