[비즈니스포스트] The construction industry is ending a difficult year due to concerns about the spread of the liquidity crisis.
Taeyoung Construction, ranked 16th in the evaluation of construction capacity, was unable to pay the 48 billion in loans earned that had to be repaid immediately and eventually applied for exercise (improve corporate financial structure).
▲ Taeyoung Construction applied for exercise (improvement of corporate financial structure) on the 28th as it was unable to repay its real estate project financing (PF) loan.
Starting with the Taeyoung Construction exercise, tensions are spreading that the PF (project financing) loan deficit in the entire construction industry could become serious.
According to the Financial Stability Report published by the Bank of Korea on the 28th, the domestic real estate PF loan balance (excluding debt securities) as of the third quarter of 2023 equals KRW 134.3 trillion. Although the overall loan growth is slowing down, the balance of PF loans from banks and securities companies increased by about 4.8 trillion won and 1.8 trillion won, respectively, compared to the end of 2022.
In particular, the delinquency rate appears to be on the rise across the board.
As of the third quarter, PF loan delinquency rates of savings banks and mutual finance companies were 5.6% and 4.2%, respectively, up 3.5% points and 4.1% points from the end of last year. The delinquency rate of securities companies is around 13.9%.
It is revealed that construction companies are struggling to repay PF loans.
As Taeyoung Construction applied for a practice session today, the liquidity crisis in the construction industry is growing. Workout is a company reconstruction agreement voluntarily prepared by the company and its creditors, and refers to the financial structure improvement work that a company in financial crisis chooses before going into court receivership.
When Taeyoung Construction applied for exercise that day, the government immediately held a meeting chaired by Financial Services Commission Chairman Kim Joo-hyun and held a briefing on response measures to stabilize the market. Taeyoung Construction has taken immediate steps to prevent the exercise from leading to instability in the construction industry and the financial market.
The government announced the implementation of an emergency plan, including support to reduce the damage to business partners associated with Taeyoung Construction, and the expansion of the refinancing support program for corporate bonds and PF guarantees issued by construction companies. Taeyoung Construction began to evolve, saying that there was no possibility for it to spread to general risk in the construction industry because the situation, including the amount of PF guarantee and debt ratio, was different from other construction companies.
PF is a financial technique where financial institutions such as banks provide finance by forecasting the future performance and cash flow of a particular business. When business conditions are good and business is going well, there is no problem.
However, in the current situation where the profitability of the construction business continues to decline due to the increase in raw material prices and the possibility of an economic recession continues, the risk of contingent liabilities is certain to increase due to various adverse conditions such as project delays, tight capital markets, and the accumulation of financial costs. Contingent liabilities are liabilities that arise when certain conditions occur.
Looking at the case of Taeyoung Construction, in the process of responding to the PF contingent liability crisis that has continued since the second half of 2022, the amount of loans increased and difficulties in securing liquidity increased, forcing the company into a head exercise situation over there
According to the analysis of credit rating agencies such as Korea Credit Rating and Nice Credit Rating, PF Taeyoung Construction’s contingent liabilities for subcontracting projects on a separate basis amount to 3.6 trillion won at the end of November 2023. At the end of 2021 , it is 2.3435 trillion won, and the increase continues to 2.9891 trillion won in 2022.
PF Taeyoung Construction’s contingent liabilities are 3.7 times the company’s equity capital. The majority of the contingent liabilities are for businesses that have not started construction or have been sold after construction has begun, so if the real estate downturn continues, there is a high possibility that the financial burden will worsen further . At the end of September, PF Taeyoung Construction’s business sites are believed to have reached 60 locations.
Taeyoung Construction has project financing contingent liabilities of 1.6 trillion won that are due to mature by the end of next year. Among these, contingent liabilities worth 968 billion were analyzed as having a significant risk of refinancing.
PF contingent liabilities maturing from December 2023 to February 2024 have been won around 190 billion.
Previously, Taeyoung Construction improved its debt ratio to 191.7% at the end of September 2022 as its construction and property sales business showed good performance. However, in the second half of last year, as the financial market froze due to the declaration of default on Legoland’s asset-backed commercial paper (ABCP), the problem of securing liquidity for the construction industry, including Taeyoung Construction, began. seriously.
In January this year, Taeyoung Construction borrowed 400 billion won from the group’s holding company, TI Holdings, at a high annual interest rate of 13%. In March, an investment agreement worth 280 billion won was signed with Korea Investment & Securities using Luna
Although he tried to ensure liquidity in all directions, including the sale of his subsidiary Taeyoung Industry and Pyeongtaek Cyro, the sale of his stake in Pocheon Power, and the sale of his stake in the modernization and urban development project of the Bucheon military base in Gyeonggi Province. , was unable to resolve excessive contingent liabilities.
▲ Financial Services Commission Chairman Kim Joo-hyun (center) speaks at a briefing held on the 28th at the Seoul Government Center in the presence of Korea Development Bank Chairman Kang Seok-hoon (left) and Financial Supervisory Service Director Lee Bok- hyun (okay). . <금융위원회>
In addition to Taeyoung Construction, the credit ratings of Shinsegae Construction, Dongbu Construction, and GS Construction have recently been downgraded due to the increased financial burden.
In its regular short-term rating assessment report of the construction industry on the 27th, Korea Ratings changed the credit rating outlook for Taeyoung Construction and Shinsegae Construction to ‘negative’ and downgraded the credit ratings for Dongbu Construction and GS Construction.
Shinsegae Construction’s debt ratio on a consolidated basis in the third quarter of 2023 was 467.9%, which is significantly higher than the end of 2022 (265%). The company’s operating profit ratio declined from -0.8% at the end of 2022 to -7.8% in the third quarter of this year.
Shinsegae Construction has maintained an almost debt-free stance until the end of 2021. However, as the recovery of construction costs for unsold houses in Daegu and other areas was delayed and financing requirements such as the purchase of golf course land increased, the total loans of the company from KRW 112.5 billion at the end of 2022 to KRW 378.5 billion at the end of the year. third quarter of this year.
At the end of September, the company shows a deficit due to its operating cash flow (-17.2 billion earned) and free cash flow (-184.2 billion earned) on a cumulative basis.
The situation is similar at Dongbu Construction. Due to the sluggish home sales economy, margins are falling and expense ratios are rising, increasing the financial burden.
By the end of September 2023, Dongbu Construction’s net loans were 520.7 billion won, an increase of about 100 billion won compared to the end of 2022. During the same period, the debt ratio increased from 171% to 206.3%.
GS E&C’s credit rating was also recently downgraded by Nice Credit Rating and Korea Ratings. At the end of 2023, the liquidity response regarding PF contingent liabilities of KRW 1.7 trillion was evaluated positively, but the financial structure was analyzed to have deteriorated due to the expansion of loans and a reflection of the cost of rebuilding Incheon Geomdan Apartment.
In his December construction industry outlook report for 2024, Kwon Jun-seong, a researcher at Nice Credit Rating, noted that the risk of construction companies’ PF contingent liabilities being refinanced and realized is increasing due to the decline in business viability due to the collapse. in the sales market.
Researcher Kwon said, “For some construction companies that aggressively expanded their housing business during the real estate boom in 2020-2021, PF contingent liabilities have increased significantly and the share of local businesses has also increased,” by adding, “Polarizing the houses. market by region is deepening.” Given this, credit risk is expected to increase, especially for construction companies with weak financial buffers, excessive PF contingent liabilities, or a high proportion of local business sites,” he said.
However, the government appears to be wary of spreading concerns about PF’s insolvency. In particular, unlike last year’s Legoland event, it was emphasized that a response was possible given that it was a risk that was already known.
The Chairman of the Financial Services Commission, Kim Joo-hyun, said in a briefing that day, “We are managing all the risk factors,” and added, “If interest rates and macroeconomic conditions improve a bit, we will be able to soft landing as expected. “
Lee Jong-ryeol, Deputy Governor of the Bank of Korea, also said at the press conference of the financial stability report, “I don’t think (Taeyoung Construction’s exercise) will have a significant impact on the stability of the financial market,” adding, ” If it has an impact on the market in general, the Bank of Korea and the government will work together to take action.” “I’ll get drunk,” he said. Reporter Park Hye-rin
#Taeyoung #Construction #finally #files #exercise #raising #concerns #domino #spread #liquidity #crisis #construction #industry
