Korean Company Risk of Distress Dwarfs Japan, AlixPartners Says

South Korean companies are more likely to face financial distress this year than their counterparts in Japan as the won’s strength makes exporters’ goods more expensive, AlixPartners LLP said.

About 9 percent, or 145 of 1,606 listed companies in Korea, are deemed “high risk” by the New York-based consultancy and may find themselves bankrupt by December. Less than 1 percent, or 26 of 3,258 publicly traded companies in Japan, fall into the same category while the ratio is 1.8 percent in Singapore.

Korea’s won has rallied 7.5 percent against the dollar over the past year and 12 percent versus the yen. Monetary stimulus in Japan, Asia’s second-largest economy, has weakened the yen, eroding the competitiveness of neighboring exporters including Hyundai Motor Co. and smartphone maker Samsung Electronics Co. Concern demand for their products will fall further is mounting as China’s economic slowdown deepens.

“Distressed levels haven’t changed much over the past year because in general, macro conditions and domestic consumption in Korea haven’t improved significantly,” AlixPartners’ Seoul-based managing director Yung Chung said by phone yesterday. “Things may worsen now because of the currency.”

The won reached 1,031.55 per dollar on April 10, the strongest level since August 2008, according to data compiled by Bloomberg.

Shippers, Brokerages

Shippers, shipyard owners and brokerages stand out among the riskiest companies in Asia’s fourth-largest economy, Yung said. Financial-services providers, property developers and drugmakers rank high in Japan while in Singapore, electronics companies are especially susceptible, he said.

While the rate shipping companies get paid to transport goods around the world showed signs of recovery in the first quarter, the sustainability of that increase is doubtful, according to Yung. Brokerages are under pressure because as trading moves online, and income from fees falls, he said.

STX Pan Ocean Co., South Korea’s biggest commodity shipping line by revenue, filed for Chapter 15 bankruptcy in June while Korea Line Corp. sought buyers after being placed in court receivership. Yung declined to disclose the companies AlixPartners is working with in Asia, which can also include those with ample ability to repay their debt.

AlixPartners was involved in the Chapter 11 reorganizations of Eastman Kodak Co. and Residential Capital LLC in 2012, according to its website. It advised clients in eight of the 20 largest U.S. bankruptcies in 2009, including General Motors Co., WorldCom Inc. and Enron Corp.

Successful Model

AlixPartners monitors more than 500 indicators to predict which companies may have trouble repaying their debt in about nine months’ time. Its model was successful in capturing all 13 bankruptcies in Japan since 2010, including chipmakers Elpida Memory Inc., developer Sei Crest Co. and builder Sakurada Co., according to Tokyo-based managing director Tsutomu Noda.

The smaller percentage of potential distressed companies in Japan relative to South Korea is also partly due to state financial support, Noda said.

“There’s too much liquidity in Japan,” Noda said in a phone interview yesterday. “Banks receive too many deposits and don’t have that many places to invest” the surplus cash. Lenders also tend to continue to support underperforming companies “instead of letting them go under,” he said.

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