The 58th-ranked mid-sized construction firm 'Shindongah Construction' has filed for court receivership. It has been determined that the company could not withstand financial difficulties due to a downturn in the construction market and an increase in unpaid project receivables. Shindongah Construction aims to ensure that there is no damage to customers or affiliated companies.
According to the construction industry on the 6th, Shindongah Construction applied for court receivership at the Seoul Central District Court on that day. Failing to stop a 6 billion won bill that was due at the end of last year became the primary cause of its first default. Shindongah Construction stated to its employees, "Our company has determined that due to a rapid deterioration in financial conditions and accumulated liability, it is no longer feasible to continue normal business operations, and we have inevitably applied for corporate rehabilitation procedures."
Court receivership refers to the process in which a court appoints a third party to manage corporate activities, including financing, when a corporation has excessive liabilities, making it difficult to operate independently. The court reviews the preservation order application and comprehensive injunction application submitted by the company before deciding whether to accept them. This review usually takes about four weeks, and a decision on whether to initiate court receivership is expected to be made as early as this month.
A Shindongah Construction official noted, "We attempted to secure liquidity through asset disposal, but it fell through due to unfavorable market conditions," adding, "The method of disposing of existing projects will follow the court's decisions while devising a plan for debt repayment."
Shindongah Construction intends to minimize disruptions to its key projects due to the court receivership application. In the case of major rental projects, the company plans to hand over the projects to consortium partners. Other projects are likely to be handled as public sales via trustee implementation.
Shindongah Construction's rental projects include the townhouses in the Shin Jinjoo station area in Jinju, the high-rise mixed-use complex at Uijeongbu Station, the 'Gemdang New Town Familie Elip' in Incheon, and the 'Godeok International New Town Future Familie' in Pyeongtaek (after-sales). The projects, Gemdang New Town Familie Elip and Godeok International New Town Future Familie, were constructed in consortium with Kyeryong Construction and Moa General Construction, respectively. Shindongah Construction manages projects across 30 locations nationwide, including the Namsan cable car project in Seoul and the private participation public housing project in the Gwangmyeong Hakgwon S2 and S3 blocks that were contracted last year.
There were significant forecasts that Shindongah Construction would face a liquidity crisis due to its high liability ratio. According to the Financial Supervisory Service's electronic disclosure system, the company's liability ratio at the end of 2023 is 409.8%, a 73.34 percentage point increase compared to the end of 2022 (336.46%). This figure has far exceeded the construction industry's appropriate liability ratio of 200%.
The cash held declined by 17.68%, from 34.5 billion won to 24.8 billion won during the same period. Accounts receivable increased dramatically by 103.2% year-on-year, reaching 214.6 billion won, up from 105.6 billion won. The corporate rating of the Korea Credit Guarantee Fund was also at a 'watch' level, indicating a high risk, prior to delisting.
Shindongah Construction was established in 1977 as an affiliate of Shindongah Group. In the 1980s, it was well-known as the construction company behind the '63 Building'. Shindongah Construction was separated from Shindongah Group in 1989. After experiencing the global financial crisis in 2010, it fell into a complete capital depletion condition and underwent a workout (debt restructuring). Since then, it has carried out restructuring measures, including workforce reductions, wage freezes, and the sale of quality assets. The company successfully returned to profitability in 2014 and graduated from the workout program in November 2019 after more than ten years.