Ailing builder Taeyoung Engineering & Construction Co. applied for a debt-restructuring program Thursday. (Image courtesy of Yonhap)
SEOUL, Dec. 28 (Korea Bizwire) — Ailing builder Taeyoung Engineering & Construction Co. applied for a debt-restructuring program Thursday to tide over a cash crunch, raising concerns over troubled peers in South Korea.
Taeyoung E&C submitted the application to its main creditor, the state-run Korea Development Bank (KDB), after its board decided to request a debt workout, the company said in a regulatory filing.
Taeyoung E&C, the 16th-largest builder in South Korea in terms of construction capacity, has been suffering from a liquidity shortage due to real estate project financing (PF) loans amid a slumping property market.
The builder was supposed to repay 48 billion won (US$37.2 million) in maturing PF loans to creditors on Thursday, with its outstanding PF loans coming to 3.2 trillion won.
By the end of this month, the construction company should pay back some 400 billion won in maturing PF loans, or loans based on future cash flows from real estate development projects.
As of end-September, Taeyoung E&C’s debts were estimated at around 1.9 trillion won with its debt-equity ratio reaching 479 percent.
A debt workout refers to an agreement between a borrower in default and creditors to reschedule debts. Taeyoung E&C would go into a debt workout should 75 percent of its creditors agree to the program within two weeks.
A day earlier, a corporate restructuring act was reenacted, making it easier for insolvent companies to begin an out-of-court debt restructuring program.
The Corporate Restructuring Promotion Act was legislated in 2001 with a sunset provision after South Korea was hit by the 1997-98 Asian financial crisis and had been extended five times before expiring last month.
Apartment buildings in Seoul (Image courtesy of Yonhap)
Last year, Taeyoung E&C’s sales stood at 2.6 trillion won, compared with 3.7 trillion won in 2018, with operating income tumbling to 91.5 billion won from 458 billion won.
Taeyoung E&C is the construction arm of Taeyoung Group, the country’s 40th-biggest conglomerate that has major private TV broadcaster SBS under its wing.
The trading of shares in Taeyoung E&C was suspended for 30 minutes after the firm filed for a debt workout minutes after 10 a.m. Its shares were trading up nearly 25 percent at 3,005 won as of 10:51 a.m. following a 19.6 percent tumble a day earlier.
Taeyoung E&C’s workout application is feared to have repercussions on local construction companies with high exposure to real estate PF loans.
Local construction companies have been reeling from sluggish apartment sales stemming from high interest rates, combined with soaring prices of construction materials.
Industry watchers voiced concern that nearly 23 trillion won in PF loans could turn sour amid the slumping housing market next year. As of end-September, the country’s total PF loans were estimated at 134.3 trillion won.
Delinquency rates of real estate PF loans have recently been rising due to the sagging housing market, stoking concerns over the financial soundness of highly exposed borrowers and the stability of the overall financial system.
The government was to come up with a set of measures later Thursday to prevent the PF loan problem from spilling over into the financial sector and the overall construction industry.
The presidential office also said the government will take all possible measures to manage risks and stabilize the market.
“We have been closely monitoring the situation in the construction market, including real estate, amid persistently high interest rates and the rise in construction costs, and continuously inspecting the status of major construction companies,” a presidential official said on the customary condition of anonymity.
A day earlier, Finance Minister nominee Choi Sang-mok met with the central bank governor and two top financial regulators to address the issue.
Industry watchers said Taeyoung E&C’s case could serve as a litmus test for the government’s ability to bring financial or economic risks under control.
(Yonhap)
