40% of Listed Korean Firms In the Red

More than one in three manufacturers listed on domestic stock markets are in the red. The number of companies preparing for stock listings made only a small increase as companies are reluctant to invest.

More Than a Third in the Red –

On December 14, the Bank of Korea published the “Analysis of Business Administration” based on a survey of 1,520 companies listed on the Korea Exchange and KOSDAQ.

According to the report, 33.9% of manufacturers made less than 0 percent ordinary profit in the third quarter (from July through September).

The percentage of manufacturers in red figures in the third quarter rose 4.8 percent more than in the same period of last year (29.1 percent). Its upward tendency following 26.8 percent in the first quarter and 31.4 percent in the second was thus continued.

Bank of Korea Business Statistics Team chief Song Yun-jeong said, “The percentage has marked the highest in three years since 2003 saw 35 percent in the third quarter.”

The percentage of companies that made more than 20 percent ordinary profit is 6.7 percent, a 1.1 percent fall from the same period of last year (7.8 percent).

The percentage of companies whose ordinary profit did not meet the cost of interest was 38.8 percent, a 6.2 percent increase from the second quarter of this year (32.6 percent) and a 4.5 percent increase from the same period last year. In other words, four in ten manufacturers could not pay interest by selling products.

Especially, the percentage of those with business losses increased from 26 percent in the second to 30.6 percent in the third quarter.

The ordinary profit of listed companies in the third quarter was 7.6 percent, a 0.9 percent increase from the previous quarter. In other words, the profit a company made by selling products worth 1,000 won increased from 67 won to 76 won.

A source in the Bank of Korea said, “The percentage of companies with less than 0 percent ordinary profit increased while the average ordinary profit increased. It means the polarization of companies is deepening in terms of profitability.”

Total Listed Companies Increased 6% in 4 Years –

According to the Financial Supervisory Commission, the total number of companies listed on the Korea Exchange increased to 724 by September of this year, only a 6 percent up from the end of 2002 (683). Hong Kong made a 17.8 percent increase and Shanghai a 17.1 percent increase in the same period.

The commission explained the following factors contributed to the small increase: low economic growth and companies reluctant to invest; the increase of retained earning; the danger of forced M&A on listings.

A source in the commission pointed out, “The large increase of listed companies overseas is related to fast growth, a solid funding base, and the willingness to invest.”

Korea Exchange Stock Listing Team chief Seo Jong-nam said, “We are visiting companies with good financial structures to persuade them to be listed, but many of them are reluctant as their will to invest has reduced and they don’t want to go public.”

jinhup@donga.com jarrett@donga.com