Financial health of big Korean firms worsens in 2022 on inflationary pressure

Hanwha General Insurance Co. headquarters [Courtesy of Hanwha General Insurance]

One in two listed companies that are part of South Korea’s 10 biggest conglomerates saw their financials deteriorate last year due to high interest and inflation rates.

According to the financial data on the Korea Exchange’s disclosure system from 106 listed companies under the 10 big business groups, 56 of them, or half of the total, had a higher debt-to-equity ratio than a year ago. Of these, 21 companies had a debt-to-equity ratio of over 200 percent and most of them are financial affiliates such as insurance and securities firms.

The top 10 business groups on the list are Samsung Group, SK Group, Hyundai Motor Group, LG Group, Lotte Group, POSCO, Hanwha Group, GS Group, HD Hyundai Group and Shinsegae Group.

Hanwha General Insurance Co. had the highest debt-to-equity ratio among the listed companies under the top 10 conglomerates, with a non-consolidated debt-to-equity ratio of 8,030.90 percent at the end of last year, compared with 1,260.45 percent a year earlier. Hanwha Life Corp. also showed a higher figure, with 1,907.45 percent up from 1,170.96 percent in the same period.

Samsung Group’s financial companies also saw an increase in their non-consolidated debt-to-equity ratio. Samsung Life Insurance Co.’s ratio soared to 1,491.60 percent, almost twice the 808.33 percent a year ago, and Samsung Fire & Marine Insurance Co. and Samsung Securities Co. had a debt-to-equity ratio of over 600 percent. Hyundai Motor Securities Co.’s ratio rose from 587.14 percent to 675.49 percent, while Hanwha Investment & Securities Co. saw its figure increase from 490.61 percent to 600.93 percent in the same period.

Financial companies tend to have a high debt-to-equity ratio since deposits or insurance premiums from customers are all recorded as debt on the book. The high debt-to-equity ratio of financial companies was due to an increase in bond valuation losses as interest rates jumped last year.

In the service industry, the debt-to-equity ratio of SK Rent a Car Co. came to 544.45 percent at the end of last year and Lotte Rental Co.’s debt-to-equity ratio jumped to 449.33 percent last year from 408.43 percent in 2021. Hotel Shilla Co.’s ratio rose to 361.18 percent from 278.48 percent in the same period.

In the electricity and electronics industry, LG Display Co.’s debt-to-equity ratio climbed 1.7 times to 298.06 percent at the end of last year from 176.98 percent in 2021. The debt-to-equity ratio of construction and transportation equipment-related listed companies such as Shinsegae Engineering & Construction Co., Hanwha Aerospace Co., and Hyundai Rotem Co. exceeded 200 percent.

Large listed companies suffered from the triple whammy of high interest rates, high inflation and high exchange rates, resulting in weak earnings last year. Kospi-listed companies, including financial institutions, posted a combined operating profit to 159.41 trillion won last year, falling 14.7 percent a year earlier and net profit fell 17.3 percent to 131.51 trillion won.