Major Korean firms saw interest expenses jump 50% in 2022

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Major South Korean firms saw their interest expenses surge 50 percent in 2022 from a year ago due to rising interest rates, a corporate tracker said Tuesday.

The combined interest cost of 377 companies out of the country’s top 500 firms by sales that submitted their business reports, stood at 39.92 trillion won ($30.2 billion) last year, up from 26.58 trillion won a year earlier, according to Leaders Index. The tally excludes banks and financial holding firms but includes insurers, brokerage houses and credit card companies, according to the corporate tracker.

Furthermore, the combined operating profit of those firms sank 17.9 percent to 170.32 trillion won last year from 207.47 trillion won a year ago, causing their average interest coverage ratio to drop to 4.3 last year from 7.8 a year earlier, with 26 firms having a reading of less than 1. The interest coverage ratio is an indicator of whether a company is generating earnings it needs to pay interest. A reading below 1 means a company’s operating profit cannot cover its interest expenses. This development shows that corporate profitability is deteriorating as earnings fall amid a slowing economy while costs increase due to rising interest rates.

By industry, the securities sector spent the largest interest expenses last year. The combined interest expenses of 18 securities firms stood at 6.31 trillion won, up 150.4 percent from 2.52 trillion won a year ago.

In terms of year-on-year interest cost growth, trading companies posted an increase of 74.7 percent, followed by services at 62.9 percent, credit finance at 60.1 percent, insurance at 57.5 percent and petrochemical at 55.6 percent. In addition, 317 companies of those analyzed, or 84 percent, saw their interest costs increase last year.

Hyundai Motor Co. chalked up the largest borrowing cost of 2.7 trillion won, up 41.4 percent from 2.0 trillion won a year ago, followed by state-run Korea Electric Power Corp. at 2.52 trillion won, up 30.6 percent from a year earlier, and SK Inc., the holding firm of SK Group, at 2.14 trillion won, up 48.4 percent.

There were 60 companies that saw lower interest costs. Doosan Enerbility Co., a local heavy industrial company, posted a decline of 89.4 billion won, followed by a 48.8 billion won drop at Samsung Heavy Industries Co., one of three major shipbuilders in Korea, 46.9 billion won fall at telecom giant SK telecom Co., 33.0 billion won decline at Hyundai Doosan Infracore Co., a local manufacturer of construction equipment and engine, 26.4 billion won fall at state-run Korea Gas Corp. and180 billion won drop at platform giant Naver Corp.