GM Daewoo Auto & Technology and Daewoo Shipbuilding & Marine Engineering run the risk of being restructured by their creditors, as their debt ratios are too high.
The Financial Supervisory Service (FSS) said Monday that Korean chaebol with debt-to-equity ratio higher than 500 percent would fail the ongoing viability test.
The country's seven banks are now checking the financial health of 45 conglomerates to decide which should undergo downsizing or restructuring. Financial affiliates are excluded from the annual assessment.
GM Daewoo and Daewoo Shipbuilding are burdened with large liabilities, as their debt ratios reached 741.25 percent and 632.29 percent, respectively, as of April.
``Banks have their own criteria established via their own meetings. They stipulate debtors with a debt ratio higher than 500 percent will fail to pass the viability test,'' an FSS director said.
``Accordingly, highly leveraged companies will be included on a watch list, although it remains to be seen whether banks will sign downsizing contracts with the debt-laden groups or let companies restructure themselves,'' he said.
He added companies with a debt ratio of over 300 percent are also highly likely to be categorized as ailing entities depending on asset turnover rates and operating profits.
Consequently, Hyundai Heavy Industries Group, the world's foremost shipyard, may be in trouble too, since its debt ratio is 324.46 percent.
Other groups with high debt ratios are Taihan Electric Wire (248.54 percent), Tongyang (244.82 percent), Hanjin (243.08 percent), Dongbu (237.71 percent) and Kolong (228.76 percent).
Doosan and STX are also highly indebted, with debt ratios of 204.95 percent and 202.44 percent, according to the Fair Trade Commission.
When contacted, Daewoo Shipbuilding and Hyundai Heavy said they were being penalized for their unique accounting standards specific to the shipbuilding industry.
``Those who order ships place large deposits regarded as debts. That's why our debt-to-equity ratio is so high,'' a Daewoo Shipbuilding spokesman said.
``Excluding those deposits, our real debt ratio would be about 100 percent. We expect banks to factor this in,'' he said.
Meanwhile, GM Daewoo said its debt ratio recently rocketed due to fresh loans.
``We've received credit from Korea Development Bank recently, causing our debt ratio to rise. But the liabilities are not great enough to negatively affect our operations,'' a GM Daewoo spokesman said.
When banks find their debtors are financially endangered, they are allowed to mastermind reconfigurations of the groups.
The system has rarely been used. But the FSS, the country's top financial regulator, has encouraged lenders to follow it this year because of the financial crisis.
Measures enforceable by banks include keeping chaebol subsidiaries from investing in new businesses and urging them to divest from non-core businesses.
By Steven
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