More Korean Inc. under capital woes as high rates hurt leveraged operations

[Courtesy of Korea Exchange]

Capital base of Korean companies big and small has been deteriorating fast as their leveraged operations have become costly due to spikes in interest rates and weakening economic growth.

According to a study by the Korea Exchange on Monday, nine publicly trading companies showed partial capital impairment as of the end of the third quarter.

The Korea Exchange, the sole operator of stock exchanges in Korea, places a company under a capital impairment watch list when the company loses more than half or more of its assets. Capital impairment occurs when a company’s total capital becomes less than the par value of its shares outstanding.

Hanwha General Insurance Building [Courtesy of Hanwha General Insurance]

Hanwha General Insurance reported 93.3 percent of its capital impaired as of the end of the third quarter. Its equity capital amounted to 737.7 billion won ($544 million), with the shareholders‘ equity at 51.3 billion won. Total equity including non-controlling equity was 166.2 billion won.

The company called the capital impairment an illusion from a re-classification of bonds, as it stressed that its fundamental remains strong.

The company said it recorded 83.3 billion won net income in the third quarter and projected its financial statement would appear better when applying the new IFRS17 accounting rules next year, which would push up its equity to 2.3 trillion won.

Airliners have sunk deeper in woes from leveraged operations and losses during the pandemic.

Tway Air is found to have 66.9 percent of its capital impaired in the third quarter, after incurring a 32.3 billion won operating loss on a consolidated basis. Its net loss widened to 57.3 billion won from 45.2 billion won loss recorded a year ago.

Asiana Airlines, with its subsidiaries Air Busan and Air Seoul included, showed a capital impairment rate of 57.3 percent with a debt ratio of 10,298 percent in the third quarter.

Market observers fear that more companies will show a sharp deterioration in financial health in the coming months due to the liquidity crunch in the short-term debt market.