State-owned companies buried under growing debt

Public institutions look set to be saddled with over 500 trillion won ($445.95 billion) of debt next year, the Ministry of Strategy and Finance said yesterday.

The total borrowing of 41 state-owned companies that have more than 2 trillion won in assets is predicted to hit an all-time high of 532.3 trillion won next year, which would create a debt-to-asset ratio of 234.4 percent, the finance ministry said at a crisis-management meeting yesterday.

Last year, their collective debt stretched 15.8 percent from 2010 to 444.4 trillion won. It is expected to further increase to 485 trillion won by the end of this year.

The news comes as household debt has shot up to almost 1,000 trillion won, posing a major risk to economic stability.

As concern grows over the mounting level of debt held by public companies, the government has for the first time set a long-term plan to address the issue.

By sector, the debt held by 10 companies that deal with social overhead capital accounted for the largest share, or 45.7 percent of the total, followed by those in the energy sector with 31.9 percent.

The ministry has decided to more closely monitor the fiscal soundness of the 41 companies over the next five years, it said.

“While international credit rating agencies appreciate the country’s fiscal soundness, they are worried about mounting debt at public institutions,” Finance Minister Bahk Jae-wan said at yesterday’s meeting.

Moody’s and Standard & Poor’s recently raised alarm bells about this when they both upgraded the country’s credit level by one notch.

Under the government’s plan, the public corporations should submit self-rescue plans by the end of the month to the National Assembly.

Korea Land & Housing Corporation, the most indebted of the group, said it will issue asset-backed securities to secure liquidity and sell off some subsidiaries that overlap.

Korea Electric Power Corporation’s debt-to-asset ratio is expected to continue surging to 151.3 percent by 2016, up from the current 130.1 percent. It plans to put a lid on its rising debt ratio by cutting costs and adjusting facility investment. It hopes to bring annual production costs down to 800 billion won.

Korea Expressway Corporation has already handed in a plan to cut its investment in road works from 3.3 trillion won to 2.5 trillion won.

By Song Su-hyun [ssh@joongang.co.kr]