Due to the worsening construction industry, mid-sized construction companies, which are the 'weak links,' are going bankrupt one after another. Starting with SHIN DONG-A Construction, Daejeo Construction, SAMBU Construction, and Angang Construction could not overcome their liquidity crisis. Large construction companies are also tightening their belts. Lotte Construction, which was engulfed in 'liquidity crisis rumors,' is even considering the sale of its headquarters site in Jamwon-dong, Seoul.
According to the construction industry on the 27th, SHIN DONG-A Construction, the 58th ranked mid-sized construction company by construction capabilities, filed for corporate rehabilitation at the Seoul Bankruptcy Court in January. On the 16th of the same month, Daejeo Construction, the second largest in Gyeongnam, filed for corporate rehabilitation at the Busan Bankruptcy Court, and on the 24th, SAMBU Construction, ranked 71st, applied for court protection.
Angang Construction, ranked 138th, also requested a corporate rehabilitation procedure on the 24th. Angang Construction faced financial difficulties as it was unable to receive the construction costs of 14 billion won for the logistics center in Seonggok-dong, Ansan, which construction started in August 2022. This was because the implementing company could not find tenants.
The combined effects of high interest rates, rising construction costs, and economic recession have led mid-sized construction companies with weak financial capabilities to be unable to overcome the liquidity crisis. Given the characteristics of the construction industry, capital is often raised through financing rather than equity, exposing them to interest rate risks from the outset. Subsequently, during economic downturns, problems arise in recovering funds through sales and contracts, leading to overall financial difficulties. In particular, Angang Construction worsened the situation by taking on debt obligations due to its contract for responsible completion at the site and forfeiting the land deposit.
Kim Min-hyung, an adjunct professor at Chung-Ang University Graduate School of Construction, said, 'In the current situation, it can be seen that all companies, except for large construction companies with financial strength within their group or those that have secured contracts in key areas of Seoul, are exposed to the same risks,' adding, 'Although the government has proposed measures to stimulate the construction industry, the sense of crisis has not subsided due to political instability.'
Large construction companies are also not easing their tension. They are engaging in asset sales and subsidiaries’ sales to improve their financial structures and secure liquidity. Lotte Construction is contemplating the sale of its headquarters site located in Jamwon-dong, Seocho-gu, Seoul. Including warehouse assets in the metropolitan area and the sale of equity in rental housing REITs, they will be able to secure liquidity totaling about 1 trillion won. Following Lotte Construction, the downturn of LOTTE Chemical has compounded the situation, prompting the group to secure liquidity. They offered the 'Lotte World Tower' in Sincheon-dong, Songpa-gu, Seoul as collateral for a credit enhancement agreement worth 2.5 trillion won with four major banks for LOTTE Chemical’s corporate bonds.
Some large construction companies are also moving to sell key subsidiaries. SK Ecoplant is pushing to sell 75% of its interest in its waste treatment subsidiary Renewus and 100% of the equity in Renewone, which is responsible for waste landfill and incineration. The company’s total borrowings ballooned from 1 trillion won at the end of 2019 to 6.4745 trillion won by the end of the third quarter last year. The company's performance has also turned to a deficit, with an operating loss of 11 billion won and a net loss of 48.2 billion won as of the end of the third quarter last year, making it necessary to respond. GS Engineering and Construction is moving to sell GS Enima, a water treatment subsidiary. GS Enima, acquired in 2011, accounted for 15% of GS Engineering and Construction's operating profit in 2023.
Park Cheol-han, a researcher at the Korea Construction Industry Institute, noted, 'Up until last year, the construction payments for projects that began in 2020 and 2021 would have been received, and some degree of funds would have been secured,' adding, 'With a sharp decline in construction starts since 2023 and predictions that the downturn in the construction industry could continue for a long time, it appears that construction companies are trying to secure liquidity.'