[ED] Corporate Zombies – Korea Times

[ED] Corporate Zombies – Korea Times

[ED] Corporate zombies

Government policy failures weigh on SOEs

Nineteen of the 40 state-owned companies with assets of 2,000 billion won ($ 1.7 billion) or more fell into dangerous financial condition. Korea Electric Power Corp. (KEPCO), Incheon International Airport Corp. (IIAC) and Korea Railroad (KORAIL) were among those companies whose operating profits failed to pay off interest on their debt this year.

According to data from the Ministry of the Economy and Finance, the average interest coverage ratio (ICR) of the 40 companies – a company’s profits divided by its interest expenses also plunged from 3.4 in 2016 to 0.9 this year. Their combined interest payment this year is 6.4 trillion won, but their operating profit is 5.5 trillion won, indicating that they have become difficult to maintain “zombie businesses”. .

The protracted COVID-19 pandemic and soaring commodity prices have worsened their performance. However, a more important reason was the transfer of financial burdens by the government to them. While the Moon Jae-in administration has forced state-owned enterprises to shoulder the costs stemming from its policy of phasing out nuclear power plants, reducing irregular workers, and transitioning to revenue-driven growth.

For example, KEPCO, once a synonym for a blue chip Crown corporation, has been demoted to a fringe company due to soaring power generation costs and the subsequent exacerbation of profitability. This situation was mainly due to the policy of the current administration to “denuclearize” the energy mix. KEPCO’s stock prices also fell sharply.

The liabilities of the 40 companies, which stood at 476 trillion won before the Moon administration took office, have grown to 550 trillion won this year. In contrast, the net profits of 36 state-owned enterprises, which amounted to 14 trillion won in 2016, turned to produce a net loss of 206.5 billion won last year. Nonetheless, the number of their executives and employees has increased by 19%, or 24,000, over the past four years, increasing their labor costs by 2.8 trillion won.

The government has urged state-owned enterprises to hire more workers to make up for job losses caused by failed policies. The Moon administration, which brought forward the “era of 1,000 billion won of government debt” to compensate for political failures with taxpayer dollars, forced state-owned enterprises into debt.

About Emilie Brandow

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