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Real estate slump continues to hurt construction firms

Oct 10,2019
More than one out of every 10 construction companies in Korea made less profit than their interest expenses for a third consecutive year in 2018, a report showed Wednesday.

According to the report from the Korea Research Institute for Construction Policy, 514, or 28 percent, of 1,833 construction firms had an interest coverage ratio of less than 1 in 2018, up from 23.8 percent in 2017.

The interest coverage ratio is obtained by dividing a company’s operating profit by its interest expenses. A reading below 1 means the company’s operating profit cannot cover its interest expenses.

Those with an interest coverage ratio of less than 1 for three consecutive years are often referred to as marginal or zombie firms.

The number of such companies came to 146, or 10.4 percent of the total, last year, up 1.2 percentage points from 9.2 percent a year earlier, the report said. It also cited a slump in the real estate market for the increase.