Debt Weighs Heavy on Firms

Manufacturers' ability to service their long-term debt improved last year, the Bank of Korea said Friday. But, compared with 1999, fewer companies were able to pay interest costs from operating profits, indicating a widening disparity between successful and struggling firms.

According to the central bank's study of the 3,800 companies required to submit independently-audited financial statements, the ratio of manufacturers' average operating profit to interest expenses last year was 2.76, a slight improvement over 1999.

But three out of 10 manufacturing firms had interest coverage ratios of less than 1, the central bank said, indicating that they earned less cash from primary business operations than they needed to pay interest costs. This was slightly worse than the previous year's.

The central bank's head of economic statistics, Chung Jung-ho, said, "Corporate restructuring should be focused on the companies that are unable to meet interest obligations from cash earned."

Larger corporations had improved cash flows last year, whereas small and medium firms' cash flows slowed, the central bank said.

The bank also said the average cash flow from operating activities last year was 10.5 billion won ($8.0 million) per manufacturer, down 9 percent from 1999. When Samsung Electronics is excluded, the average was 8 billion won, down 11 percent, the bank said.

Mr. Chung said manufacturers must shore up operating profits to further stabilize cash flows. "The fact that fewer than half the firms earned enough cash from operating activities to cover capital investment expenses means that improvement is needed," he said.

The manufacturers' net positive cash inflows, made up of income from operations, investments and financing activities, averaged 400 million won per company last year. There was an average net outflow of 9.1 billion won for investing activities and an outflow of 940 million for financing activities.

by Kim Young-sae