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Posted : 2011-04-17 18:59
Updated : 2011-04-17 18:59

Technology firms struggle to cover interest payments

By Kim Tae-gyu

Korea’s high-tech companies appear to still be struggling in the aftermath of the global financial crisis since one in three listed firms on the tech-heavy Kosdaq failed to earn sufficient money to cover interest payments in 2010.

FnGuide, a domestic financial market researcher, said on Sunday that 280 out of 876 Kosdaq-listed outfits, or 32 percent, could not reach the benchmark reading of one in the interest coverage ratio.

All Kosdaq companies whose fiscal year ended December were included in the survey while financial outfits and offshore players were excluded.

``At 32 percent, last year’s proportion of marginal firms was better than 36 percent for 2010 but the figure remains too high. Up to 136, or 16 percent of the total, stayed in the infamous territory for three years in a row through 2010,’’ an FnGuide official said.

``This compares to the KOSPI corporations, which tend to be bigger than those on the Kosdaq. Merely 20 percent of the former failed to meet the one mark in their interest coverage ratios.

The interest coverage ratio, otherwise dubbed times interest earned (TIE), refers to the measure of a firm’s ability to honor its debt payments.

The lower the ratio, the more the entity is burdened with debts. If the figure lies below one, that means it is not generating enough revenue to cover interest expenses.

It is a good gauge in reviewing whether or not a company or the whole industry is under good conditions. For one, the Bank of Korea said of late that the construction industry’s interest coverage ratio was 0.5 last year.

Many Korean builders faced an uphill battle throughout last year as the demand for construction did not pick up although the overall economy bounced back.

Experts point out that the nation’s small- and medium-sized enterprises have yet to recover from the unprecedented financial turmoil.

The gross domestic products of Asia’s fourth-largest economy rocketed 6.2 percent last year from 2009, largely underpinned by 14.8 percent year-on-year growth of manufacturing businesses.

``In the wake of the recession back in 2008 and 2009, the country’s fast economic recovery pivoted around major exporters mostly listed in the main bourse of KOSPI,’’ said a researcher at a local economic research institute.

``They built up a mountain of cash on brisk outbound shipments. In comparison, smaller firms did not benefit from the turnaround. Many of them just tried to stay afloat with the help of obligations.
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