A sizable number of South Korean companies are hard pressed to repay their outstanding debt with the profit they make, a situation that could expose them to more risks amid a steady rise in interest rates, a local think tank said Sunday.

The LG Economic Research Institute said 11.8 percent of local businesses are not able to effectively pay back their dues with their earnings from normal business operations.

It said this percentage had actually fallen from 14.2 percent in 2012 to 8.8 percent three years later before rising again last year.

The LGERI classified companies facing potential trouble as those with an interest coverage ratio of one or under and a loans to earnings before interest, taxes, depreciation and amortization number of five and higher.

"In the event that these companies face any kind of trouble, like rising interest on debt, they could face some serious challenges," it said.

In addition, the latest findings showed that short term debt taken out by companies, which must be paid within a year, rose to 46.3 percent of all dues owed by enterprises, up from an average of 41 percent from 2012 through 2014.

Short term loans usually carry lower interest rates and indicate that companies are moving to reduce financial outlays, although this arrangement makes them more vulnerable to sudden liquidity crunches and fluctuations in the economy.

The institute said the top 20 percent of companies that are able to handle debt through their operations had an ICR of 34.3 last year, up from 17 in 2012. For companies in the bottom 20 percent the corresponding figure last year was 0.5, up from minus 0.3.

The LGERI said that from 2012 to 2017, companies that fall in the top 20 percent range were able to cover all their outlays without borrowing.

"The existence of companies having a hard time meeting debt payments is a sign of future downside risks that include the normal flow of funds for healthy firms," the institute said. It advised companies in debt to engage in restructuring and formulate strategies to reduce their dependence on debt. (Yonhap)