Domestic mid-sized construction companies are facing a series of bankruptcies due to economic downturns. As of July this year, an average of more than 1.5 construction companies have closed each day.
According to the Ministry of Land, Infrastructure and Transport, a total of 309 closures of comprehensive construction companies were reported from January to July this year. This marks an increase of 4.74% compared to the same period last year (295 cases). This means that, on average, about 1.5 construction companies have closed each day this year.
Looking at the number of closure reports from comprehensive construction companies on an annual basis, the figure increased from 170 in 2022 to 360 in 2023, and then decreased to 295 last year. Subsequently, it has exceeded 300 again this year, indicating a return to an upward trend.
In particular, the phenomenon of 'surplus bankruptcy' is increasing despite making profits. Hanil Construction, a mid-sized construction firm known for its Verace brand, recently reported a default of around 8 billion won. It has been in arrears for about 40 days and has also failed to submit an audit report this year, making it effectively known to be in a state of bankruptcy.
Hongseong Construction, which ranks 197th in construction capability evaluation, also generated an operating profit of 5.8 billion won in the first half of this year, but faced liquidity issues as the collection of construction receivables was delayed. The Daegu District Court issued a comprehensive prohibition order to Hongseong Construction on the 1st and initiated rehabilitation proceedings.
Earlier in January this year, Shin Dong-A Construction, which owns the housing brand 'Familie' and ranks 58th in construction capability evaluation, applied for corporate rehabilitation proceedings in court. Following this, Daejeo Construction (103rd), SAMBU Construction (71st), Angang Construction (138th), and Daewoo Shipbuilding & Marine Engineering Construction (83rd) also successively applied for corporate rehabilitation proceedings.
Currently, there are a total of 10 domestic construction companies that have gone bankrupt. From January to July this year, the construction companies that filed for bankruptcy regionally include ▲ 3 in Seoul ▲ 2 in Gyeonggi ▲ 2 in Busan ▲ 1 in Ulsan ▲ 1 in North Chungcheong ▲ 1 in South Chungcheong.
The decision of mid-sized construction companies to apply for closure or corporate rehabilitation proceedings and to go bankrupt is analyzed as the result of a combination of rising construction costs, continued high interest rates, persistent real estate market recession, and an increase in unsold inventory.
The Korea Construction Industry Institute has analyzed that policy support is needed to activate mergers and acquisitions (M&A) for small and medium-sized construction companies suffering from management deterioration. The institute believes that M&A can enable rapid improvement of financial structures and recovery of competitiveness.
A representative of the Korea Construction Industry Institute noted, "The construction industry is facing a structural crisis as more companies apply for rehabilitation procedures due to the economic downturn, and M&A is emerging as a practical solution for rapid normalization of management and recovery of competitiveness," adding that "M&A involving companies in rehabilitation procedures is conducted under court supervision, so related information regarding the acquiring entity, transaction amounts, and procedures is transparently disclosed, whereas transactions involving the transfer, merger, or acquisition of small construction companies have limited information disclosure."
He further added, "It is necessary to explore the establishment of a dedicated platform for M&A support for small construction companies at the level of the Ministry of Land, Infrastructure and Transport by benchmarking the M&A activation support project of the Ministry of SMEs and Startups."