NEW YORK, N.Y., March 4, 2014 (GLOBE NEWSWIRE) -- AlixPartners, the global business-advisory firm, today announced the significant findings of the corporate distress level in South Korea based on its Early Warning Model. It shows that 17% of listed companies in Korea are "on alert" for distress and 9% are at "high risk," a total of 26% of 1,606 listed Korean companies are "at risk" of distress, meaning that they have a high probability of distress within three quarters. Also, according to the AlixPartners finding, the industry that faces the highest risk of distress is shipping, which shows 33% of companies at "high risk," followed by 31% of companies in finance, 18% in construction and real estate, 15% in heavy equipment, and 14% in culture and leisure.
When comparing AlixPartners' current index with that of the fourth quarter of 2012, the group of companies "at risk" companies in Korea has dropped 1%, to 26%, reflective of the fact that economic conditions at large in Korea haven't shown significant recovery, which has been complicated by an unstable exchange rate with the Japanese yen. Also, a recent slow-down in domestic consumption, the ongoing housing and real-estate market recession and a drop in investment in the equipment sector, as well as distress at major conglomerates such as STX Group and Woongjin Group, are seen by many as contributing factors.
In particular, AlixPartners' findings show that Korea has a significantly higher composition of "high risk" companies than other Asian developed markets such as Japan and Singapore. The distress index for "high risk" listed companies in the three countries lists Korea with 9% of companies reviewed in the "high risk of distress" category followed by Japan and Singapore at 2% each. The AlixPartners study shows that Korean companies' distress level is highest in shipping, followed by finance, construction and real estate, heavy equipment, and culture and leisure. Meanwhile, Japan shows highest distress levels in electric utilities (most likely the result of that nation's Tohoku Earthquake and Tsunami in 2011, says the study), and Singapore shows the highest levels in IT-related companies (especially electronic parts and computer programming).
Yung Chung, managing director at AlixPartners in Korea, said, "What we call holistic turnarounds – operational as well as financial restructuring – need to be taken preemptively before more companies fall into distress. For example, Tongyang Corp. had been "on alert" since the fourth quarter of 2012; then it filed for court receivership last fall."
Chung added that Korean companies have been mostly focusing on financial restructuring alone, along with the disposal of core assets to meet urgent cash needs, rather than on operational turnaround as well. This often results, says the study, in "zombie companies," which often require huge social costs for the country later on.
CV Ramachandran, managing director and head of Asia for AlixPartners, commented, "The current flow of funds and solutions focusing mostly only on financial improvement have only led to more corporate distresses. In order to bring consistent value creation to Korean companies, preemptive, holistic turnaround programs, buttressed by an early-warning system such as our index, are essential."
About the AlixPartners Early Warning Model
AlixPartners' index of corporate distress was developed in the early 2000s to analyze companies' distress. It identifies a listed company's possible distress over the coming three quarters based on the company's financial information and stock price.
About AlixPartners
AlixPartners is a leading global business advisory firm of results-oriented professionals who specialize in creating value and restoring performance at every stage of the business life cycle. We thrive on our ability to make a difference in high-impact situations and deliver sustainable, bottom-line results. The firm's expertise covers a wide range of businesses and industries whether they are healthy, challenged, or distressed. Since 1981, we have taken a unique, small-team, action-oriented approach to helping corporate boards and management, law firms, investment banks, and investors respond to critical business issues. For more information, visit alixpartners.com.