Analysis of the Financial Status of Local Public Enterprises

 

Published on May 26, 2026
Published by Public Institution Evaluation Division



 

   Amid rising social infrastructure investment, including increased public rental housing supply, the construction of high-speed and metropolitan rail networks, and the development of power and renewable energy infrastructure, the asset base of local public enterprises has grown. However, some projects continue to face structural deficits and rising debt burdens, highlighting the need for financial sustainability management. In addition, growing disparities in revenue structures and financial performance across business sectors underscore the need for a systematic analysis of local public enterprises’ financial characteristics.
   In this context, this report analyzes the financial status and structures of 418 local public enterprises by major business category. It further examines the financial characteristics of central and local public enterprises involved in real estate development and public rental housing using key indicators such as return on assets, debt ratio, and interest coverage ratio. The analysis aims to assess their profitability and financial sustainability, while also identifying policy implications.
   First, the analysis of the 418 local public enterprises reveals an overall structural deficit as of fiscal year 2024. Total assets amounted to KRW 247.1 trillion, while liabilities stood at KRW 69.8 trillion (a debt ratio of 39.3%), and the enterprises recorded a net loss of KRW 2.7 trillion. Since these enterprises differ by business type in terms of objectives, revenue structures, and financing methods, their financial structures also vary. This variation calls for tailored financial management strategies that reflect the distinct characteristics of each business type, as summarized below.
   ▲ Water supply and sewerage businesses operate under chronic structural deficits due to limited flexibility in adjusting consumer tariffs, resulting in steadily increasing financial support from local governments. Over the past four years, cumulative fiscal assistance reached KRW 609.4 billion for water supply businesses and KRW 3,043.0 billion for sewerage businesses. Cost recovery ratios also remained below full cost recovery levels, averaging in the 70% range for water supply businesses and the 40% range for sewerage businesses, with significant regional disparities.
   ▲ Public development businesses generate revenue primarily through land and housing sales at specific points in time, making their financial performance highly sensitive to delays in sales schedules and changes in market conditions. As a result, over the past four years, their combined return on assets fluctuated between –0.5% and 6.0%, while total asset turnover ranged from 0.8% to 8.5%.
   ▲ Urban railway businesses continue to operate under persistent deficits due to public fare regulations and high fixed and depreciation costs. As a result, their combined debt ratio increased from 40.9% to 51.2% over the past four years. Fare recovery ratios ranged from 41.3% to 45.9%, with substantial regional disparities. In 2024, the fare recovery ratio was highest for Seoul Metro at 53.9%, while Gwangju Metro recorded 19.6%. Most operating losses are offset through local government financial support, which totaled approximately KRW 1.8 trillion in 2024.
   ▲ Urban development businesses operate under a cross-subsidy model in which profits from real estate sales offset losses in public rental housing. Recently, inventory holding periods for land and development assets have increased while profitability has weakened. Over the past four years, the average inventory holding period increased from 3.4 years (1,259 days) to 5.9 years (2,152 days). Going forward, rising inventories of unsold properties and delays in fund recovery may place additional pressure on financial structures, with potential spillover effects on local government finances.
   Turning to central and local public enterprises in the real estate sector, real estate development and public rental housing are highly sensitive to market conditions. The recent economic slowdown, rising construction costs, and prolonged high interest rates have heightened the need to assess the financial sustainability of these public institutions. Accordingly, this analysis examines their financial structures and liquidity management capacity.
   Korea Land and Housing Corporation (LH) and urban development corporations established by local governments operate under a cross-subsidy model whereby profits from real estate development projects offset losses in public rental housing. As a result, the financial relationship between the two sectors significantly affects overall profitability and financial sustainability. Meanwhile, their return on assets and interest coverage ratios remained generally low, leading to the following policy implications.
   ▲ (Need for a Medium- to Long-Term Financial Management Framework) LH and urban development corporations should establish financing mechanisms and improve operational efficiency to address the expansion of public rental housing assets and associated losses, taking into account rising depreciation, maintenance, and financing costs resulting from asset accumulation.
   ▲ (Need to Improve Profitability, Risk Management, and Financial Structures) LH and urban development corporations should assess the sustainability of the cross-subsidy model in response to slowing profitability in real estate development projects and declining interest coverage ratios, while also preparing comprehensive measures including business restructuring, improvements in fiscal support mechanisms, and diversification of revenue sources.