Pharmas face a heavy burden from high-interest loans

Short-term loan interest rate set as 4-8% has been maintained for over 2 years…concerns arise about decreased investments

Samsung Biologics has an interest rate of around 5%, following last year…paid KRW 16.1 billion in interest in Q1

Pharmaceutical and biotech companies’ bank loan interest rates have been set high for over two years.

 

A high-interest rate, up to 8%, has been maintained, and key companies face a heavy burden from this.

 

The pharmaceutical industry raises concerns that an extended financial burden due to high interest rates may decrease investment.

 

Most big pharmaceutical companies with high loan ratios are currently focused on repaying loans while reducing thier investment sizes.

 

Samsung Biologics’ Q1 interest expenses amount to KRW 16.1 billion…4-5% interest rate has been maintained for over 2 years According to the Financial Supervisory Service on May 23rd, Samsung Biologics’ loan amount by the end of Q1 amounts to KRW 16.1 billion.

 

This amount decreased compared to KRW 21.7 billion in Q1 last year, but the company may be facing a heavy burden.

 

Samsung Biologics borrowed KRW 572 billion in 1-year short-term loan from six banks, including Kookmin Bank.

 

The interest rate is around 4.66-5.38%.

 

The company also borrowed a long-term loan of KRW 425.4 billion, with KRW 350.4 billion due within a year.

 

The interest rate for long-term loans is 1.55-5.74%.

 

Furthermore, the amount of money that Samsung Biologics must repay KRW 1.3024 trillion within a year, including private loans.

 

It appears that the company spent KRW 1.61 billion just on interest in Q1.

 

The loan burden due to the high interest rate has continued for two consecutive years.

 

Last year, Samsung Biologics spent KRW 81.6 billion on interest, and in 2022, the company had to pay KRW 64.1 billion in interest.

 

These amounts are strikingly different from the previous years.

 

In 2020 and 2021, the company paid KRW 16.1 billion and KRW 14.7 billion in interest, respectively.

 

The recent increase in interest amount may be due to expanding the loan size for building of the new 4·5 manufacturing plant, but the analysis suggests that a higher interest rate may have played a part.

 

In fact, the short-term and long-term loan interest rates were 1.50-2.70% until 2021.

 

However, the interest rate significantly increased in 2022, up to 5%.

 

After that, the high-interest rate has been maintained for over two years.

 

Major pharmaceutical companies’ interest rates are up to 7%...due to the expanded interest amount burden, concerns arise about investment decline Other pharmaceutical and biotech companies are currently facing similar challenges.

 

The companies are struggling to procure funds and investments due to accumulating burden of a high-interest rate, which can reach a maximum 7%.

 

As of the end of Q1 last year, Yuhan’s short-term loan interest rate was 3.93-5.67%, and long-term loan interest rate was 3.00-6.30%.

 

Last year’s short-term and long-term loan interest rates were around 2.20-7.70%.

 

However, Yuhan’s loan interest rate was around 1.30-3.40% until 2021.

 

GC Pharma had a short-term loan of KRW 248.3 billion with an interest rate of 4.47-6.46% as of the end of Q1 last year.

 

This rate is similar to the 4.54%-6.45% of 2022.

 

In 2021, GC Pharma’s loan interest rate was merely 1.60-3.80%.

 

In Q1 this year, GC Pharma spent KRW 7.1 billion on interest.

 

Its interest amount was KRW 10.6 billion in 2021 but significantly increased to KRW 15.6 billion and KRW 23.9 billion in 2022 and 2023, respectively.

 

Hanmi Pharm’s short-term loan interest rate was 1.70-2.80% in 2021 but has increased to 2.70-6.3% in 2022.

 

Its interest rate for last year and Q1 this year was 4.20-5.40%.

 

Hanmi Pharm’s expense for interest amount has significantly increased from KRW 16.8 billion in 2021, KRW 28.5 billion in 2022, and KRW 22.6 billion in 2023.

 

In Q1 this year, Hanmi Pharm spent KRW 7.3 billion just for the interest amount.

 

Furthermore, other companies, including Daewoong Pharmaceutical, HK inno.N, Boryung, Dongkook, Ildong Pharmaceutical, Dong-A ST, and JW Pharmaceutical, have been burdened by a high-interest rate of 5-8% for more than two years.

 

Ildong Pharmaceutical has up to 8% of short-term loan interest rate.

 

Changes in loan interest rates of major pharmaceutical companies.

 

Yuhan, GC Pharma, Hanmi, Daewoong Pharmaceutical, HK inno.N, Boryung, Jeil Pharm, JW Pharmaceutical, Ildong Pharmaceutical, and Dong-A ST (source: Financial Supervisory Service).

 

The pharmaceutical companies say that more than two years of accumulating interest burden may lead to a decline in investment.

 

For instance, Samsung Biologics has focused on repaying loans while cutting back on investment.

 

The analysis suggests that this may be due to the company’s larger loan size, but the accumulated burden from the high interest rate may have played a role in part.

 

The company's cash flow statement shows that the cash flow from investment activities decreased in size, from KRW 3.1065 trillion spent in 2022 to KRW 1.5663 trillion spent last year.

 

This indicates that the investment spending decreased by almost half.

 

On the other hand, the cash flow from financing activities amounted to an inflow of KRW 3 trillion in 2022, but it showed an outflow of KRW 635 billion last year.

 

It indicates that while the company borrowed KRW 3 trillion from banks in 2022, it focused on repaying loans last year, resulting in an expenditure of KRW 635 billion.

 

Other pharmaceutical and biotech companies have also been cautious about expanding investments recently.

 

The industry anticipates this trend to persist for some time, partly due to the low probability of interest rate cuts by the Bank of Korea.

 

As a result, the burden on pharmaceutical and biotech companies from high interest rates is expected to be extended.