As the real estate market downturn is expected to continue for a considerable period, large construction companies are also securing cash. They are tightening their belts by selling off major subsidiaries or relocating their offices.
According to the construction industry on the 7th, GS Engineering and Construction is pushing to sell its water treatment subsidiary, GS Enema. GS Enema, which GS Engineering and Construction acquired in 2011, accounted for 15% of the company's operating profit as of 2023. This means it is a major subsidiary with a solid revenue structure. Last year, it secured water treatment-related projects in four countries, including Spain, Portugal, Brazil, and Oman, winning contracts totaling $113.858 million (166 billion won) across seven locations. The sale of GS Enema is projected to be close to 2 trillion won.
Industry observers believe that the successful sale of GS Enema is key to securing liquidity for GS Engineering and Construction. Amidst the downturn in the construction industry, the company's financial structure has deteriorated due to incidents like the collapse of the basement parking lot at the Geomdan apartment complex. The re-construction cost for the Geomdan apartments has been estimated at around 550 billion won. Last October, GS Engineering and Construction sold 55% of its equity in GS Elevator for 6.6 billion won.
Kang Min-chang, a researcher at KB Securities, noted that "the sale of GS Enema is the key to significantly improving GS Engineering and Construction's financial structure," adding that "the market's evaluation of the company can change completely depending on the amount of cash flowing in from the sale of GS Enema."
Daewoo E&C also liquidated 1.8 billion won by disposing of 1.8 million shares of the Dongtan 2 Daewoo Co-Creation News Stay Corporation, a corporate-type rental management real estate investment company, last November. This company was established by Daewoo E&C in 2015 to sell the corporate rental housing complex of Dongtan Happiness Village Prugio. Corporate rental housing (News Stay) must be converted to sale after the eight-year lease period to generate revenue, hence the early securing of liquidity through equity sale.
Some construction companies are relocating their offices to reduce rent expenses. DL E&C has decided to transfer its office from D Tower Donui-dong in Jongno-gu, Seoul, to Won Grove in Gangseo-gu. The holding company, DL Group, sold D Tower Donui-dong to NH Nonghyup REITs for 895.3 billion won last November. SK Eco Plant is also planning to move its office from Jongno-gu to Yeongdeungpo-gu, and will share the building with SK Eco Engineering.
A representative from a large construction company stated that "the downturn in the dwelling market is expected to be prolonged, and construction costs are likely to continue rising," adding that "each construction company is focusing on securing cash for improving their financial structures after selective contract winning."