S.Korea's zombie companies rise on weak profitability

Source: Xinhua | 2019-11-06

Zombie companies in South Korea rose last year on weak profitability, accounting for one-third of the total non-financial companies, central bank data showed Tuesday.
Companies, which failed to pay back borrowing costs with operating profit, took up 35.2 percent of the total non-financial companies in 2018, according to the Bank of Korea (BOK).
The proportion continued to rise from 31.8 percent in 2016 to 32.3 percent in 2017, indicating that about one-third of local companies were zombie companies.
Zombie companies refer to firms, of which the ratio of operating profit to borrowing costs stay below 100 percent for the third consecutive year.
The median for the profit-to-interest ratio among all non-financial companies worsened from 328.5 percent in 2016 to 323.5 percent in 2017 and 260.2 percent in 2018 each.
The figures were based on the compilation of the earnings of 692,726 non-financial companies, including listed and unlisted firms.
Revenue of the non-financial companies grew 4.0 percent in 2018, after expanding 9.2 percent in the previous year. It was attributable to the global economic slowdown and the global chip industry's downturn.
The ratio of operating profit to revenue, which reflects corporate profitability, fell 6.1 percent in 2017 to 5.6 percent in 2018.