"Even Large Corporations Struggle with Debt" Explosive Growth in Corporate Debt in Q1

Debt Ratios and Operating Losses Surge Among Leading Companies in Aviation and Automotive Sectors
Increase in Companies Facing Uncertain Survival Amid Prolonged COVID-19 Pandemic

[Asia Economy Reporter Changhwan Lee] The debt ratios of major domestic companies hit hard by the novel coronavirus infection (COVID-19) have surged sharply. As the COVID-19 pandemic enters a prolonged phase, the financial conditions of companies are expected to worsen further, leading to a rapid increase in the number of firms whose very existence is uncertain.

On the 18th, Asia Economy analyzed the first-quarter reports of companies representing industries severely affected by COVID-19, such as aviation, automobile, shipping, and lodging, and found that their debt ratios and operating losses had significantly increased.

The industry facing the greatest difficulties was aviation. Asiana Airlines' debt ratio skyrocketed from 1387% at the end of last year to 6280% in the first quarter of this year. Its operating loss rate worsened from -16% to -23%.

Korean Air's debt ratio rose from 871% at the end of last year to 1223% in the first quarter of this year. During the same period, Jeju Air's debt ratio also increased from 351% to 483%. Korean Air turned to an operating loss, and Jeju Air's deficit widened.

The debt ratio is a representative indicator of corporate soundness, showing how much debt a company has relative to its assets. A financially sound company typically has a debt ratio below 100%, and when it exceeds 200-300%, it is considered financially unstable.

The significant deterioration in airlines' financial conditions is attributed to difficulties in the passenger business caused by COVID-19. As operating losses deepened, debts increased and capital was eroded, causing the debt ratio to surge.

Other affected industries such as automobile, shipping, and lodging showed similar trends. Ssangyong Motor's debt ratio rose from 401% to 756% within three months. Its operating loss rate worsened from -11% to -15%. During the same period, Hyundai Motor's debt ratio increased from 155% to 162%, and Kia Motors' from 91% to 94%.

HMM (formerly Hyundai Merchant Marine), the largest shipping company in Korea, also saw its debt ratio worsen from 557% at the end of last year to 598% in the first quarter of this year. Korea Shipbuilding & Offshore Engineering's debt ratio rose from 94% to 100% during the same period. Hotel Shilla, a lodging and duty-free operator, saw its debt ratio increase from 283% at the end of last year to 296% in the first quarter of this year.

Not only companies directly affected by COVID-19 but also large and small enterprises across the board are increasing their debts. According to the Bank of Korea, corporate loans from banks increased by 2.79 trillion won compared to the previous month last month, marking the highest since related statistics began in June 2009.

Last month, loans to large corporations increased by 1.12 trillion won, and loans to small and medium-sized enterprises rose by 1.66 trillion won. This is interpreted as companies, regardless of size, taking on record-high debts to endure the crisis.

More companies are facing existential crises as debts increase despite insufficient earnings. In particular, Ssangyong Motor was pushed to the brink of delisting last week after receiving a refusal of audit opinion from its accounting firm. The accounting firm Samjong KPMG evaluated Ssangyong Motor's corporate existence as uncertain.

This means that without external support, the possibility of bankruptcy is high. Many small and medium-sized airlines, travel agencies, auto parts manufacturers, shipping, and shipbuilding companies are facing bankruptcy risks similar to Ssangyong Motor.

Layoffs are also underway. An analysis of six domestic airlines?Korean Air, Asiana Airlines, Jeju Air, Jin Air, Air Busan, and T'way Air?showed that 413 employees lost their jobs within three months. Employment insecurity is expected to have worsened further in the second quarter, when the impact of COVID-19 became more pronounced.

An aviation industry official said, "Mass layoffs have already become a reality at subcontractors responsible for in-flight meals and cleaning," adding, "Considering that passenger demand is unlikely to recover to pre-COVID-19 levels anytime soon, airlines will continue to implement high-intensity cost-cutting measures such as salary reductions and workforce adjustments."

A survey also found that three out of ten large corporations would find it difficult to maintain operations without workforce restructuring if COVID-19 persists for more than six months.

According to a survey conducted by the Korea Economic Research Institute under the Federation of Korean Industries from the 13th to the 24th of last month, targeting 120 companies among the top 500 companies with over 300 employees by sales, 32.5% of companies considered workforce reductions if the management difficulties caused by COVID-19 continued for six months.

Experts pointed out that comprehensive support from the government, including corporate aid, deregulation, and growth support, is necessary to overcome the current crisis. Choo Kwang-ho, Director of Economic Policy at KERI, said, "To help large corporations maintain employment through temporary closures and leaves despite management crises, the government should ease support conditions so that employment retention subsidies are smoothly provided, assisting private sector efforts to maintain employment."

Kim Moon-tae, head of the Economic Policy Team at the Korea Chamber of Commerce and Industry, emphasized, "Rapid government support is necessary to minimize the damage caused by COVID-19," adding, "At the same time, it is an important time to open all doors of opportunity to secure growth paths for a mid- to long-term shift in corporate management trends."

This content was produced with the assistance of AI translation services.