Shindongah Construction, ranked 58th in construction capacity evaluation, has applied for corporate rehabilitation procedures (court receivership), but it is not expected to lead to liquidity issues for related corporations. Most of the subcontracting payments are protected by payment guarantees or made directly by the clients, so it seems unlikely that related corporations will go bankrupt due to unpaid settlements. Even in terms of market borrowing, the scale is not large, and since collateral is provided, the possibility of spreading problems into the financial sector is limited.
On the 7th, the Ministry of Land, Infrastructure and Transport is closely monitoring the impact on related corporations following Shindongah Construction's application for court receivership. Shindongah Construction has about 250 related corporations.
The subcontracting payments that Shindongah Construction needs to make to related corporations are mostly covered by payment guarantees or made directly by the clients, so it has been reported that the likelihood of related corporations not receiving payments is low. According to Shindongah Construction's 2023 consolidated audit report, the company has received subcontracting payment guarantees worth 280 billion won from the Construction Surety Corporation.
A Ministry of Land, Infrastructure and Transport official noted, "In most cases, the subcontracting payments that Shindongah Construction needs to provide are either guaranteed payments or are given directly to related corporations by clients." They added, "In principle, it should be Shindongah Construction that makes the payments, but we believe there are safeguards in place to prevent issues arising from non-payment." Another official from the ministry also stated, "We are currently assessing the exact scale of the subcontracting payments."
The possibility that Shindongah Construction's difficulties will spread to the financial sector is small. The financial sector's exposure related to Shindongah Construction is about 300 billion won. Even this is secured by collateral such as buildings, land, and development sites, making it unlikely that the financial sector will incur losses from unpaid loans. A source from a financial company holding Shindongah Construction's bonds stated, "We believe the impact of this situation on financial companies will be limited."
This situation appears to have influenced Shindongah Construction's choice to opt for court receivership instead of a workout. A financial authority official explained that "the concept of a workout is for creditors to inject new funds as a catalyst to save the company and increase recovery amounts," stating, "In the case of Shindongah Construction, liquidity has significantly decreased, which seems to have led to the judgment that a workout was not appropriate."
The Ministry of Land, Infrastructure and Transport has drawn a line against speculation that mass bankruptcies in the construction industry will occur, starting with Shindongah Construction. A ministry source commented, "Unlike Shindongah Construction, other construction companies reportedly have support from major shareholders, so there shouldn’t be additional issues."
Earlier, Shindongah Construction submitted an application for court receivership to the Seoul Central District Court. This was due to its inability to repay 6 billion won in bills that matured last month. It has been reported that Shindongah Construction chose court receivership after experiencing a liquidity crisis due to the slowdown in the real estate market, an increase in unsold projects in regional areas, and difficulties in selling offices in Magok, Seoul, and Geomdan, Incheon.