Money Today Reporter Kim Nam-i | 2024.01.13 06:04
[이슈속으로]Taeyoung Construction, PF bond issue interest rate increased from 2.3% to 13.8% in 2 years … PF domestic real estate structural problems
Taeyoung Construction with the red light on / Photo = Lim Han-byeol (S Money) Behind the improvement of the corporate financial structure of Taeyoung Construction (exercise), ranked 16 in the construction industry, is real estate PF (project financing) which depends on debt. Other PF businesses may not be exempt from drastic restructuring. According to the financial industry on the 13th, PF Taeyoung Construction’s loan guarantee obligations are equal to KRW 4.6332 trillion, and more than half, or KRW 2.5259 trillion, have high risk of contingent liabilities. Among bridge loans and PF principal loans, secured liabilities with a sales ratio of less than 75% account for KRW 1.2193 trillion and KRW 1.3066 trillion, respectively.
The immediate reason why Taeyoung Construction went into practice was because it could not overcome the burden of paying PF’s contingent liabilities. As Taeyoung Construction expanded its own operating projects, it provided credit reinforcement (guarantees) to several PF businesses, but when the businesses failed to repay their debts properly, they were forced to pay them instead.
PF businesses raise funds by issuing PF collateralized securities using loan receivables, beneficiary certificates, real estate, etc. as underlying assets. There were no major problems in the low interest rate situation, but the issuance interest rate rose significantly due to prolonged high interest rates and worsening real estate business feasibility.
The interest rate of PF Taeyoung Construction’s securitization bond issuance reached 13.8% at the end of last year. It increased by more than 10 percentage points compared to the end of 2021 (2.3%). Taeyoung Construction was unable to issue bonds properly due to high interest rates, and eventually applied for exercise as it could not cover the outstanding PF guarantees. Taeyoung Institutional Chairman Yoon Se-young also explained on the 9th, “The reason Taeyoung Construction is having difficulties is mainly because of excessive greed and because the rollover (refinancing) of the PF loan was not possible.”
An official from the financial sector said, “Because the business and market conditions were not good, we effectively blocked ourselves with short-term funds. As interest rates continued to rise, we were unable to borrow money and ultimately were unable to repay other debts. .”
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Korean real estate PF structural problems
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In the financial world, it is assessed that the structural problems of domestic PF businesses, which are highly dependent on debt, also play a role. According to the Korea Finance Institute’s ‘Problems and Implications of Korea’s Real Estate PF Structure’, in domestic apartment projects, developers invest about 10% of the total business funds, and 70% to more than 90% of the amount needed by for buying land. is raised through bridging loans. Banks do not participate in bridge loans whose business viability is uncertain prior to approval and commencement of construction. Accordingly, the interest rate is bound to be high for the developer to raise a bridging loan from a secondary financial institution. Recently, as business progress has been delayed by high interest rates and rising raw material prices, the number of businesses idling due to bridging loans, which are meant to act as ‘short bridges’, has increased, and the increased financial burden.
Even if you receive permission and start the construction phase, borrowing money through this PF is the same. In particular, this PF is used not only as a building fund but also as a source of bridging loan repayment. Because of this, the burden of financing the main PF phase is great. Since the buyer’s down payment and mezzanine loan also play a large role in the cost of the project, they are also greatly affected by the sales rate. In addition, lenders request credit reinforcement from construction companies because it is difficult for them to fully exercise their security rights due to pressure from tenants.
In the case of the United States, 20-30% of the total project cost is set aside as an initial project cost at the beginning of the project. The LTV (value-to-value ratio) of a mortgage loan for the purchase of land is around 40-50%. This shows a significant difference from the average LTV of loans secured by land in domestic small and medium securities companies, which is 93.4%. The Netherlands and Japan also pay more than 30% of the total project cost to developers and investors. As such, the reliance on loans is low.
Even at the construction stage, the United States secures additional funds from investors, repays all loans, releases collateral land, etc., and then only raises construction funds. In addition, as the tenant’s money is not used extensively for project costs, the lender can be assured of a security interest in the land and building. However, it must be considered that there are differences in the real estate development environment per country.
Researcher Lee Bo-mi said, “In order to improve Korea’s real estate PF structure, it is necessary to first strengthen the developer’s capital requirements and encourage various types of partnership structures by providing incentives to expand initial capital for real estate development.”
[저작권자 @머니투데이, 무단전재 및 재배포 금지]
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