Big firms' borrowing costs soar in 2022 on high interest rates

Large South Korean firms saw their interest expenses spike more than 50 percent in 2022 from a year earlier due to rising interest rates, a corporate tracker said Tuesday.

The combined interest cost of 377 out of the country's top 500 firms by sales stood at 39.9 trillion won ($30.2 billion) last year, up 50.2 percent from a year earlier, according to the Leaders Index.

The surge came as South Korea's central bank has remained hawkish in an effort to curb persistently high inflation. The Bank of Korea has hiked its policy rate by a combined 3 percentage points since August 2021.

The tally excludes banks and financial holding firms but includes insurers, brokerage houses and credit card companies.

Out of the total, 84 percent, or 317, saw their interest costs rise over the cited period, with the remainder posting declines.

By industry, securities companies paid the largest interest cost of 6.3 trillion won in 2022, which was up a whopping 150.4 percent from the previous year.

Top automaker Hyundai Motor Co. and two other corporations forked out more than 2 trillion won in interest expenses.

Hyundai Motor chalked up the highest borrowing cost of 2.7 trillion won, followed by the state-run Korea Electric Power Corp. with 2.5 trillion won and SK Inc., the holding firm of SK Group, with 2.1 trillion won.

In contrast to soaring borrowing costs, those firms' operating income sank nearly 18 percent on-year to 170.3 trillion won last year.

Their average interest coverage ratio thus dropped to 4.3 last year from 7.8 a year earlier, with 26 firms having a reading of less than 1.

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. (Yonhap)