Half of hotel companies lack earnings to balance debt

Nearly half of Korean hospitality companies were unable to service their debts with earnings in 2020 in the wake of the coronavirus pandemic, a report showed Monday.

Nearly half of Korean hospitality companies were unable to service their debts with earnings in 2020 in the wake of the coronavirus pandemic, a report showed Monday.

The report from the Federation of Korean Industries (FKI) showed 45.4 percent of firms in the local hospitality industry had an interest coverage ratio below 1 last year.

The figure is up 11.3 percentage points from 2018, indicating those companies have been hit hard by the outbreak of COVID-19, which began in Korea in January 2020.

In particular, the percentage was 55.4 percent for firms in the accommodation business, up 11.5 percentage points from two years earlier.

The interest coverage ratio is calculated by dividing a company’s operating profit by its interest expenses. A ratio of less than 1 means the company’s operating profits do not cover its interest expenses, with those firms called marginal.

Those marginal hospitality firms belong to non-financial local companies, which are required to receive external audits.

The report also showed 17.8 percent of all those firms were unable to service their debts with earnings last year, up from 15.5 percent in 2019 and 13.3 percent in 2018.

The increase in the number of marginal firms is widely seen as a downside risk for the Korean economy, struggling to cope with the fallout from the coronavirus pandemic.

Yonhap