The number of “zombie companies” unable to generate revenue to pay tax and interest dues has soared to surpass 3,000 over the past five years, data showed Wednesday.

The Bank of Korea said the number of firms with the ratio of operating profit to interest costs below 1 increased to 3,295 as of the end of 2014, up from 2,698 in 2009. 

The percentage of such troubled companies rose to 15.2 percent last year from 12.8 percent five years earlier, according to the report.

The interest coverage ratio is a barometer of how easily a company can pay interest on outstanding debt. A reading of less than 1 means a company cannot fully pay the interest with its operating profit.

Among large-scale businesses, the proportion of heavy debt-ridden players also sharply increased from 9.3 percent to 14.8 percent over the corresponding period.

A separate set of data released by the private LG Economic Research Institute showed that 628 firms listed on the main bourse or tech-heavy KOSDAQ were found to have earned less money than they must pay in debt interest.

As of March 2015, 37.9 percent of the 628 firms saw their interest coverage ratio ― operating profit divided by its interest costs ― post less than 1, according to the institute.

The percentage of heavy debt-saddled firms surged by 10.2 percentage points in about five years, as it was 24.7 percent at the end of 2010, it added.

Financial authorities recently instructed commercial banks to undertake a rigid loan-screening process against companies with poor financial statements.

The Financial Supervisory Service is also considering pushing for another round of full-fledged corporate restructuring, in coordination with the state-run Korea Development Bank.

While there is a possibility that regulators will set up a bad bank to absorb nonperforming loans of the corporate sector, commercial banks are moving to actively scale back their lending to the debt-saddled businesses.

“Aside from small and medium-sized enterprises, big firms are recently suffering low profitability,” said a bank-based researcher.

“While big firms saw their debt surge by about 90 percent over the past few years, the growth of their operating profit stood at around 50 percent,” he said.


By Kim Yon-se
(kys@heraldcorp.com)