Korea's top conglomerates totter under increasing debt
New fears of a wave of corporate bankruptcies were spurred when Tong Yang Group, one of Korea's biggest conglomerates filed for court receivership to avert bankruptcy early this week.
Leading up to the filing, the group's debt ratio had increased more than eight-fold to 12-hundred-and-31 percent last year from five years ago, a prime indicator of its declining financial health.
The story is similar for other local conglomerates like Hanjin and Hyundai Group, both of which have debt ratios of over 4-hundred percent.
It's no surprise then that the total amount of debt held by the nation's top 30 conglomerates nearly doubled to about 6-hundred trillion won, or roughly 550 billion U.S. dollars, in just five years.
"It's easy to think that Korean conglomerates are doing well, as the earnings of some major companies like Samsung Electronics and Hyundai Motor are high. But with the exception of those two, the earnings of many of the rest of the conglomerates are slowing down."
In prosperous times, it could work for conglomerates to take on billions of dollars of debt to expand, but the current economic conditions are instead leading them to overestimate their capacity, which has in turn brought them huge losses.
"It's hard to see any development among the conglomerates with this kind of management paradigm. The conglomerates will have to take some innovative steps to maintain their financial health."
With so many conglomerates facing mounting debt, experts now warn about the problems it could cause for the economy as a whole.
Hwang Ji-hye, Arirang News.
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