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Some South Korean conglomerates were facing growing liquidity risks amid deepening bipolarization of debt-financing and profit-generating capabilities among companies, a report by the central bank showed Thursday.
Among conglomerates whose debt ratio surpasses 200 percent, 55 percent recorded net losses in the first half of this year, according to the semi-annual Financial Stability Report by the Bank of Korea (BOK).
Deficit in earnings would weaken debt-servicing capabilities of the companies further, which would lead to make it more difficult for the debt-riddled conglomerates to refinance debts in the corporate bond market.
South Korea has seen a consecutive failure by affiliates of big corporations since last year when a mid-size builder and its holding company filed for court receivership.
Affiliates of Tongyang Group, the country's 38th-largest conglomerate, filed for court protection in late September, about five months after the 13th-biggest shipbuilding and shipping giant STX Group was placed under a creditor-led debt workout.
Amid no signs of improved business conditions in the construction, shipbuilding and shipping sectors, the failed companies lifted their debt ratios to refinance debts and raise operating capital despite the worsening profitability.
Credit spread among companies widened further, reflecting the mounting liquidity risks. Difference between yields of corporate bonds with a credit rating of "AA-minus" and those with "BBB-minus " increased to around 570 basis points (bps) in September from less than 540 bps a year earlier.
Potential risks remained given the short maturity of debts. Around 65 percent of conglomerates with a debt ratio of over 200 percent hold more than half of debts as short-term ones that mature within a year.
